The airlines are already celebrating and passengers could soon join in. Even as domestic carriers engage in hectic strategising on international expansion plans after the civil aviation ministry’s nod to allow them to utilise the allocated bilateral traffic rights till they reach maximum permissible limit under Air Service Agreements (ASAs), passengers can also hope to benefit from the decision in the form of cheaper travel and more flights.
Aviation experts say the additional capacity in the air space will make prices more competitive. ?With competition, there would definitely be an impact on prices. They may come down marginally, depending on routes and sector and the capacity addition,? says Ankur Bhatia, managing director, Amadeus India, and executive director of Bird Group, a technology provider to the travel industry.
The maximum price impact is likely to be on Middle Eastern, West Asia and European routes, as the maximum capacity addition is expected in these sectors. Bhatia feels low-cost carriers would focus on short hauls only because of the size of their aircraft, and, therefore, the changes in the prices would be mainly on these routes. The Middle East alone accounts for almost 40% of the traffic going out of India.
The civil aviation ministry recently lifted the freeze on utilisation of bilateral traffic rights, allowing domestic carriers to fly to the maximum limit permissible under ASAs. Under bilateral ASAs, the government fixes the number of flights\seats to be operated by designated carriers of both countries each week. However, in practice, the ministry holds back permits and allows only a fraction of the allocated rights.
The announcement signals that the carriers’, including Jet Airways, Kingfisher, SpiceJet and IndiGo, international expansion plans will soon get cleared. Even though the aviation ministry’s statement said that ?Air India?s operational plan will receive due consideration in allocation of traffic rights and entitlement?, it certainly means that carriers other than Air India will need not wait for the government-owned airline to make the first move.
The aviation ministry has not granted any international rights for almost a year now, mainly to avoid any trouble for the national carrier, which has been losing market share to its private counterparts. Many applications from private carriers to add more flights on overseas routes were put on hold, despite Air India’s inability to expand operations on those routes.
Flying high
Understandably, the private carriers are upbeat about the ministry’s statement. Jet Airways chairman Naresh Goyal, during his trip to Pakistan as part of a Indian business delegation led by commerce minister Anand Sharma, said his airline was ready to fly to several foreign routes once it gets approval from the government. Jet has applied for permission to fly to Bangladesh and other countries in West Asia and Europe.
Low-cost carrier IndiGo, which last year started its international operations to Bangkok, Dubai, Muscat, Singapore and Kathmandu, is also looking at flying to Doha and Dammam. The Gurgaon-based airline has already ordered 180 Airbus aircraft worth $16 billion and will try to add more flights to its network with the delivery of these aircraft.
?The expansion depends on as and when the government clears our applications, but it would be on short-haul routes only,? said an IndiGo official, who did not want to be named. An email sent to the airline remained unanswered.
Similarly, budget carrier SpiceJet, which also started its flights to Colombo and Kathmandu last year, is looking at Male, Dhaka and some other destinations.
Poor seat utilisation
Domestic carriers have not been able to make it big in the international markets due to various reasons. They have only 35% share of the international traffic in and out of India as against 65% of the foreign carriers.
The country as on April 1, 2010, has 104 bilateral Air Service Agreements with foreign countries. Under those ASAs, Indian carriers were allowed to utilise 7,11,356 seats per week on reciprocal basis. However, they are utilising only 1,70,914 seats per week, compared to 3,26,705 seats by their foreign counterparts. By December 2011, the aviation ministry had also entered into similar agreements with countries such as Indonesia and Brazil, and has initiated ASAs with Jamaica, Dominican Republic, Mozam-bique, Uganda, Trinidad and Tobago.
As per the latest government data, in sectors like Africa, Indian private carriers utilise only 2% of the total allocated seats, whereas the national carrier does not even fly there. The foreign carriers, against this, utilise 16% of the total permissible limits. In Asia, which is one of the fastest growing markets for airlines across the world, India carriers operate only on 21% of total 1,87,434 allocated seats as against 42% by foreign airlines. On European routes that include countries like France, Germany, Switzerland, UK, etc, the government allows 1,59,042 seats per week. The Indian carriers utilise only 16% of these seats compared to 31% by foreign airlines.
The seat utilisation in Gulf and Middle Eastern countries, where the Indian carriers have been focusing the most, is comparatively better for domestic airlines. The ASAs on these routes allow airlines to fly 2,07,606 seats. The national carrier AI operates 27% of these seats, whereas private airlines use 13%. But even here, the foreign carriers are far ahead of Indian airlines, utilising 1,58,406 seats, amounting to 76% of the total permitted traffic.
Former Soviet union countries such as Russia, Kazakhstan, Uzbekistan , Armenia are still untouched by Indian airlines. The government allows 44,120 seats per week on these routes and only foreign airlines utilise 20% of it. SpiceJet has reportedly applied for two of these countries, but the airline refused to comment on such reports. Faster clearance from the aviation ministry to these airlines will bridge some of these gaps.
?There is certainly a huge gap between foreign carriers and Indian carriers when it comes to utilising bilateral traffic rights. Though a major part of it would still be unfulfilled as domestic airlines do not have major expansion plans at the moment,? says Vishwas Udgirkar, senior director and partner, Deloitte.
The airlines, even though upbeat about the new development, preferred to stay away from comments. Mails sent to Jet Airways and Kingfisher were not answered despite repeated reminders.
More viable routes
The airlines are also keen to fly more foreign destinations as it is financially more viable. Fuel abroad costs 30-40% lower. The aviation ministry is pushing the commerce ministry to notify the group of minister’s decision to allow domestic airlines to import jet fuel directly soon, which will provide Indian carriers much relief. If this happens, a marginal decline in ticket prices may not be too difficult to anticipate. Fuel costs amount to over 40% of operational cost of airlines.
In India, due to high taxes in various states, the ATF costs more than in countries such as Japan, Singapore, etc. The sales tax in different states in India varies from 4%-30%. Though the aviation ministry has written to all chief ministers to bring down sales tax on ATF, none of the states have responded.
The new measures by the government, however, may take a while before reflecting on airlines’ balance sheets, as most of them incur losses.
