This post was originally published on 27 December 2015 and the content may be outdated.
Air travel might be expensive for millions of NRIs from next year as the Government of India plans a major shift in its aviation policy by putting restrictions on landing rights and seats to foreign airlines.
According to media reports, India plans to change the way it allocates capacity to foreign airlines from a state-negotiated method to an auction process to protect domestic carriers from overseas competition.
What’s going to change
Currently, the number of seats an overseas airline can fly to India is governed by bilateral agreements between the two countries.
As per new proposal, foreign carriers that have already exhausted their seat capacity will need to buy additional capacity through an auction.
An auction, instead of handing over the seats without charge through the inter-government agreement, could add to the costs and may lead to higher fares.
Move to help domestic carriers
According to sources, the move is aimed at boosting domestic carriers and increasing revenue.
The move will increase fares for international carriers and the price gap to a domestic airline can then be exploited by Indian carriers such as Jet Airways (India) Ltd and IndiGo.
Limited by smaller fleets and losses through much of the past decade, India’s domestic carriers have mostly not been able to fully utilize their capacity in a bilateral agreement while bigger overseas carriers almost always exhaust them and then demand additional capacity.
The Ministry is also hoping that the money collected from the auction of the seats can be utilised to promote regional air connectivity within the country, which is one of the key objectives of the draft civil aviation policy.
Auction only on routes within 5000 km radius
The seat auction policy will be enforced only on routes that are within a radius of 5,000 kilometres (3,000 miles) from India, which would include the Middle East as well as Far East countries.
These extra rights will be sold for three years and the move is targeted mainly at Gulf carriers that dominate the international travel market to and from India.
While Indian airlines accounted for 36% of the international traffic in 2014, Gulf carriers such as Emirates, Qatar Airways, Air Arabia and Etihad had a 30% share.
IATA seeks review of the move
The move surprised aviation specialists and International Air Transport Association (IATA) as this model doesn’t exist anywhere in the world.
IATA has written to the government that such a policy could lead to distortions between carriers and lead to higher fares.
It has said the auctioning of traffic rights may not be compatible with the International Civil Aviation Organisation (ICAO) policies, which urge countries to adhere to principles of fair and equal opportunity and non-discrimination.
However, the government believes that the seat auction would be in compliance with the ICAO norms.
Even though the policy has been drafted, it needs to be approved by the cabinet.