Air Traffic Control

Should the call for an open sky policy make way for more overriding priorities like creating adequate hotel accommodation and developing airports? Bhisham Mansukhani reports on the debate…

Till about a few months ago, the travel trade was unanimous in the many ways an open skies policy would benefit Indian tourism. Lately however a few discordant notes have started creeping in. Open skies, some have started to claim, is not a panacea to the ills of Indian tourism and simply embracing the western phenomenon of deregulation could backfire.

The vital signs of Indian tourism do little to settle the debate. The favourable geopolitical conditions and spin-offs of the Incredible India campaign have driven inbound tourism up by 24 per cent. Yet the government has opened the world to domestic carriers and extended the winter window to mop up the additional capacity. The charter policy was also relaxed, allowing for inbound as well as outbound traffic on privately commissioned aircraft to any airport within the country.

The question however remains whether the Indian government has got its priorities right. Should it not be focusing over the development of adequate airport infrastructure and incentivise the augmentation of hotels across categories to ready the landscape in anticipation of a deluge before it deregulates?

Or will it be more desirable to stand by its twin alternatives of a winter window of generous capacity release (November through March) and encouraging domestic carriers to transcend Indian borders. Better still, should it allow the burgeoning tourism demand to decide the count of air-seats required to accommodate outbound and inbound passengers.

Ready Or Not?

	Unless it is supported by other infrastructural facilities like adequate number of hotel rooms, good airports, tourist friendly procedures, good roads and rails, overall cleanliness etc, an increase in the number of airline seats alone cannot lead to more tourist travel
V Thulasidas

The aviation ministry, which till very recently was being henpecked by the industry for its obdurate stance on deregulation, is now receiving shouts of support for not going too fast too soon, overriding other priorities.

V Thulasidas, chairman cum managing director, Air-India Ltd, takes first guard, "An increase in the international airline seat capacity to and from India is no doubt good for the promotion of tourism. However, this is only one of the facilities required and unless it is supported by other infrastructural facilities like adequate number of hotel rooms, good airports, tourist friendly procedures, good roads and rails, overall cleanliness etc, an increase in the number of airline seats alone cannot lead to more tourist travel."

Bombay Travels proprietor Karl Dantas who has for many years endured the capacity squeeze on both inbound and outbound fronts for several years, thinks an open skies policy a necessity but argues that there are bigger issues on the horizon. He says, "The government is going the extra mile to reach out to the trade with the additional capacity allowance every winter. It is in a way a salvo and an indication that we now need to work with the airline and lobby for more capacity. However, there is another and a far greater problem that has escaped the attention of the travel trade - hotel accommodations. Is there a point in boosting inbound tourism if there aren't enough hotel rooms at affordable tariffs to accommodate them. Without a proportion in seats and rooms, an open sky will have a boomerang effect and neighbouring competition will price us out of the equation. I still feel that eventually an open sky is a must but it must be done in phases. That said, it is hardly the most urgent issue plaguing Indian tourism. Infrastructure far exceeds it in priority and the intense demand for deregulation in a way has meant that we have missed the point so to speak. We need four-star rooms more than we need seat capacity to insulate ourselves from arbitrary tariff hikes by certain hotel chains."

Prem Subramanium, head - tourism, Infrastructure Development Finance Corporation (IDFC), concurs, drawing attention to the need to develop airports. He says, "There is a desperate need to improve airports. The government has to look at how much time it takes to land an aircraft in any given weather condition and how much time does it take for a passenger to get out of the airport. Substantial funds have to be allocated to implementing changes. Initially, there may be a gap between the funds invested and revenue generated but going forward, these investments will pay rich dividend. The reality is that if a flight cannot land in Delhi, it does not land in Mumbai too for the simple fact that there is no hotel room available and so it goes to Thailand instead. Then what is the point of opening up the skies if there isn't the lodging infrastructure to absorb the incoming. We need a five to seven year plan that addresses inventories at every level."

While there has been a recent proliferation of budget hotels as a result of a number of five star brands entering the segment, airport infrastructure continually awaits its overhaul though on the face of it, the UPA government has drawn up a Rs 5,000 crore overhaul for Mumbai airport alone, with plans for developing other metro and satellite city airports across regions.

Stuck In A Spoke

Rono Datta, president, Air Sahara, who was a part of the US aviation industry for 17 years leaving as president, United Airlines, brings his perspective to the debate. He feels that firstly India needs to develop itself into a hub before elevating to the next echelon. "The biggest tragedy for India is that it only provides the feed. India does not have a hub which is a huge loss for the country. Frankfurt, Dubai and Singapore are constantly taking traffic out of India, consolidating it and then taking it forward. There is no financial centre between London and Singapore. This huge economic terrain should belong to India but its failure to develop as an aviation hub has been overlooked. Hubs like Frankfurt and Chicago can generate USD 35 billion for the local economy. That is the kind of potential India is sitting on," he says.

On the precise subject of access regulation, he diagnosed, "Access is good but needs to be allowed judiciously. Let us consider the Bombay-Singapore route. Air India can only compete with Singapore Airlines for traffic that flies to Singapore. Singapore Airlines on the other hand can tap passengers that fly to Australia and the US. To counter this advantage, Air India should be allowed access to all the domestic traffic generated from satellite cities or else when Singapore Airlines gets access to these cities, the national carrier will not stand a chance. This shows that although more access is good, there needs to be a balanced view. Unless you allow domestic carriers to create hubs, the country not only loses out on the aviation front but on the broad spectrums of benefits that a financial hub enjoys. This is the message that needs to be put forward."

Thulasidas reinforces Datta's point, adding, "Many of the competing airlines are more interested in exploiting the Indian travel market and not necessarily promoting international tourist travels into India. Therefore, what we need is a carefully orchestrated and balanced plan for opening up the international travel sector with adequate emphasis on the growth plans of Air-India. Allowing more foreign airline capacity into India or alternatively permitting domestic airlines to fly international routes need not be the only solution for increasing the international air travel capacity." Thulasidas goes on to detail Air-India's expansion programme, both in terms of fleet augmentation and upgradation of quality. "Today the airline has only 34 aircraft - 15 Boeing 747 and 19 Airbus A 310 aircraft. The fleet renewal plan envisages a 74 aircraft fleet. As against the present fleet having almost 50 per cent leased aircraft, the renewal plan envisages a fully owned fleet," he says.

Local Going Global

	What is the point of opening up the skies if there isn't the lodging infrastructure. We need a five to seven year plan that addresses inventories at every level
Prem Subramanium

Domestic airlines had an early Christmas when the Naresh Chandra Committee recommended allowing domestic airlines to fly international routes. In fact the committee was specific in its aversion to an open sky policy calling it, 'detrimental as Indian carriers are not strong players in the international market. For the time being, continue with a bilateral system of negotiating flight rights with foreign carriers.' According to official sources, 262 international frequencies were at that point unutilised by India as Air India did not have enough aircraft to operate on these routes.

Following the government's allowing domestic airlines to fly to SAARC countries, the committee has now submitted a proposal to the Cabinet for allowing private carriers to fly to all international destinations, save the Gulf countries. The proposal is akin to the open sky arrangement that was proposed by the previous NDA government.

Once Cabinet approval is in place, it will take the carriers around three-four months for finalising the routes with the ministry of civil aviation. The airlines will be in a position to start flights on these routes by April 2005, the official added. Not all in the industry are as buoyant. Dantas retorts, "Why aren't domestic airlines developing the local markets first, particularly lesser known destinations that have great tourism potential. There aren't enough flights to satisfy domestic aviation needs despite there being no restriction. Instead, the government is encouraging these airlines to go international. Why shouldn't Air Sahara, for instance, concentrate on short haul routes within the country rather than compete with low cost carriers on a Mumbai Delhi route where one can get a ticket for Rs 2,000. The China model has worked perfectly in this regard wherein domestic carriers have boosted traffic within the country."

The world over, the increasing demand for airline seats is fuelled by low to moderate fares, spiked occasionally purely because of ATF costs. In India however, an increase in demand is seen as an opportunity to increase prices and kill the market. Allowing domestic carriers to fly international is hardly a solution to an open sky since the prerogative for the number of flights will still lie with a small clique of domestic airlines.

Says an aviation industry expert on condition of anonymity, "Domestic carriers will but naturally oppose deregulation because it brings in competition which is in the consumer's interest, not theirs. The number of flights operated by low cost airlines worldwide has increased by 50 per cent from 2000 to 2003 to 42,490 per week. Now, if these carriers were allowed to operate freely to India, the culture of overseas travel will be put out to the man on the street. In the last 20 years, China's passenger numbers have grown by nearly 1000 per cent. India's market has not even doubled."

What About Tourism?

One of the arguments for open skies is that it will lead to huge benefits for tourism. A November 30 2003 government-appointed committee report titled A Roadmap For The Civil Aviation Sector unequivocally states: 'The international air transport segment is inexorably moving towards liberalisation, particularly at the regional and sub-regional levels. Even within the bilaterals, which continue to be a dominant form of regulating international air transport, many of the recent agreements and amendments are reported to contain some features of liberalisation. Many countries have unilaterally opted for liberal air transport policies, often based on a broader perspective of national interest including economic development and trade benefits.'

In a 1998 study, the Air Transport Action Group (ATAG) had estimated that the total direct economic impact of aviation on gross world output would increase from US$ 1.36 trillion in 1998 to US$ 1.7 trillion by 2010; 28 million jobs - including direct, indirect and induced employment - are affected by the civil aviation sector. The International Civil Aviation Organization (ICAO) estimated that US$ 100 spent on air transport produces benefits worth US$ 325 for the economy; 100 additional jobs in air transport results in 610 new economy-wide jobs. The Committee was blunt towards criticising India's aviation sector saying, 'Despite many advances, India has lost out in aviation; it has missed the travel boom of the nineties and air travel still remains confined to a tiny section of the domestic population. International airports, the gateways forming tourists' first impressions of India, are sub-standard. Passenger amenities, conveyor belt facilities, etc. are, for the most part, an embarrassment. Airport charges in India are 78 per cent higher than the international average!'

The Committee however did concede that 'while it is important to draw on international experience of deregulation, with its range of alternatives and diversity of institutional practices, there is a need to evolve structures that suit India's specific needs and realities.

	There is such a huge demand-supply gap existing today that the passenger lands up paying a needless premium on an air ticket because of an artificial shortage of seats. We need to concentrate on overall reform which even envisages international level airport infrastructure
Ashwini Kakkar

Addressing an august gathering earlier this year, Cyrus Guzder, chairman, AFL Ltd, established a conspicuous linkage between national GDP and civil aviation growth over the last six decades. "In the last two decades, this link seems to have been broken with GDP far outperforming civil aviation. In fact, in the last five years, the economy has been growing at five per cent and above, while aviation has been stagnant, growing at a percentage point or two. The fact is that India hasn't always been a laggard and yet in the last two decades, something seems to have happened perhaps in terms of benign neglect on part of the government that both these airlines to maintain their relative market position. Reform must be pursued in earnest," says Guzder.

Qatar Airways CEO Akbar Al Baker insists that open skies are key to developing the aviation industry in the country and so too, tourism, because airlines are the chief delivery system of the tourism policy of any country. "There are approximately 30 million Indians staying abroad while only 35 million seats have been allocated through the sale of traffic rights of which 17.5 million are utilised which leaves a huge gap in supply of seats even for NRIs and expatriates wanting to visit. These traffic rights include countries that do not operate into India while additional seats are not being granted on high-density routes," he says.

According to Thomas Cook India CEO and MD Ashwini Kakkar, "There is such a huge demand-supply gap existing today that the passenger lands up paying a needless premium on an air ticket because of an artificial shortage of seats. Clearly divestment is the solution and a healthy, competitive atmosphere wherein an aviation policy is devised with a partisan, protectionist stance will foster aviation growth. I don't think any country has a complete open sky policy. We need to concentrate on overall reform which even envisages international level airport infrastructure."

The WTO has given a figure of 1,561 million travellers spending US$ 2,000 billion by 2020 up from 565 million travellers spending US$ 401 billion in 1995. Predictably India has not been anointed to gain an awful lot from this gold rush. There are those who remain decidedly optimistic. Stuart Crighton, head- South & West Asia, Abacus International Private Limited, feels there are certain dynamics at play which will ensure growth in tourism fuelled by the government's earnest interest in aviation reform. "The government has set in motion a process that will eventually result in liberalisation. Things in India play out differently. I don't think the government needs to institute a set piece. In hindsight, who could have thought that domestic carriers will be allowed to compete internationally and that considerable FDI will be allowed into domestic aviation," he says.

Ashok Fenn, president & CEO, InterGlobe, puts the ball back firmly in the private domain saying, "In 1995, when the US and Canada signed an open sky agreement, the rise in the number of incremental passengers in the first year alone was one million - a 15 per cent growth over the historical average of three per cent. We are reliant on the government to solve problems on the supply side. On the demand side, as economic development takes place and people have more spending power, there will be an increase. My belief is that while the government has an influencing role on the supply side, rapid economic development can force the hand of the government to initiate reform on the supply end."

Open Debate

There are therefore many voices to this debate. In hindsight, who would have thought that a very private sector industry would be so divided on a subject which was the one reliable commonality of opinion. The government has stood fast by its unique approach towards civil aviation in this country and in doing so has created diverse institutions of interest, keeping both aviation and tourism in a constant state of flux. The emergence of domestic carriers as potentially international is undoubtedly an important event in Indian aviation. That said, an overkill of concentration on extra seat capacity is drawing the focus away from the shortage of hotel rooms and, so also, the augmentation of airport infrastructure. The imperative of creating a hub is another issue commanding equal priority. The debate remains open, the skies all but.