Awaiting turbulence

The proposed new civil aviation policy, which is in the last stages of consultation before it goes to Cabinet, seems to be ridden with controversies. After the heated debates and war of words over the 5/20 rule (whether the policy of domestic airlines having 20 aircraft and having flown in Indian skies for five years to be eligible to fly abroad should be scrapped, changed or retained), comes the news that the Ministry of Civil Aviation is considering auctioning of seats to international airlines.

Though there is no clarity on what will be auctioned and how the ministry is adding a whole new dimension to the concept of bilaterals as it exists today.

Though being touted as something separate from bilaterals, the logistics of how the auctioning will be done is not clear. What is also not clear is how this will benefit Indian civil aviation in the long run.

At present, the Indian Government enters into bilateral air services agreements which allow designated airlines from the two countries to fly to destinations in each other’s countries. This is a practice that is followed worldwide along with some countries also following the open skies policy.

The ministry is now proposing that the bilaterals should be left untouched and instead a new stream introduced — that of auctioning seats to international carriers on routes where the Indian carriers have not been able to fill the seats allocated to them. This means Indian carriers are not able to fill the seats allocated to them as per a bilateral agreement with Country A, whereas the carriers from Country A have managed to fill all the seats allocated to them. In such a situation, the Indian Government will auction seats to international carriers for routes between India and Country A.

All international airlines will be free to take part in the auction and the highest bidder will be allowed to fly between India and Country A. This airline should have an air services agreement with Country A.

If all this sounds confusing, how this is going to be implemented is even more so. In theory, following the auction route makes some amount of sense as this will get the Indian Government money from the auctions. But it is difficult to comprehend how this will work.

Let’s take the example of India and Country A. Say Country A has airlines flying on all the seats that they are allotted as per the bilateral. But Country A feels that it can increase the number of seats that it flies to India as there is a demand for more seats.

So Country A approaches the Ministry of Civil Aviation through the Ministry of External Affairs and seeks additional seats. Fine, says the Ministry of Civil Aviation; we will give you the additional seats but through an auction which will be open to airlines from around the globe.

What happens then is that an airline from Country B takes part in the auction, and also gets the rights to fly between India and Country A. Where does this leave Country A? It does not get the extra seats that it wanted while another country does.

Even if it does take part in the auction and wins it has to pay for seats which would otherwise have been given to it free as per the bilateral between India and Country A. How many countries and their airlines will be open to this new arrangement needs to be seen.

 In an attempt to plug some loopholes, the additional seats will be given for a maximum period of three years. This too raises a number of issues. For starters, will an airline be willing to invest millions of dollars in ordering new aircraft or taking them on lease for a three-year window? What does it do with the aircraft after the three years are over?

Besides, will implementing such a proposal really lead to a level playing field for all airlines? There are only a few global airlines which have large enough fleet allowing them to juggle their aircraft around and make use of such an offer.

Further, there are only a few international airlines which have deep enough pockets to bid in an auction and win seats. What happens to the others?

How will this affect Indian carriers? To begin with they may not be able to fill all the seats that bilaterals allow them. With the auctioning of seats they will also have to face competition from other international airlines on routes on which they are already flying. The argument is that competition will lead to better quality service and also lowering of ticket rates.

The Government will probably be better advised to follow the route which the Vajpayee Government did in the late 1990s of having a limited open skies policy.

Till December 2004, India adopted a limited open sky policy to cater to peak season demand by permitting designated airlines to operate unlimited services to their respective points of call for three to six months. During the open skies from November 2004 to March 2005, foreign airlines requested for 2,387 extra flights translating into 5.85 lakh additional seats which were given to them.

Or the Indian Government could look at building the kind of trigger mechanism which exists in the Air Services Bilateral Agreement with the UAE.

The bilateral has a mechanism which allows airlines from both sides to increase flights by around 5 per cent, especially during the festive season when demand for travel between India and the UAE is at its highest. After this they go back to the original number of seats.

 Auctioning seats in the proposed manner is clearly not an option particularly when the logistics and the logic leave many unanswered questions. What also remains to be seen is how the international aviation industry will respond to such a move by the Indian government.