Global consultancy firm KPMG has for long been advocating a clear and transparent policy on civil aviation in the country and had also sent its recommendations to the ministry while the National Civil Aviation Policy (NCAP) was being drafted. In an e-mail interview with BusinessLine , Amber Dubey, Partner and India Head of Aerospace and Defence at KPMG, shared his views on the new policy, and whether it will work in the long run.
The controversial 5/20 rule has been dropped but one part of it has been retained. Do you think the policy should have completely done away with the norm itself?
The change in 5/20 is cosmetic. Though it is termed 0/20 it is effectively 3/20 since any new airline will take at least three-four years to build a fleet of 20 aircraft. The illogical, discriminatory and anti-competition 5/20 rule of 2004 should have never been there in the first place. It also shows the pitfalls of a bad law — it takes 12 years to even modify it partially. No other country has it. The share of Indian carriers in the global traffic to and from India is less than 30 per cent. Blocking new Indian carriers from flying abroad allows global carriers to continue their domination. One hopes that as the Indian aviation industry matures, the 20 aircraft rule will also get abolished. Airlines should be left free to fly when and where they fly.
The NCAP aims at a massive expansion of India’s flyer base by a slew of reforms. These will aid affordability and connectivity. Domestic traffic is expected to nearly quadruple from 81 million to over 300 million by 2022. The tax benefits to MRO, cargo, ground handling, ATF etc will help airlines too. The landmark decision on 30 per cent “hybrid till” approach for airport tariffs will bring in more investors in the airport sector. It’s a bit unfair to say that NCAP will help “only a few” airlines.
There is a major focus on growing the regional network, especially among tier II and III cities, in the policy. While it is a laudable move, how “implementable” is the policy at the ground level?
Most leading States are under pressure to provide air connectivity to tier II and III cities. States like Madhya Pradesh, West Bengal and Andhra Pradesh have started subsidy schemes but the funds are limited. NCAP will bring in more funds and provide 80 per cent of the viability gap funding (VGF) with the States bringing in the balance 20 per cent and local infrastructure support. Regional connectivity is one of the key pillars of NCAP. This has high probability of success since the Centre, States, and tier II and III cities and the airlines all want India’s air grid to expand, especially after the drastic fall in fuel prices.
The policy says that the Center will compensate the airlines if they incur losses on one-hour flights. For this, it will collect a cess of 2 per cent from the airlines. What might have been the rationale behind fixing the fare at ₹2,500 ?
The ₹2,500 fare for a one-hour flight appears to have been arrived at based on wide-ranging consultations. Revenue managers at leading airlines use complex software, research, analysis and intuition to fix fares and still struggle at times to make profits. Only time will tell if this was indeed the right price or needs to be driven lower. NCAP calls it an indicative price and not a “cast in stone” one.
How robust is the proposal to auction excess seats arising out of bilaterals?
This is an extremely controversial move. The trigger appears to be to create a transparent method of allocation of rights. The final policy is silent and has left it to a committee headed by the Cabinet Secretary to take a call. An early decision by the Cabinet Secretary is called for. With many leading global carriers having exhausted their bilateral quota, we can’t afford to have an unending stalemate and an artificial constraint on the number of international flights to and fro India. That hurts Indian tourism and also pushes up the cost of airfares to and from India, especially during peak seasons.
The policy has ignored the issue of privatisation of Air India and setting up of an independent civil aviation authority (CAA). Do you think it is a failure on the part of the government not to have addressed these issues in the new policy or will these changes need to be first vetted in Parliament before the Centre decides to act on them?
We were expecting a clear direction on the formation of the independent CAA and privatisation of Air India. It is a policy issue since both CAA and Air India have an impact on how the government decides on major issues. Once we set up an independent CAA, headed by a political appointee with knowledge of aviation regulations, the government can transfer the policy-making work of MoCA to CAA (like the FAA in USA) and abolish the Aviation Ministry itself. Most leading countries in the world do not have a ministry of civil aviation. One hopes that the government takes a clear and firm decision on CAA, Air India, Airports Authority of India listing, Air Navigation Services hive-off etc outside the NCAP since these are 100 per cent government owned entities.