Open Sky Policy In India A Critical Analysis

Introduction
Though the date 18th of February doesnt seem important but its very important from the civil aviation point of view because exact 100 years ago civil commercial flight took off from Allabad to Naini carrying first airmail. The aviation industry in India gathered momentum after three years with the opening of regular airmail b/w Karachi to Madras by the first Indian Airlines Tata Sons.Ltd founded by Mr.J.R.D.Tata. For many years since inception of Indian aviation industry was plagued by inappropriate regulatory & operational problems resulting in either excessive or no competition. At the time of independence, eight airlines were operational in India. With an attempt to further strengthen the base of the aviation sector in India the govt. of India together with Tata Airlines formed Air India. The soaring prices of aviation fuel, mounting salary bills & disproportionately large fleet took a heavy toll on the financial health of companies. The government setted up the Air Traffic Enquiry Committee in 1950 to look into the problems of the airline. By the Air Corporation Act of 1953 the govt. of

India nationalized nine airline companies. This Act established the Indian Airlines (IAC) to cater domestic air travel passengers & Air India International (AI) for international air travel passengers. This Act ensured that IAC & AI had a monopoly over the Indian Skies. A third government- owned airline Vayudoot which provided feeder services with small aircrafts & letter merged with IAC in 1994. This govt. owned airlines dominated Indian Aviation Industry till mid 1990s. Capt.Rajiv Gandhi pilot himself contemplated the open skies policy that was put into practice in 1993 by adopting the OPEN SKY POLICY the govt. of India allowed air taxi operators to operate flights from any airport both on a charter & non-charter services & decided their own flight schedules cargo & passengers fare. The operators were however required to use aircraft with a minimum seats & conformed to the prescribed rules. In 1994 the Indian govt. as a part of open sky policy ended the monopoly with the Air Corporation Act 1994.

Overview
After opening the sky by 1995 several private airlines had ventured into the aviation business & accounted more than 10% of the domestic traffic. In 1996 private air taxi operators carried 49.08 lakh passengers which amounted to a 41.14% share of domestic traffic. In recent past Indian civil aviation sector has grown

manifold. Though some airlines have closed down & some of them have merged with other airlines, several new players have entered the industry & many more about to enter in the field thereby providing more choices to the passengers. Today air travel is no more the monopoly of the rich. With the launch of LCC in India air traveling has become simpler & cheaper. Private players like Kingfisher Red, Jetlite, Indigo etc are coming up with attractive rates for their passengers. Now airline has become a common mans traveling means. The airline adding more & more cities to their list of destinations covered throughout the country. It can be summarized that India has made traveling easier for the masses. The Air India Express, a low cost airline which is a subsidiary of Air India started operating mainly from Kerela, Mumbai, Mangalore operates services mainly to Gulf countries & from Chennai to South East Asia.

Aviation Growth After Open Sky Policy

The Indian civil aviation sector is witnessing a passenger growth of 20% annually for domestic sector & 15% on international sector. There has been dramatic increase in no. of aircraft from 212 in 2002 to 345 in 2007 expected to increase at the same rate in near future already 412 aircraft are under order from various airlines.

As per earlier civil aviation minister Mr. Patel presently only 0.8% of Indian population travel by air which is expected to grow at more faster rate in future due to higher GDP growth. For example, for 10% of Indian population to travel by air we require 5000 aircraft. According to market research firm Phoeus domestic air traffic would grow to 86.1 million passengers by 2010 up from 32.2 million passengers in 2007. The international sector has also been opened to carriers having min. of 20 aircrafts & 5 years of experience in domestic sector which made eligible to fly international for Kingfisher, Jet Air, and Spice Jet & making eligible shortly to Indigo & Go airlines. There is view among the business community that infrastructure constraints are hampering the faster growth in aviation sector. A second revolution appears to be necessary & urgent requirement. A liberal fresh approach in attracting capital in aviation infrastructure sector is reqd.

Factors Affecting The Aviation Sector Of

After open sky policy is launched in last few years aviation industry saw a downward trajectory largely due to the following reasons: Defective business model of LCC which opened the sky for the average traveler, the revenue model adopted by Indian LCC 15 market share driven rather than bottom line based. The aviation industry suffered a loss of more

than 4000 crore in fiscal year 2007-2008. In order to grab the market share LCC started selling tickets at a price below cost incurred. But realizing the threat & after mergers the ticket price stabilized & airline balance sheet is showing operating profit but still loss of earlier years is effecting their balance sheet& now traffic is increasing & airline are adding more aircraft but they should avoid overcapacity in the market. The other factors affecting the health of the aviation industry is landing charges, ground overheads & govt. taxation. These are in addition to cost of borrowing the necessary capital for purchasing/ leasing aircrafts. Research of the domestic aircraft shows that more than 50% of the revenue colleted on airline operations in India goes to the govt. this is all in addition to the cost of capital, maintenance & insurance, manpower, marketing & distribution. To do this the economics of airline operations should be rationally examined & corrective measure taken to help the industry. One of the critical stumbling blocks to the growth of travel & tourism in India is the high cost of domestic flights; it is cheaper to fly to another country from India than to fly within the country. This affects both the domestic & international travelers. Based on the international comparisons, there costs are atleast 50% higher making the industry unviable especially on short haul operations.

Recommendations For Improvement In Civil Aviation Sector

Tax as ATF should be reduced because the cost of ATF in India for domestic airlines is almost double the price in the international market. There is no justification for continuing to charge Inland Air Travel tax which was originally imposed as a fuel surcharge cess post the Gulf war in 1990. Eliminate Cat III restrictions & provide essential air services subsidies where reqd. but airline should be allowed to deploy services according to profitability of route. The low cost airport has to be improved like European countries to enable cost effective for LCC in India. Reduction in airport landing , route & navigational charges & freeze on PSF by Greenfield airports, PPP airport & other airports at present level for atleast 24 months to improve the balance sheet of airlines.

Conclusion
Since the inception of the air travel a century ago& nationalization of the then existing private airlines to 1A & A1 the PSU have been plagued with a no. of problems, inefficiency, strikes mismanagement like other PSU companies. However with the adoption of the policy of liberalization & open sky policy in India, Indian govt. by allowing private companies to operate air taxies brought a revolution in the Indian aviation because of competition among the private operators the air travel has become more affordable to the common people. While the national airline in India is incurring huge losses & seeking tax payers money to run it, it is high time that the govt. should withdraw themselves from aviation business like some other countries & allow the private companies to operate the air travel with necessary regulations. As the Indian aviation industry has faced a no. of challenges & availed many opportunities during the past century future seems to be bright with passenger traffic estimated to grow at CAGR of over 15% in coming future years. The ministry of civil aviation would handle around 280 million passengers by 2020 which requires 110 billion US dollars for development of infrastructure & purchase of new aircrafts.

Exactly after 100 years of civil aviation launch in India the aviation industry has been growing in rapidly except for 2-3 years of negative growth due to recession & other world problems. Aviation industry has a bright future in India.

References
Daijiworld.com a century of civil aviation challenges & opportunities by Dr.E.DSouza Open skies opening of Indian aviation sector by Mr.Ganpathy Wikipedia.com Business line Low fare airlines (2004 July 8) economist.com