Prime Minister Narendra Modi's wish to take flying to the masses was realised with the new Civil Aviation Policy unveiled by the government on Wednesday.
The policy was okayed by the Union Cabinet led by PM Modi, the details of which will be revealed in the next 10 days or so.
"Today history has been made. A Civil Aviation Policy has been made for the first time since independence," said Union Minister of Telecom and Information Technology Ravi Shankar Prasad in an address following the cabinet meeting.
"The legacy of 5 (years)/20 (aircrafts) have been removed by the Cabinet today," Prasad said. The 5/20 rule had been a long pending demand pursued with the government by Indian airlines that wanted to spread wings to foreign destinations as well.
"Me and my colleagues in the Cabinet today finalised the first ever integrated Civil Aviation Policy in the country since independence," Civil Aviation Minister Ashok Gajapathy Raju said. The government had circulated a draft of New Civil Aviation Policy (NCAP) about seven months ago and had received about 450 suggestions since then, Raju said.
The bindings of the 5/20 rule were put in place during mid-nineties, at a time when only a lucky few were allowed in the private airline space. Even fewer, or luckier, were allowed international operations and to compete with national carrier Air India. Despite having locational and operational advantages, many of the newcomer carriers had faced huge cost barriers.
The five year operational binding for an Indian airline, before starting international operations, may have gone, but the other binding of having a minimum of 20 or more aircrafts to start international operation, still remains.
“The 5/20 rule is replaced with a scheme that now provides a more level playing field for airlines. All airlines with 20 aircrafts can commence international operations, but, they will have to deploy at least 20 per cent of their fleet for domestic operations,” Civil Aviation Secretary Rajiv Nayan Choubey said.
While most new airlines like Air Asia, Vistara, still face the 20 aircraft limitation, the policy seemed to make room for airlines to encash on opportunities like ground handing and providing security services.
Driven by consideration for the policy that airline operators’ cost must be reduced, domestic airlines have been allowed self handling of luggage at airports and will also have the option of outsourcing the task to third party ground handlers at specific airports.
In a bid to promote regional connectivity, the NCAP 2016, announces a Regional Connectivity Scheme (RCS) with fiscal support from union and state governments.
"We hit a goldmine with 350 unused airstrips and airports. These will be revived as 'no frills' airport to support the scheme," Choubey said. Each no-frill airport would be developed at a cost of Rs 50-100 crore, as announced in this year's Union Budget.
The biggest draw of the scheme is the promise of assuring regional air connectivity within Rs 2,500 for per hour of flying in a bid to bring flying closer to masses in smaller but important trade towns, pilgrimages etc.
"A number of foreign manufacturers have already approached us about using their aircrafts for the regional connectivity model," said Choubey, indicating that the RCS was a clear winner even before it was finalised in the policy.
While the operation cost may not be covered entirely for an operator from the low ticket rate, the NCAP 2016 policy proposes to meet the gap by with the support of the union and state governments.
"We are encouraged to see that the government has established a policy that will bring overall growth of the aviation sector. We wish to see the draconian 5/20 rule to be relaxed in totality," Phee Teik Yeoh, CEO of Air Vistara told The Week.
“Though a 0/0 or 0/10 would have been more than welcome, the amendments that have been made to the policy are encouraging. The NCAP gives us clear direction to ramp up our operations in India and grow our business in the domestic segment before we scale our operations to fly international,” said Amar Abrol, the new CEO of another newcomer airline, Air Asia.
“We will now focus on aggressively investing in India and increasing the fleet size from six at present and achieving the target of 20 aircraft,” Abrol added.
With these efforts, the government is targeting sale of air tickets in India to touch 30 crore from 3 crore now, making India the third largest civil aviation market globally by year 2022.