Indian Cabinet Approves Aviation Policy

June 15, 2016

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India has made it easier for the country's airlines to fly abroad as part of the first set of comprehensive rules governing civil aviation designed to boost air travel and economic growth.

Prime Minister Narendra Modi's government presented the national civil aviation policy, which has been years in the making, as a bid to make flying more affordable for India's expanding middle class, to bolster competition and to get more of the country connected.

Under the policy, domestic carriers will no longer have to operate for five years before they can start flying abroad, although they must still have 20 aircraft in their fleets.

"We want airlines to start flying quicker so there is more competition," civil aviation secretary R.N. Choubey told reporters after the cabinet cleared the policy.

Easing the so-called 5/20 rule marks a further step towards freeing up India's aviation market, the world's fastest growing, and is a boost for Tata Group's two recent ventures - Vistara, in partnership with Singapore Airlines, and AirAsia India, a venture with Malaysia AirAsia.

The rule, unique to India, had sought to encourage the growth of the nascent domestic aviation industry, but many officials say it now inhibits Indian carriers from increasing their share of international travel.

Incumbents such as Etihad-backed Jet Airways, InterGlobe Aviation's Indigo and SpiceJet already flying overseas had lobbied hard to keep the rule in place.

Vistara, with 10 aircraft, is at least a year away from having the 20 needed to fly abroad, meaning that there is no immediate threat to the established players. AirAsia India has only six Airbus A320s and its fleet growth plans remain unclear.

FARES CAP

The government also announced it would cap base fares on regional routes at INR2,500 rupees (USD$37) per hour of travel to get more people flying, with the government providing funding to make it viable.

Funding for new "no-frills" airports would also be made available and excise duty on fuel would be cut, Choubey said.

India's air travel market has boomed in the last decade as it opened up to competition, ticket prices were cut and the number of people wealthy enough to travel increased.

Still, very few Indians have enough money to fly - with 0.04 annual trips per capita against 0.3 in China.

(Reuters)