Permission to fly

Civil aviation is already among India’s most tightly regulated sectors. Therefore it is no surprise that airlines should resist the Directorate General of Civil Aviation’s move to add a list of passenger-related Civil Aviation Requirements (CAR) to its already hefty rulebook. Indeed, some of the rules are at odds with the draft National Civil Aviation Policy, which promises pricing freedom to airlines on their ancillary revenues. For instance, despite its implications for airline costs, one rule proposes that passengers be allowed to have ‘variable’ check-in baggage of 15 to 20 kg instead of the present limit of 15 kg. Another recommends manifold hikes in compensation to passengers (200 to 400 per cent of the fare) if airlines overbook flights, even if they reschedule. But then, if some of these rules seem restrictive, others are so essential to safeguard consumer interests that it is a surprise that the DGCA even has to specify them. Requirements that airlines cap their cancellation charges at the actual ticket price, take the consumer’s consent before retaining such refunds or repay statutory dues on cancelled tickets should hardly need a regulatory diktat. But the prevailing practices of airlines are clearly so anti-consumer that intervention has become necessary.

Consider the recent trend of private airlines setting similar ‘minimum’ cancellation charges on their tickets after the industry leader flagged off this move. Or coordinated pricing action when demand surges due to a natural calamity. Such issues arise because the domestic airline market operates more as an oligopoly than a competitive marketplace. Though half-a-dozen domestic airlines are in the fray, just the top three private players (IndiGo, Jet Airways and SpiceJet) command 70 per cent of the market share. Consumer choices are even more limited when flying to smaller towns. The majority of India’s 4,000 cities and towns remain poorly connected despite attempts to enforce this through route dispersal guidelines. In these pockets, while consumers fork out high fares, airlines are loath to increase services for want of adequate traffic. The draft National Civil Aviation Policy does make an attempt to address some of these constraints. It offers a detailed plan to revive 400-odd non-operational airports for use by regional operators. It also moots subsidised airfares, backed by a fund, to incentivise operators to ply regional routes. As air travel is a function of the economic prosperity and tourism potential of a region, State governments have been urged to promote regional connectivity.

However, for competition to truly thrive, policy actions will be needed to dismantle the formidable entry barriers to the sector. Today, apart from a welter of regulatory approvals, new airline operators are required to meet minimum fleet as well as minimum equity norms in this already capital-intensive business. The arbitrary 5/20 rule protects incumbents and keeps out new players from plying lucrative international operations. Diluting such requirements may prove far more effective at increasing competition and protecting consumer interests than frequent regulatory interventions in pricing.

[source:TheHinduBL]