7 things you need to know about the new draft Civil Aviation Policy

Readers are aware that we've been tracking the updates on the new Civil Aviation Policy 2016 that is expected to be announced in the next few days. We first discussed some of the things that could be in the new policy, and then last Saturday, we brought to you the announcements by the Minister for Civil Aviation.

Earlier today, an urgent meeting was called by the Minister, involving CEOs of the various India based airlines, in advance of the cabinet meeting that was also held today. Here are the top items of note in the expected draft of the new civil aviation policy.

• The government is planning an ecosystem that will lead to an increase in air travel by making it affordable. As a consequence, there will be a cap of Rs 2,500 for one-hour flights between smaller towns and cities.
• Government will refund 80 per cent of the losses incurred by airlines due to the above fare cap.
• Government proposes increasing connectivity to the country’s smaller towns and cities by offering sops and incentives to airlines to fly on these routes.
• The 5/20 rule for domestic airlines to fly internationally, will be modified to a 0/20 rule. That is to say, 5 years' domestic operational history is not required, but at least 20 aircraft (or 20% of the fleet) will need to operate on domestic sectors, if an airline wants to fly international. More details are expected in a government briefing soon.
• There are proposals to revive old airports by repositioning them as no frill airports - possibly targeted at low-fare airlines to serve these, based on the lower operating costs.
• A single-window system for all aviation related transactions and complaints, and 
• Real time safety tracking for aircraft.

Naturally, the above are in addition to stuff I've mentioned in the earlier posts, like the passenger-friendly measures, baggage allowances, etc. Also, the removal of the 5/20 rule will be joyously celebrated by the likes of Air Asia and Air Vistara.

However, I see many of these new measures adversely impacting airlines, even if the government proposes to refund 80% of the losses on fare-capped routes. Airlines, especially the low-fare ones, earn nearly 6-8% of their revenue from ancillary services (many of them bracketed under a category called special service requests) such as cancellation fees, excess baggage charges, no-show charges, etc. Much of this revenue will be lost, if the corresponding proposals go through.

Secondly, there is now an increased liability on airlines for delays, reschedulements, cancellations, etc. While in theory some of these can be insured, the process is difficult. At least in the initial period immediately after the new policy is announced, I expect airlines to incur additional costs on these accounts.

It is also possible that some of the proposals have the exact opposite effect of what was intended. For instance, a high level of potential liabilities or payouts to passengers due to delays or cancellations, may force airlines to revise or alter their schedules, or even cut routes or frequencies in some cases. Or, airlines may wish to keep some aircraft on standby, which again is a poor use of resources.

I see the government's objective of stimulating customer demand (they are projecting sales of 300 million domestic air tickets by year 2022, and 500 million by 2027). However, their own rules shouldn't end up killing the airlines themselves.

Let's keep a weather eye on how this pans out. Not too long now!