The first half of 2010 has seen a sharp upswing in the number of passengers taking to the skies. Traffic levels are back to where they were before the economic crisis began. Policy gaps notwithstanding, there’s probably no time like the present for aspiring entrepreneurs to enter the regional aviation space.

The story of India’s airline industry over the past decade has many bright spots, and a few blurs too. Take, for instance, the National Civil Aviation Policy on the anvil since 2001. In 2007, a 12-member Group of Ministers was formed to take a view on the proposed policy. Three years on, Praful Patel, Minister of State for Civil Aviation, informed the Lok Sabha on April 29 that most initiatives outlined in the document had already been implemented. The subtext was that it was no longer necessary for the new policy to see the light of day.

The government has certainly taken steps to liberalise the airline industry and improve the country’s aviation infrastructure. And these efforts continue. But isn’t a comprehensive policy essential to let stakeholders know the government’s philosophy before they make their plans and sink their money in risky ventures? Wouldn’t a situation where a set of disparate guidelines released every few months becomes de facto policy be seen as an ad hoc and piecemeal approach? It is not likely to inspire business confidence.

Off-Track

The regional airline policy introduced by the Ministry in August 2007 fits the same pattern. In almost three years, only Jagson Airlines and MDLR Airlines ventured to launch regional services. Both have since ceased regional operations, although for different reasons. Others—Star Aviation, ZAV Airways, Luan Airways and King Air—too applied for regional permits. Their plans are yet to fructify. As a result, not a single regional airline is in operation today. Even Paramount Airways, often mistaken for a regional carrier, has just one aircraft left and its licence was suspended last month.

The regional airline policy had the splendid intention of helping small enterprises connect tier-2 and tier-3 cities to the nearest metro. Regional airlines were required to operate scheduled services within one of the five regions—North, South, East, West and Northeast. The government realised that entrepreneurs might be wary about operating off the tried-and-tested inter-city routes to touch remote airports. So it included enabling measures. For instance, a regional airline could start with just one aircraft, but would have to operate with three within a year, and five by the end of two years. The policy stipulated that for an aircraft of take-off weight up to 40,000 kg, the paid-up capital needed to be just Rs 12 crore for three aircraft. Two additional planes would require a capital of Rs 20 crore. Higher capital norms were naturally prescribed for larger and heavier aircraft.

Several concessions were introduced for small aircraft. Airlines operating aircraft like the Alenia ATR 42 and ATR 72, Bombardier CRJ-200 and CRJ-700, with a certified capacity of less than 80 seats, are excused landing and parking charges at airports, and billed route navigation facility charges (RNFC) at reduced rates. Similarly, aircraft of take-off weight up to 40,000 kg are supplied aviation turbine fuel (ATF) at sales tax of just 4 per cent throughout the country. With fuel constituting perhaps 40 per cent of an airline’s operating cost, and otherwise slapped with sales tax as high as 30 per cent, can there be anything more mouth-watering?

However, since these concessions were part of the piecemeal approach, they were aircraft specific, not airline related. Hence, there’s the strange spectacle of the country’s largest airlines—Jet Airways, Kingfisher Airlines and Air India—deploying small aircraft. While Jet Airways has 14 ATR 72-500s, its low-cost arm JetLite has seven Bombardier CRJ-200ERs. Kingfisher has 25 ATR 72-500s and two ATR 42-500s. Air India Regional (regional only by name) has seven ATR 42-320s, four Bombardier CRJ-700ERs and one Beechcraft 1900D. All these airlines claim concessions though they could do without them. So, while regional airlines were operating, they often found themselves in direct competition with major airlines on the same routes. Can small regional start-ups, survive in such an environment?