Gradual removal of 5/20 and new Route Dispersal Guidelines

In November when the ministry of Civil Aviation came up with a draft policy I had written on how the more things change, more they remain the same – “Another Policy without substance11th November 2014”. Subsequently in January the revised Route Dispersal guidelines and policy on 5/20 rule for international operations was announced – Revised policy on 5/20 and Route Dispersal Guidelines14th January 2015. This is one of the most widely read blog posts and now features in top Google search results for “Revised route dispersal guidelines”.

The proposal to change Route Dispersal Guidelines (RDG) and change in rules to let airlines fly international touched upon multiple areas but had nothing concrete. It proposed replacing existing RDG and changing them to DFC (Domestic Flying Credits). These DFCs will be linked to international flying rights for airlines. How the DFC’s will be calculated has been covered in my earlier posts (links above)

This prima facie looked like a plan structured around narrow body runs to S-E Asia, SAARC and Middle East with not much thought being put on what happens if an airline wants to start flying to EU or N. America and are the corresponding DFC requirements realistic? The policy was also silent on the calculation of one stop flights and multiple combinations that would follow.

The news papers have reported that the airlines are unhappy with the policy and how the government did some revision to it which again is awaiting discussion. As per latest news reports, the government has proposed that newer airlines cannot fly for distance covered in less than 6:00 hours initially. It also stipulates how many DFCs are required for flying international and the linkage.

While the Modi government has been trying to simplify things for business, aviation is one area where the proposals are reaching higher levels of complexity. I propose a possible solution which is being sent to relevant departments.

Possible Solution

It is human mentality to have somebody else wait as long as you did to get the same thing. This coupled with fear of more competition anticipated have been making the existing airlines oppose abolition of 5/20 rule. (This rule requires an airline to fly domestic for 5 years and have 20 aircraft before starting international operations)

First step to this change will be to not link RDG/DFC to international status.

 Abolition of 5/20

There indeed is an agreement that this rule needs to change but what is the replacement to this rule is what is holding up the decision.

A rule which is around for a while, cannot and should not go one fine day, but should go in a gradual manner. The abolition has to be phase wise which is realistic and thus makes it acceptable for the industry.

  • Phase – 1: Convert the rule from 5/20 to 3/15 effective 1st January 2016
    • This would mean Air Asia India will be eligible to fly international in 2017, which is earlier than when they expect to fly if DFC is implemented
    • Vistara would fly international in January 2018
  • Phase – 2: Convert the rule to 1/5 effective 1st January 2019.
    • This ensures that the players who started international operations based on 3/15 rule, also get a breather from unexpected immediate competition and get to plan their operations.
    • The existing players – Air India, Jet Airways, IndiGo & Spicejet get a five year intimation about this change.
  • This rule of 1/5 should be linked to accident / incident history in the first year of operations including safety and operations, to have additional checks. This may or may not be linked to On Time Performance and cancellation rate.

This proposal hopes to create a level playing field.

E.g.: Jet Airways started international operations in 2004 and Spicejet & IndiGo followed around 2012 – a gap of eight years. Now Spicejet & IndiGo will get a similar gap when the next set of players goes international.

For the new set of players, their interests are taken care of by reducing the wait from 5 years to 3 years and de-linking this from Domestic Flying Credit – routes which could prove to be non-profitable.

With a policy which lays out things that are to take place 5-7 years from now, there is enough planning time for existing and new players to plan for new entrants, unlike how it would be today if 5/20 is suddenly waived off.

Exception to 5/20

There are multiple routes in the country which are served only by foreign carriers. Some of these are routes to Central Asian Republics from Delhi and Amritsar or to Kuala Lumpur – which is connected only by Air India Express amongst all Indian carriers or routes like Doha – Goa, where no Indian carrier plies but Qatar airways has a flight.

These routes should be opened up for new players after one year of successful operations and a fleet of minimum of 5 aircraft. This would help India utilize its share of seats under bilateral arrangement and the carriers who currently have rights to fly international should not have a problem since the new carriers are not starting flights on the routes on which they are plying.

For the new carriers – it gives them an opportunity to try out a blue oceans strategy.

E.g.: Air Asia India may be willing to start flights to Kuala Lumpur from multiple destinations in India which are served only by Malaysian Flag Carriers. This would eventually benefit Indian citizens and would bring in tourists into India too.

Revision of Route Dispersal Guidelines

The Domestic Flying Credits (DFC) is a complex system to follow and calculate. Instead let the Route Dispersal Guidelines (RDG) continue with minor changes.

Category 1

Top 20 routes in terms of capacity for a period of 4 years in the past should be classified as Category 1 routes.

E.g.: For a policy effective March 2016 (Summer Schedule 2016), data from Summer 2011 to Winter 2014 will be considered. The routes will be in Category 1 till the end of Winter Schedule 2021.

In 2020, an updated list of top 20 will be published based on calculation of 2016 to 2019. In normal circumstances only the bottom three or four routes will change. But a notice of one year helps the airlines plan in advance.

Category 2

The concept continues as per existing with addition of Dehradun, Simla, Kullu and Dharamshala to the list of Category 2 stations.

Similarly stations in the south which see minimal connectivity could be introduced on a trial basis.10% of ASKM (Available Seat Kilo Meters) deployed on Category 1 should be deployed on Category 2 routes

Category 2A & Category 3

There will not be any change in Category 2A and category 3. The ASKM requirement would be as per current too.

1% of ASKM deployed on category 1 should be deployed on category 2A routes and 50% of Category 1 ASKMs should be deployed on Category 3 routes.

Calculation

Currently the calculation is done on a monthly basis. This can be shifted to a six monthly period and calculated half yearly. This will help the airline re-deploy capacity based on season and help reduce airfares.

E.g.: Airlines could have additional flights on Kolkata – Port Blair or Chennai – Port Blair during winter months and get additional Category 2 ASKM, which they can use during other times of the year. Similarly, airlines can plan more flights to Jammu, Srinagar, bagdogra, Leh, Guwahati during summer to get more Category 2A ASKMs which can be utilized for calculation later.

This increase in capacity will be in sync with the high season and help reduction of airfares – a problem which is being highlighted by everybody specially the locals in this region.

While buying ASKMs from smaller or non-scheduled operators is a novel idea, typically they fly smaller aircraft resulting in generation of very few ASKMs, which could be a practical implementation problem.

Way Forward

The policy can either be the existing one or the revised one of based on the proposal which I have made here. However, it is important that the same is finalized at the earliest.

Opposition from states for six international gateway hubs, opposition from airlines for the draft aviation policy and silence from within the government over infrastructure status to aviation are not signs of healthy atmosphere for aviation in India. A conducive atmosphere is needed for a sector which is back to 20% growth numbers and it is needed soon.

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