Can India accommodate more domestic airlines?

The old debate on whether India has an appetite for more domestic airlines has again got a lease of life after GM Siddeshwara, the Minister of State for Civil Aviation, told the Lok Sabha that during the last three-four years, six companies applied for scheduled and regional scheduled operator permits.

Of these, four – AirAsia (India), Quickjet Cargo Airlines, Ligare Aviation and LEPL Projects (Air Costa) — have been given air operator permits after they completed the process for starting new airlines.

AirAsia (India) and Air Costa have already started operations.

Technically speaking, getting an air operator’s permit is the second and final step in starting an airline in India. A new start-up airline first has to approach the Ministry of Civil Aviation and seek a no-objection certificate (NOC). At this stage, the Ministry seeks clearances from various Government agencies, including the Home Ministry, which checks the background of individuals that the airline wants to induct on its board. With the Ministry’s NoC, the airline approaches the Directorate General of Civil Aviation for clearances to fly. These clearances are given after the regulator examines all the manuals of the airline and conducts route proving flights, after which the airline can take to the skies. However, just completing all the formalities is a long drawn-up process.

For instance, while AirAsia India, a joint venture between India’s Tata Group and Malaysia-based low-cost carrier AirAsia, was able to complete the entire process in about seven months, there have been cases of other airlines taking years to complete the formalities.

Even otherwise, just taking off in the Indian skies is not reason enough to celebrate. Kapil Kaul, CEO of aviation consultancy Centre for Asia Pacific Aviation (CAPA), cautions that giving permission to new airlines will mean a lot of capacity being added by the next fiscal.

“Tata-SIA (Tata’s joint venture with Singapore Airlines) and AirAsia India will have increased the size of their operations in FY2015 which means the competitive dynamics will change,” Kapil points out. CAPA feels that without addressing key issues that impact the viability of running airlines, getting additional capacity will further deteriorate industry financials and hurt the entire system.

CAPA may have a point as at the moment the industry is burdened with high taxes.

Add to that the frequent low fare sales which too, are not helping its cause.

The aviation industry in India reported a total operating loss of over ₹5,840 crore, including over ₹3,159 crore of Air India’s losses, in 2012-13, Siddeshwara, recently told the Rajya Sabha.

The other side of the argument is equally forceful. For instance, Amber Dubey, Partner and India Head, Aerospace and Defence, KPMG, says decision to grant licences indicates the new Government’s intention to focus on larger issues. “Industry dynamics are best left to market forces. Some of the new airlines may prove to be trailblazers, others may simply fold up or get acquired by larger players,” Amber points out.

Then traffic is going to increase in the years to come which will be able to accommodate more airlines.

A study conducted by the state-owned Airports Authority of India estimates that over the next five years, traffic at all Indian airports will shoot up by 5.3 per cent in terms of passengers carried and 4.3 per cent in terms of aircraft movements.

Further, the gap between the potential and current air travel penetration is huge in India.

The country’s air trips per capita a year ratio is 0.04, which is far behind developed countries such as the US and Australia (more than two air trips per capita) and emerging economies like China and Brazil (0.3 air trips).

The low ratio in India suggests a huge potential for air traffic growth.

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