New aviation norms will dramatically affect the way airlines operate — as well as their bottom line — as they mandate that, in another two years, airlines have to fly as much on regional routes as they do on trunk routes.
In the process, a new formula has been suggested to achieve this, one which will give a fillip to non-scheduled airlines like Invision Air and Freedom Airways which could now have code-sharing arrangements with the likes of Air India, Jet Airways, SpiceJet and Indigo.
While airlines are still studying the impact of the guidelines — an executive of one of the top three domestic airlines said implementation would be a challenge given the losses they made — KPMG’s India head of aerospace Amber Dubey said that “the draft policy shows greater understanding of the genuine problems being faced by airlines”. Amber added the obligations — an equal capacity has to be deployed on trunk and non-trunk routes by winter 2016 — seemed “a bit excessive”.
The industry has accumulated losses of R49,000 crore — only IndiGo and GoAir are currently recording profits, while both Jet and SpiceJet reported losses of over R4,000 crore and R1,003 crore in FY14.
The term Category I/II /III airports has been given up in favour of trunk and regional routes, so an apples to apples comparison is difficult. Broadly speaking, if airlines fly around a third of flights in regional routes right now, this has to be increased to half by winter 2016. If an airline has 100 available seat kilometres (ASKMs) deployed in trunk routes by winter 2016, a similar amount have to be deployed in regional routes.
A new category of 87 “incentive destinations” has been added, and it is here that a new model has been worked out. If an airline has 100 ASKMs deployed in an incentive destination, this will be multiplied by 1.5 and it will be assumed the airline has 150 ASKMs. If, it uses an aircraft that has under 20 seats, typically those used by non-scheduled operators, the factor will be 4 — the airline will now be said to have 400 ASKMs deployed.
Currently, non-scheduled airlines are authorised to carry passengers between specified destinations but unlike the scheduled ones do not need to follow a regular schedule or publish their tariff. In practical terms they are seen more as chartered flights. With the new policy in place, such airlines would be able to have code-sharing arrangements with the likes of Air India and Jet Airways, publish schedules and operate regular flights, provided they are within the identified 87 small cities and towns.
The new guidelines would enable scheduled airlines like Air India or Jet Airways to get credits from the non-scheduled operators to meet their commitment on regional connectivity according to the route dispersal norms. However, this would be confined to the identified 87 cities.
Under the new norms the earlier categorisation of Category I, II and III have been dispensed with and replaced by trunk and regional. While there are 30 trunk routes, the rest are regional, which includes the 87 incentive destinations where collaboration between the commercial and non-scheduled operators have been allowed to meet the regional connectivity commitments under the route dispersal norms.
Trunk routes include the Delhi and Mumbai airports, which handle 40% of all domestic traffic, and will subsume most of the routes defined as Category I routes under the previous route dispersal guidelines, which at present only mandate airlines to deploy just 10% of the capacity deployed on Category I routes to Category II routes.
While the change in rules will certainly benefit consumers, the government has decided to increase the requirement of mandatory capacity deployment to regional routes because most airlines were already doing more than the previous requirement. “It is observed that a few destinations earmarked for obligated deployment of capacity have developed with passenger load factor of 80% or above. Airlines now deploy 21% of their capacity deployed on Category I routes on Category II area of North East, J&K, Andaman & Nicobar and Lakshadweep, against an obligation of 10%,” the draft policy states. The policy also mandates all scheduled airlines to deploy at least equal capacity on regional routes as what they deploy on the 30 “trunk” routes in phases by winter 2016.
– Roudra Bhattacharya | Financial Express