Open Sky Policy In India A Critical Analysis

Introduction
Open skies is an international policy concept which calls for the liberalization of rules and regulations on international aviation industry most specially commercial aviation - opening a free market for the airline industry. Its primary objectives are: to liberalize the rules for international aviation markets and minimizes government intervention the provisions apply to passenger, all-cargo and combination air transportation and encompass both scheduled and charter services; or to adjust the regime under which military and other statebased flights may be permitted. For open skies to effect, a bilateral (and sometimes multilateral) Air Transport Agreement has to be concluded between two or more nations. For India date 18th of February doesnt seem important but its very important from the civil aviation point of view because exact 100 years ago civil commercial flight took off from Allahabad to Naini carrying first airmail. The aviation industry in India gathered momentum after three years with the opening of regular airmail between Karachi to Madras by the first Indian Airlines Tata Sons.Ltd founded by Mr.J.R.D.Tata. For many years since inception of Indian aviation industry was plagued by inappropriate regulatory & operational problems resulting in either excessive or no competition. At the time of independence, eight airlines were operational in India. With an attempt to further strengthen the base of the aviation sector in India the govt. of India together with Tata Airlines formed Air India. The soaring prices of aviation fuel, mounting salary bills & disproportionately large fleet took a heavy toll on the financial health of companies.

The government setted up the Air Traffic Enquiry Committee in 1950 to look into the problems of the airline. By the Air Corporation Act of 1953 the govt. of India nationalized nine airline companies. This Act established the Indian Airlines (IAC) to cater domestic air travel passengers & Air India International (AI) for international air travel passengers. This Act ensured that Indian airlines & Air India had a monopoly over the Indian Skies. A third government- owned airline Vayudoot which provided feeder services with small aircrafts & later merged with Indian Airlines in 1994. This govt. owned airlines dominated Indian Aviation Industry till mid 1990s. Capt.Rajiv Gandhi pilot himself contemplated the open skies policy that was put into practice in 1993 by adopting the OPEN SKY POLICY. The Govt. of India allowed air taxi operators to operate flights from any airport both on a charter & non-charter services & decided their own flight schedules cargo & passengers fare. The operators were however required to use aircraft with a minimum seats & conformed to the prescribed rules. In 1994 the Indian Govt. as a part of open sky policy ended the monopoly with the Air Corporation Act 1994.

Meaning of Open Policy

At the outset the concept of 'Open Skies' is much misunderstood in its meaning and implications. Strictly speaking Open Skies means unrestricted access by any carrier into the sovereign territory of a country without any written agreement specifying capacity, ports of call or schedule of services. In other words an Open Skies policy would allow the foreign airline of any country or ownership to land at any port on any number of occasions and with unlimited seat capacity. There would be no restriction on the type of aircraft used, no demand for certification, no regularity of service and no need to specify at which airports they would land. Defined in this manner, it is not surprising that

Open Skies policies are adopted only by a handful of countries, most commonly those that have no national carriers of their own and that have only one or two airports. No sovereign country of any eminence practices Open Skies least of all the European Union, UK, USA, Japan, Australia or countries in South East Asia.

Overview
The last twenty-five years have seen significant changes in airline regulation. The United States began pursuing Open Skies agreements in 1979 and, by 1982, it had signed twenty-three bilateral air service agreements worldwide, mainly with smaller nations. That was followed in the 1990s by agreements with some individual European states. A huge step was taken in 1992 when the Netherlands signed the first open skies agreement with the United States, in spite of objections posited by European Union authorities. The agreement gave both countries unrestricted landing rights on each others' soil. Normally landing rights are granted for a fixed number of flights per week to a fixed destination. Each adjustment takes a lot of negotiating, often between governments rather than between the companies involved. The United States was so pleased with the independent position that the Dutch took versus the EU that it granted anti-trust immunity to the alliance between Northwest Airlines and KLM Royal Dutch Airlines which started in 1989 (when Northwest and KLM agreed to code sharing on a large scale) and which actually is the first large alliance still functioning. Other alliances would struggle for years to overcome transnational barriers or still do so. After opening the sky by 1995 in India several private airlines had ventured into the aviation business & accounted more than 10% of the domestic traffic. In 1996 private air taxi operators carried 49.08 lakh passengers which amounted to a 41.14% share of domestic traffic. In recent past Indian civil aviation sector has grown

manifold. Though some airlines have closed down & some of them have merged with other airlines, several new players have entered the industry & many more about to enter in the field thereby providing more choices to the passengers. Today air travel is no more the monopoly of the rich. With the launch of LCC in India air traveling has become simpler & cheaper. Private players like Kingfisher Red, Jetlite, Indigo etc are coming up with attractive rates for their passengers. Now airline has become a common mans traveling means. The airline adding more & more cities to their list of destinations covered throughout the country. It can be summarized that India has made traveling easier for the masses. The Air India Express, a low cost airline which is a subsidiary of Air India started operating mainly from Kerela, Mumbai, Mangalore operates services mainly to Gulf countries & from Chennai to South East Asia.

Civil Aviation Policy in India

In the context of a multiplicity of airlines, airport operators (including private sector), and the possibility of oligopolistic practices, there is a need for an autonomous regulatory authority which could work as a watchdog, as well as a facilitator for the sector, prescribe and enforce minimum standards for all agencies, settle disputes with regard to abuse of monopoly and ensure level playing field for all agencies. The CAA was commissioned to maintain a competitive civil aviation environment which ensures safety and security in accordance with international standards, promotes efficient, cost-effective and orderly growth of air transport and contributes to social and economic development of the country. Objectives of Civil Aviation Ministry a) To ensure aviation safety, security

b) c) d) e) f) g) h)

Effective regulation of air transport in the country in the liberalized environment Safe, efficient, reliable and widespread quality air transport services are provided at reasonable prices Flexibility to adapt to changing needs and circumstances To provide all players a level-playing field Encourage Private participation Encourage Trade, tourism and overall economic activity and growth Security of civil aviation operations is ensured through appropriate systems, policies, and practices

Private Sector Participation and the Civil Aviation Policy Private sector participation will be a major thrust area in the civil aviation sector for promoting investment, improving quality and efficiency and increasing competition. Competitive regulatory framework with minimal controls encourages entry and operation of private airlines/ airports. Encouragement of private sector investment in the construction, upgradation and operation of new and existing airports including cargo related infrastructure. Rationalization of various charges and price of ATF/AVGas will be undertaken to render operation of smaller aircraft viable so as to encourage major investment in feeder and regional air services by the private sector. Training Institutes for pilots, flight engineers, maintenance personnel, air-traffic controller, and security will be encouraged in private sector. Private sector investment in non-aeronautical activities like shopping complex, golf course, Entertainment Park, aero-sports etc. near airports will be encouraged to increase revenue, improve viability of airports and to promote tourism. CAA will ensure that this is not at the cost of primary aeronautical functions, and is consistent with the security requirements.

 Government will gradually reduce its equity in PSUs in the sector. Government will encourage employee participation through issue of shares and ESOP Security Strict national civil aviation security programme to safeguard civil aviation operations against acts of unlawful interference have to be established through regulations, practices and procedures, which take account of the safety, regularity and efficiency of flights. A good safety record is a judgment of past performance but does not guarantee the future, although it is a useful indicator. While pilot error is said to be on the decline, factors of fatigue, weather, congestion and automated systems have complicated safety. Airline operators, pilots, mechanics, flight attendants, government regulators and makers all have a stake in making aviation as safe as possible. The International Air Transport Association (IATA), the International Civil Aviation Organization (ICAO), manufacturers and others bodies cooperate in this aim. As world air traffic is expected to double or more by 2020, the accident rate must be reduced in order to avoid major accidents occurring more frequently around the globe. Maintenance Private sector participation is encouraged in existing maintenance infrastructure of Indian Airlines and Air India like Jet Engine Overhaul Complex (JEOC) and new maintenance facilities including engine overhaul and repairs with up to 100 % foreign equity. Indian Airlines has major maintenance facilities for all the types of aircraft in IAL fleet i.e. Airbus-300, Airbus-320, Boeing-737 and Dornier-228. The Engineering Department is responsible for maintenance of aircraft and is answerable to Director General of

Civil Aviation (DGCA) in maintaining the Quality Control. The Maintenance of the aircraft is carried out at four major bases located at Delhi, Mumbai, Calcutta and Hyderabad. Sahara also has its own NDT Shops, wheels and brake assembly shop, battery charging shop, avionics shop and seat repair shop. It is the only private domestic airline to have its own hangar for aircraft maintenance. It is also the only private domestic airline to have self maintenance capability. Air Deccan, Bangalore-based airline, has decided to set up its engineering and maintenance facility for Airbus-320 operations, basing two of a fleet of 11 Airbus jets here. They have also sought land from the Airports Authority of India to build an exclusive hangar to carry out 300 and 500-hour checks, apart from C-Checks and line maintenance. The Indian civil aviation sector is witnessing a passenger growth of 20% annually for domestic sector & 15% on international sector. There has been dramatic increase in no. of aircraft from 212 in 2002 to 345 in 2007 expected to increase at the same rate in near future already 412 aircraft are under order from various airlines. As per earlier civil aviation minister Mr. Patel presently only 0.8% of Indian population travel by air which is expected to grow at more faster rate in future due to higher GDP growth. For example, for 10% of Indian population to travel by air we require 5000 aircraft. According to market research firm Phoeus domestic air traffic would grow to 86.1 million passengers by 2010 up from 32.2 million passengers in 2007. The international sector has also been opened to carriers having min. of 20 aircrafts & 5 years of experience in domestic sector which made eligible to fly international for Kingfisher, Jet Air, and Spice Jet & making eligible shortly to Indigo & Go airlines. There is view among the business community that infrastructure constraints are hampering the faster growth in aviation sector. A second revolution appears to be necessary & urgent requirement. A

liberal fresh approach in attracting capital in aviation infrastructure sector is reqd.

Factors Affecting The Aviation Sector

After open sky policy is launched in last few years aviation industry saw a downward trajectory largely due to the following reasons: Defective business model LCC opened the sky for the average traveler, the revenue model adopted by Indian LCC is market share driven rather than bottom line based. The aviation industry suffered a loss of more than 4000 crore in fiscal year 2007-2008. In order to grab the market share LCC started selling tickets at a price below cost incurred. But realizing the threat & after mergers the ticket price stabilized & airline balance sheet is showing operating profit but still loss of earlier years is effecting their balance sheet & now traffic is increasing & airline are adding more aircraft but they should avoid overcapacity in the market. Overheads Landing charges, ground overheads & govt. taxation are in addition to cost of borrowing the necessary capital for purchasing/ leasing aircrafts. Research of the domestic aircraft shows that more than 50% of the revenue colleted on airline operations in India goes to the govt. this is all in addition to the cost of capital, maintenance & insurance, manpower, marketing & distribution. To do this the economics of airline operations should be rationally examined & corrective measure taken to help the industry. One of the critical stumbling blocks to the growth of travel & tourism in India is the high cost of domestic flights; it is cheaper to fly to another country from India than to fly within the country. This affects both the domestic & international travelers. Based on

the international comparisons, there costs are atleast 50% higher making the industry unviable especially on short haul operations. Recommendations For Improvement In Civil Aviation Sector

Tax on ATF should be reduced because the cost of ATF in India for domestic airlines is almost double the price in the international market. There is no justification for continuing to charge Inland Air Travel tax which was originally imposed as a fuel surcharge cess post the Gulf war in 1990. Eliminate Cat III restrictions & provide essential air services subsidies where required but airline should be allowed to deploy services according to profitability of route. The concept of low cost airport should be initiated as in European countries to enable cost effective for LCC in India. Reduction in airport landing , route & navigational charges & freeze on PSF by Greenfield airports, PPP airport & other airports at present level for atleast 24 months to improve the balance sheet of airlines.

Conclusion
Open sky policy is that the sky is not limited to regional or national carriers alone. International players are also welcome to operate in India. The examples of the open sky policy are Virgin Atlantic , Lufthansa etc flying in to Delhi..But we are yet to open the skies to the major players as the government is allowing a restricted opening policy to favour the loss ridden National Carrier. Since the inception of the air travel a century ago & nationalization of the then existing private airlines to Indian

airlines & Air India the PSU have been plagued with a no. of problems, inefficiency, strikes mismanagement like other PSU companies. However with the adoption of the policy of liberalization & open sky policy in India, Indian govt. by allowing private companies to operate air taxies brought a revolution in the Indian aviation because of competition among the private operators the air travel has become more affordable to the common people. While the national airline in India is incurring huge losses & seeking tax payers money to run it, it is high time that the govt. should withdraw themselves from aviation business like some other countries & allow the private companies to operate the air travel with necessary regulations. As the Indian aviation industry has faced a no. of challenges & availed many opportunities during the past century future seems to be bright with passenger traffic estimated to grow over 15% in coming future years. The ministry of civil aviation would handle around 280 million passengers by 2020 which requires 110 billion US dollars for development of infrastructure & purchase of new aircrafts.

References
Open skies opening of Indian aviation sector by Mr.Ganpathy Wikipedia.com Business line Low fare airlines (2004 July 8) economist.com