Bilateral airline seat quotas have their origin in the Chicago Convention of 1944, held towards the end of World War II. With leading nations trying to rebuild their economies, protectionist policies were incorporated, under which no scheduled international air service could be operated over or in the territory of a contracting state without its permission. Seven decades later, one needs to question the relevance of these quotas. In the globalised world of 2014, most countries, beset with sluggish economies and rising unemployment, are wooing leading airlines. Aviation and tourism have a significant multiplier effect — both for the economy and employment, especially for semi-skilled and unskilled people.
India is no stranger to the concept of an open skies policy. In 2005, India signed an open skies agreement with the US, resulting in unlimited seat quotas between the two countries. This replaced the Indo-US agreement of 1956, which had placed restrictions on destinations, aircraft, pricing etc. The 2005 agreement also provided for seamless code-sharing between Indian and US carriers. Contrary to fears, it did not lead to a complete domination of the Indo-US routes by US carriers.
Unfortunately, we do not have open skies agreements with other countries. Every time a foreign airline reaches its quota limit and wants to enhance frequency, the knives come out. Increasing quotas for one country while not increasing them for another creates further controversy.
Seven decades of protectionism has not helped Indian aviation. We lack a strong, dominant national carrier. Our airports, despite a large population, handle just a fraction of the traffic that the world’s leading airports deal with. Our aviation turbine fuel is one of the costliest in the world. Our aerospace manufacturing, aviation training facilities etc need strengthening. Foreign tourist arrivals in India are an abysmal seven million per year. The only way out is rapid globalisation, a level playing field and transparent policies. We need disruptive strategies — the incremental “case by case” approach will not work.
The ministry of civil aviation should consider implementing the open skies policy, say, for a five-year period, extendable by another five years. If the worst happens, we can always roll back the policy — it is India’s sovereign right. Global airlines will be hurt, but after a few angry statements, they will simply move their fleet elsewhere. The experience with the US proves that most of our fears are unfounded.
There is a genuine apprehension that certain global carriers enjoy sovereign support, subsidised fuel, low airport charges and non-unionised staff, that they may offer dirt-cheap fares and kill the interests of Indian carriers. There are adequate regulatory provisions in India to prevent such anti-competition tactics. We can block the quotas of foreign carriers in the name of protecting domestic airlines. We can wait till private Indian carriers build a large fleet of wide-body aircraft and exhaust the Indian part of the bilateral quotas. But that may take years to achieve.
Sectors that were opened up have seen quality standards improve and prices fall. Indian companies in sectors like telecom, banking, hospitality, automobiles have become world class. Many of them are now acquiring global brands like JLR, Novelis, Tetley, Zain, Orient Express, Ssangyong. Ironically, we applaud when an Indian company acquires a global brand, but feel very threatened when a global competitor enters our backyard. We need to believe in our innate strengths.
The open skies policy will lead to an increase in flights operated by global airlines to and from India. Since these airlines will have to fill up their aircraft during lean seasons, they will run joint promotion campaigns with the Indian government, like Singapore Airlines promoting Australia. Global carriers may snatch some traffic from Indian competitors, but they will also bring global traffic to India. Many foreign tourists skip India in favour of destinations in the ASEAN because of India’s poor air connectivity with the rest of the world.
Indian carriers will retain the competitive advantage of having non-stop flights to their global destinations. This is something that global carriers cannot provide, since they are required to have a stopover in their country of origin. Since global carriers may serve only the largest airports in India, flights to smaller locations will be handed over to their Indian partners through code sharing. All parties gain.
Allowing open skies also lets our trade negotiators achieve greater access in global markets for Indian products, services and professionals. India has the potential to be the third-largest aviation market by 2020 and may even have a shot at the top slot by 2030. Provided we focus on experimentation, self-belief and bold thinking. Today.
Partner and India Head of Aerospace and Defence at KPMG. The article was co-written with Kunal Sinha, Senior Consultant at KPMG India. Views are personal