The genesis of the position that the civil aviation sector enjoys in India today can be traced back to 1990-91 when private airlines made a re-entry in Indian skies.

The aviation sector was deregulated by the Government that, however, only took hesitant steps at this stage. To begin with private airlines were only given permission to operate charter and non-scheduled services under what was called the ‘Air Taxi Scheme.’

East West emerged the first national level private player to operate in the country after over five decades (the Tatas were the first to operate in October 1932 when they started mail services on the Karachi-Ahmedabad, Bombay, Bellary, Madras route).

However, it was only in 1994 that the Government repealed the Air Corporations Act that paved the way for the entry of private carriers in operating scheduled services in Indian skies. Airlines such as Jet Airways, Air Sahara, ModiLuft, Damania Airways and East West were given permission to start scheduled operations (incidentally some of these were already operating as air taxis).

Sputtering start

India’s first brush with the opening up of domestic skies was not a happy one as most of these airlines fell by the wayside. East West ceased operations in August 1996. ModiLuft, a tie-up between S.K. Modi and the German airline Lufthansa, had Lufthansa withdrawing from the venture in 1996 and the airline also eventually folding up. Damania Airways too met with a similar fate and ceased operations in 1997 but not before the Chennai-based NEPC group acquired its management control and renamed the airline Skyline NEPC that also eventually folded up.

The only airlines that remained were Jet Airways, Air Sahara and, of course, Indian Airlines.

While this brought to an end the monopoly enjoyed by the state-owned carriers Air India and Indian Airlines, the first attempt at allowing private players in the aviation sector exposed the many chinks. The private players had problems coming up with sustainable business models and even flyers did not get a taste of the better quality and services that the private sector is usually associated with.

Of course, the overall scenario in the aviation sector was also very different then. The number of flyers was much lower than what it is today (in 1994-95 the airlines flew 7.27 million passengers compared to 61.72 million in 2011-12) and the number of cities on the air map too were much fewer. International travel among Indians had not picked up.

Second wave

The second wave of changes in the aviation sector at the turn of the century was vastly different. India had opened up to economic liberalisation, there were more Indians travelling abroad, there was comparatively better connectivity and the number of flights too had gone up.

These macro changes also meant more changes in the aviation sector. Unfortunately not all of them had positive results.

Now, the competition in domestic skies was between Jet Airways, Indian Airlines and Air Sahara. And then in 2003, Indians were exposed to another concept in flying when G.R. Gopinath ushered in low-cost flying with Air Deccan. The fares offered were much lower than what the other full service airlines were charging. Flyers also got used to the concept of frills like meals not being provided on a flight.

While domestic flyers were getting used to these changes, in December 2004, the Government allowed private airlines that had five years of experience flying in Indian skies and a fleet strength of 20 aircraft to operate flights to all international destinations except those in the Gulf region. The moratorium on private airlines flying to the Gulf region was to continue for the next three years, the Cabinet decided.

The move effectively allowed two existing private sector airlines — Jet Airways and Air Sahara — to start international flights from India, thereby ending the monopoly of Air India and Indian Airlines on these routes. The following year saw Jet and Air Sahara launch flights to SAARC countries (Sri Lanka to begin with).

With the sector opening up in a big way, 2005 saw the entry of Kingfisher Airlines promoted by liquor baron and MP, Vijay Mallya, and Indian Airlines being re-branded as Indian.

The Government continued to move on the path of more liberalisation in the sector. Not only did private airports come up in Hyderabad and Bangalore, but in 2006 the restructuring and modernisation of Delhi and Mumbai airports through public-private partnership was also given the nod.

Things, however, were not hunky dory with private airlines. Sahara was the first casualty when in January 2006 it was acquired by Jet Airways for an all-cash deal of $500 million (about Rs 2,300 crore then). The airline was eventually rechristened JetLite, which currently operates in Indian skies.

Next was Kingfisher which had started with a bang and was soon as known for its flashy owner as it was for its on-board service.

Meanwhile, there were others waiting in the wings, and with well-thought-out strategies and business plans. IndiGo, promoted by Rahul Bhatia and Rakesh Gangwal, took to the skies in 2006 as a low-cost carrier and in a short span of seven years became the market leader in terms of passengers flown. In addition, the options for domestic flyers grew with GoAir, promoted by the Wadia Group, joining the ranks of SpiceJet, Indian and Jet Airways.

Big Challenges

But soon the high operating costs in India coupled with the cost of aviation turbine fuel being much higher than what it is in neighbouring countries, high airport costs and the depreciating rupee took a toll and most airlines started reporting huge losses.

The Government, however, decided to bail out the state-owned Air India, which by then had been merged with Indian (the new entity rechristened Air India), providing it a package of close to Rs 40,000 crore.

While the move helped Air India, the private airlines were still finding it difficult to raise funds as Indian banks were reluctant to provide more money to a sector that was awash in red. Help for private sector airlines came in September 2012 with the Government allowing foreign airlines to again invest in Indian carriers and acquire a stake of up to 49 per cent.

The move saw the international low-cost carrier AirAsia announce that it was tying up with Tata Sons and Telestra to set up a new low-cost airline here.

Jet Airways also broke months of media speculation to announce in April that it was selling a 24 per cent stake to Abu Dhabi-headquartered Etihad Airways for over Rs 2,000 crore.

How things will move from here and what these new policy decisions mean for the sector remains to be seen. What also remains to be seen is whether the low cost model, so appropriately used by airlines like IndiGo, is the way the sector will expand.

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