Over the past few months India has embarked on a remarkably swift liberalisation effort, allowing new competition at home and striking a series of impressively liberal air accords abroad. Could this mark the long-promised opening up of Indian air transport?
After so many false starts, India's government looks ready to set its air transport sector free. New low-cost competitors are lining up to enter the domestic market, while new international freedoms are being added at pace, including open skies talks with the USA. It is not the first time that India has promised such liberalisation, only to see the nation founder on a mix of politics and vested interest. But this time things look more promising – thanks to the tempo being set by China, whose liberalisation has put its near-neighbour to shame.
By rights, India should have a thriving air transport business. The country has a population of around 1 billion, with a growing economy and a rapidly expanding middle class. But while the demand has been growing, the airline sector has not. A mix of stiflingly high taxes, persistent bureaucracy and ugly forms of protectionism has kept Indian aviation in its infancy.
Last year, Indian airlines carried a trivial 15 million passengers on domestic flights, less than its trains carry each day. Compare that with a market for 500 million domestic US passengers. On international services, too, flag carrier Air India uses just a small percentage of its traffic rights with a fleet of only 35 aircraft. Successive Indian governments have prevented foreign carriers from filling the gap, despite a glaring undersupply of seats in the market.
But India's government is now publicly supporting the establishment of new domestic airlines and many are working to launch services this year, most on a no-frills model that has much opportunity in a giant country with poor surface transport.
At the same time, Air Sahara and Jet Airways, the two existing domestic competitors to state-owned Indian Airlines, are being given approval to operate more international services, while new liberal bilaterals are being forged to allow more foreign airline service. A highly liberal agreement has been signed with China and an open-skies accord is being negotiated with the USA, something that would have been unthinkable just a year ago.
Much more remains to be done if India is to grasp this latest chance to establish itself as an aviation powerhouse. On a practical note, it will have to focus on improving infrastructure to cope with the surge in traffic that long-overdue liberalisation is likely to release. State-owned Air India and Indian Airlines, neither of which has ordered new aircraft in more than a decade, must also be allowed to grow their fleets.
There are reasons to believe this liberalisation programme is going to have more permanence than the last failed attempt in the 1990s. Then, the government gradually back-pedalled on the promised opening up of the market, leaving all but two hopeful new domestic start-ups to fail. This time the progress will be much more difficult to reverse, especially any attempt to go back on the new air service pacts with its trading partners. And as cheaper domestic air fares become the norm, it will be politically impossible to return to the ticket prices that have made air travel unaffordable for so many for so long.
One of the main reasons for India's change of heart is the fact that its government sees a huge opportunity for economic growth in the country that can only be hampered while air transport is held back in order to protect incumbents.
China appears to have made a clear policy decision that it will not allow the desire to protect its flag carriers to get in the way of economic ambitions. China is now setting the pace on liberalisation in Asia, and India has clearly learnt from its example. China's leadership has been very shrewd in managing the planned economy. The government has opened up the air services market carefully, allowing competition to thrive in key hubs where the economic benefits to the state as a whole are greatest.
With a little political vision and a good deal of investment, there is no reason why India too cannot keep pace with China in giving its growing economy the air transport system that it so badly needs.
Source: Airline Business
