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Contents
Synopsis:
The government’s approach to the aviation sector in India has grown messy, confusing, and possibly counter-productive.
Background:
- Recently the director-general of the International Air Transport Association (IATA) pointed out that government regulation was slowing the aviation sector’s recovery from the second wave.
- Both capacity and pricing restrictions are creating a problem for the airline sector. Further the recently introduced the Airports Economic Regulatory Authority of India (Amendment) Bill, 2021 also lacks clarity on multiple issues.
Dismal state of airline sector:
- In May 2021, according to the data from the IATA, domestic air travel in India was 71 % lower than in the equivalent month of 2019, before the pandemic hit.
- Fleets have been downsized and older aircraft retired, making the restoration of capacity to pre-pandemic levels a non-trivial task.
- Similarly, global domestic passenger traffic was 23.9 % less in May 2021 than it had been in May 2019.
- The IATA has argued that it will take three years to return to the pre-pandemic load in the airline sector from the moment of reopening.
Problems created by Government:
- Government regulations on capacity utilisation have recently been slightly relaxed.
- Before the second wave hit, domestic flights were permitted to operate at 80% capacity. Subsequently, that was revised downwards to 50% and has now been raised slightly to 65%.
- Although some airlines, including market leader IndiGo, were in favour of going all the way back to 100% capacity. Last week, IndiGo itself reported a larger than expected net loss in the first quarter of 2021-22 of Rs 3,174 crore.
- The government has also imposed price caps on the airlines. These are based on the duration of flights and range at present from Rs 2,600 for 40-minute flights to Rs 8,700 for flights of over three hours.
- However these haven’t been relaxed considering rising fuel costs in recent times. This has forced many airlines to shutter routes. For example, Vistara had announced with great fanfare a flight to Dehradun, which it had quietly stopped.
- The Airports Economic Regulatory Authority of India (Amendment) Bill, 2021 aims to energise flights to smaller airports. However there is no clarity over the nature of support to be given to achieve this objective.
- For instance, if the government decides to subsidise airlines rather than ending price controls. Then this will in effect be an unjustified transfer to well-off Indians.
Way Forward:
- The government should take “data-driven” decisions because otherwise restrictions are speedily put in place and removed at a relatively slow pace.
- It should swiftly respond to the broader data available about variants, transmission, and positivity rates in various areas.
