India is considering a regulatory price cap on fares for short-haul flights, according to reports. This is just one component of the new civil aviation policy which was supposed to be submitted late last week to authorities, though prior submission deadlines have not always held. Approval of the recommendation is not guaranteed.
There are many components of the proposed policy which would shift the Indian aviation landscape significantly. Among them, the “5/20” rule which requires airlines to operate for 5 years and own 20 aircraft before they can fly international routes would be replaced with a 0/20 rule. This would allow any Indian airline to operate internationally so long as it has 20 aircraft or 20% of its capacity on domestic services. That opens up significant new competition to stalwarts Jet Airways and Air India from upstarts like Vistara or AirAsia India.
The market could also see an all-in price cap of 2,500 rupees (just under $40 today) per hour of travel within the country. This could have a significant impact on the market dynamics. Lower fares typically stimulate demand for more flights, something which will be useful in the region as more operators show up with more new planes. Of course, there’s also the risk that the artificial price caps will hurt the business side of the market, hampering the ability of those airlines to find profits in the market given the forced lower fares. Even if the 2,500 rupee fare is simply being subsidized by the government rather than forcing the airlines to take the hit there are risks. Such subsidy funds present massive potential for problems for graft, corruption and other challenges, as well as building up the traffic and route networks necessary. Also, the federal government will not fully fund the subsidy; state government are expected to chip in which could cause further challenges.
Other topics in the proposal include the country’s position on Open Sky agreements and increasing airport capacity and even potentially establishing dedicated airports for LCCs or “reactivating” older airport in an effort to facilitate point-to-point local traffic. From The Hindu:
“We have limited funds for the viability gap-funding and all states would want regional connectivity. So if a state is slow in selling its destination and sending the proposal through airlines for revival then states that are quicker on their feet are likely to get the benefit,” said the civil aviation secretary. The state governments have been asked to get written commitments to start operations on underserved airstrips from the airlines.
Untouched in the proposal is the topic of connectivity for domestic flights, something which has dogged the local carriers for a couple years now. All of the changes will impact travelers though just how much and in what ways remains to be seen. As does the actual adoption of these proposals.
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