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Dogfight over open skies

BS Bureau | January 24, 2004

India's private airlines are ecstatic at the possibility that the Government may allow them to fly to foreign destinations but Indian Airlines and Air-India say they are being dealt a deathblow.

The dogfight has begun even before the planes have taken off from the ground. On one side are the private airlines like Jet Airways and Air Sahara, which are cock-a-hoop over the government move.

On the other are the Government-owned carriers like Air-India and Indian Airlines, which reckon they've lost the battle even before a shot has been fired.

What's the Government move that has triggered these violent reactions?

It has prepared a Cabinet note, which, if cleared, will allow private airlines to fly on lucrative routes in south east Asia and the Middle East.

This move comes close on the heels of an announcement a few months ago, which allowed the private airlines to operate flights to Sri Lanka and other Saarc countries.

"The move will bring in more competition and offer customers a varied choice," says a jubilant U K Bose, CEO, Air Sahara, which is waiting for the detailed regulations to be published before it takes off for the Emerald Isle.

Inevitably, the move has infuriated executives at the state-owned airlines, which earn the lion's share of their profits from the Gulf and Far East routes.

The airlines haven't been allowed to expand their fleets for over a decade and this, they say, has handicapped their fight against the aggressive private airlines.

"By allowing private domestic airlines to fly and liberally giving bilateral to foreign carriers without expanding our fleet they are virtually killing the two airlines," says one executive.

That grouse is backed by statistics. IA and AI, for instance, earn over Rs 5,400 crore (Rs 54 billion) from international operations. If 10 per cent of the passengers move to the private airlines that would mean a hit of Rs 540 crore (Rs 5.4 billion).

The two airlines complain that the Government has already weakened them to an extraordinary extent by handing out bilaterals liberally.

In the past three years, for instance, the government has given out 47,000 seats per week under bilaterals to foreign carriers. The lion's share of 32,400 has been grabbed by Gulf and south east Asian airlines.

In addition, the Government has now declared an 'open skies' policy for Asean carriers and Air Lanka which could result in the addition of 26,000 seats every week.

"While foreign airlines have used virtually 80 per cent to 90 per cent of these bilateral seats our utilisation of bilaterals has been as low as 40 per cent to 50 per cent because we don't have the aircraft to fly," says an airline insider.

Even the fleet modernisation programme -- if and when it goes through -- will not dramatically increase the number of seats available to IA and AI.

"For IA most of the new fleet will be used to replace leased and old aircraft. The actual increase in capacity of seats will be only 20 per cent to 25 per cent and that also after so many years," says an aviation insider.

IA officials also complain that while the government is allowing other domestic carriers to fly new routes, its request for more flights to Dubai, Singapore and Jeddah over the last three years have met with stony silence.

But many aviation experts say that the criticism against allowing domestic airlines to fly foreign routes is unjustified.

Says Kapil Kaul: "AI and IA will require more than 100 additional aircraft if they want to utilise all their unused bilaterals. Practically that is not possible considering the investment required."

However, even the private airlines could face difficulties about flying abroad. Running an international airline is a big bucks game and experts reckon that some airlines will need fresh equity capital to sustain the business.

Experts estimate that another $70 million to $100 million has to be invested by domestic airlines -- if they want a reasonable presence in international skies with at least six or seven planes.

The Government is preparing a comprehensive policy, which will outline conditions that must be met before private airlines will be allowed to fly abroad.

For instance, domestic airline companies need only a paid up capital of Rs 30 crore (Rs 300 million) to start operations but this may be upped for airlines that want to fly international routes.

Two, the Government could lay down that only experienced airlines can fly internationally. Also, there might be a stipulation about a minimum fleet size -- that might put put some new, smaller airlines out of the running.

Will the domestic private airlines be able to transform themselves into international operators? And is the Government about to deal the two national carriers a deathblow?

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