May 21, 2010 Published in-------
The airline industry is no longer a non-priority industry. Its importance in transportation is being felt more and more as India achieves increasing economic progress. The need for good and stable air connectivity for business travel (including tourism, which is the world’s biggest business) and cargo (by value) is being felt the world over.
However, unlike the other modes of transport, the airline industry has been totally deregulated—leading to some tendencies that are a little unsettling.
Unlike the railways, which is still fully owned by the government and monopolistic in nature, the airline industry was opened up in 1990. Here, neither the entry of new players nor fleet expansion by existing players is a major issue. The aviation ministry, perhaps, still maintains a committee to regulate purchase of aircraft by airlines but it has a liberal approach in this process.
The issue that comes up now is whether there is a need to have a regulator for airlines, so that the ups and downs of the industry can be regulated. The free pricing of tickets has been a major boon for passengers who plan ahead. The low-cost carrier model of the industry has also led to great advantages for passengers. Hence a boom in travel for the unfortunately termed ‘cattle class’ passengers. But the flip side of all these developments is also something to be considered.
The first issue is whether we should allow the expansion of our domestic fleets as well as international flights without a full physical backup of ground facilities like airport landing and parking slots or even terminal buildings. The aviation growth in India has been haphazard, to say the least. The mismatch between ground and traffic facilities and the growth of aircraft in the Indian skies has created distorted economies and wasteful expenditure—including unnecessary fuel burn and emissions, both at the ground level and in the sky.
It is also unfortunate that there has been no scientific analysis of the growth of air traffic at various levels of GDP and free float ticket prices, even as fleets have expanded in the country. Such studies can reveal that under the existing band of fuel and other charges, what would be the likely passenger offload by airlines. In fact, a scenario can be built to show how aviation can boom alongside lowering of tariffs. They can also give us some idea about the demand from smaller towns for regional air services and their affordability. They can also help in managing the sales tax rates that are impacting the airline industry. There are, of course, instances in which the benefits of lowered sales taxes have translated into increased sales to consumers, as well as increased tax revenue collections.
The Naresh Chandra report, A Road Map for Civil Aviation Sector, of November 2003 suggested the creation of an Essential Air Services Fund (EASF). Such a fund would help meet the objective of preserving essential but uneconomic services. This brings up the discussion of what can be termed as an ‘essential air service’. It may be pointed out that in the days of the erstwhile Indian Airlines, there used to be greater air connectivity in India than there is today. Unfortunately, profitability of routes has now taken precedence over the ‘essential’ requirement and this needs correction. Indian Airlines cross-subsidised routes in old days. This was replaced by Route Dispersal Guidelines after liberalisation, but the impact of these guidelines has been limited.
EASF, if well endowed, can be a better replacement for the existing Route Dispersal Guidelines. It could work on similar principles as the Universal Service Obligation Fund of the telecom ministry, which has the objective of extending telecom services to rural areas. The Naresh Chandra report has also suggested that a fund of this sort should be outside the Consolidated Fund of India, with the government replacing taxes and fees such as IATT, FTT and PST with a single ad valorem sector-specific fee. Such subsidy schemes in different forms work in Australia, the US and Canada—all of them large countries with remote unviable locations.
In conclusion, there is a need for greater monitoring of an increasingly competitive airline business domestically, which is seeing an indiscriminate introduction of aircraft while fleet utilisation remains poor and predatory pricing continues.
Simultaneously, there is the need for extending air services to smaller towns to provide them with essential air connectivity until such routes becomes viable. A complete study on this subject is called for, which might lead to the creation of another regulator for the airline sector.
The author is chairman of the International Foundation of Aviation, Aerospace and Development
sanat_kaul@hotmail.com
The airline industry is no longer a non-priority industry. Its importance in transportation is being felt more and more as India achieves increasing economic progress. The need for good and stable air connectivity for business travel (including tourism, which is the world’s biggest business) and cargo (by value) is being felt the world over.
However, unlike the other modes of transport, the airline industry has been totally deregulated—leading to some tendencies that are a little unsettling.
Unlike the railways, which is still fully owned by the government and monopolistic in nature, the airline industry was opened up in 1990. Here, neither the entry of new players nor fleet expansion by existing players is a major issue. The aviation ministry, perhaps, still maintains a committee to regulate purchase of aircraft by airlines but it has a liberal approach in this process.
The issue that comes up now is whether there is a need to have a regulator for airlines, so that the ups and downs of the industry can be regulated. The free pricing of tickets has been a major boon for passengers who plan ahead. The low-cost carrier model of the industry has also led to great advantages for passengers. Hence a boom in travel for the unfortunately termed ‘cattle class’ passengers. But the flip side of all these developments is also something to be considered.
The first issue is whether we should allow the expansion of our domestic fleets as well as international flights without a full physical backup of ground facilities like airport landing and parking slots or even terminal buildings. The aviation growth in India has been haphazard, to say the least. The mismatch between ground and traffic facilities and the growth of aircraft in the Indian skies has created distorted economies and wasteful expenditure—including unnecessary fuel burn and emissions, both at the ground level and in the sky.
It is also unfortunate that there has been no scientific analysis of the growth of air traffic at various levels of GDP and free float ticket prices, even as fleets have expanded in the country. Such studies can reveal that under the existing band of fuel and other charges, what would be the likely passenger offload by airlines. In fact, a scenario can be built to show how aviation can boom alongside lowering of tariffs. They can also give us some idea about the demand from smaller towns for regional air services and their affordability. They can also help in managing the sales tax rates that are impacting the airline industry. There are, of course, instances in which the benefits of lowered sales taxes have translated into increased sales to consumers, as well as increased tax revenue collections.
The Naresh Chandra report, A Road Map for Civil Aviation Sector, of November 2003 suggested the creation of an Essential Air Services Fund (EASF). Such a fund would help meet the objective of preserving essential but uneconomic services. This brings up the discussion of what can be termed as an ‘essential air service’. It may be pointed out that in the days of the erstwhile Indian Airlines, there used to be greater air connectivity in India than there is today. Unfortunately, profitability of routes has now taken precedence over the ‘essential’ requirement and this needs correction. Indian Airlines cross-subsidised routes in old days. This was replaced by Route Dispersal Guidelines after liberalisation, but the impact of these guidelines has been limited.
EASF, if well endowed, can be a better replacement for the existing Route Dispersal Guidelines. It could work on similar principles as the Universal Service Obligation Fund of the telecom ministry, which has the objective of extending telecom services to rural areas. The Naresh Chandra report has also suggested that a fund of this sort should be outside the Consolidated Fund of India, with the government replacing taxes and fees such as IATT, FTT and PST with a single ad valorem sector-specific fee. Such subsidy schemes in different forms work in Australia, the US and Canada—all of them large countries with remote unviable locations.
In conclusion, there is a need for greater monitoring of an increasingly competitive airline business domestically, which is seeing an indiscriminate introduction of aircraft while fleet utilisation remains poor and predatory pricing continues.
Simultaneously, there is the need for extending air services to smaller towns to provide them with essential air connectivity until such routes becomes viable. A complete study on this subject is called for, which might lead to the creation of another regulator for the airline sector.
The author is chairman of the International Foundation of Aviation, Aerospace and Development
sanat_kaul@hotmail.com
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