New aviation policy: AirAsia India, Vistara to benefit from 0/20 rule

The aviation sector is in for an overhaul and consumers are set to become the biggest beneficiaries of the civil aviation policy announced by the government on Wednesday.

The Cabinet has cleared the new civil aviation policy which will cap fares for passengers and introduce a new rule for airlines looking to expand operations abroad.

Vistara  Airlines, a joint venture between the Singapore Airlines and the Tata Group and AirAsia India are the top beneficiaries of the new 0/20 rule announced in the policy.

The two airlines have been demanding scrapping the 5/20 rule which was introduced in December 2004 by the UPA government to protect the interests of air carriers, along with the national airline Air India.

The 5/20 rule mandates local airlines having at least five years of operational experience and a fleet of minimum 20 aircraft are allowed to fly overseas.

This puts new carriers in an unfavourable position compared with older players in the sector, AirAsia India and Vistara have argued in the past.

While Vistara was set up in January 2015, AirAsia started its operations in June 2014.

While Vistara has 9 planes in its fleet, AirAsia has six aircraft.

Going by the 5/20 rule, the two airlines would have become eligible to fly overseas in 2020 and 2018, respectively, provided  they had 20 aircraft in their fleet operating on domestic routes for five years.

The 0/20 rule announced in the policy makes its mandatory for an airline to have at least 20 aircraft or at least 20 per cent of their total capacity for domestic operations to fly on overseas route. The new rule is expected to boost growth prospects of new airlines since they would now require no domestic flying experience to operate on overseas route.

In March 2016, AirAsia CEO Tony Fernandes criticised the '5/20 rule' saying he had not seen such a rule anywhere else in the world. It (the rule) would mean less economic activity as aviation has been a key growth generator for other countries like Singapore and Dubai.

In February 2016, Tata group chairman-emeritus Ratan Tata had lashed out against the defenders of the rule, saying such protectionism has held back the country's progress.

"The lobbying for discriminating policies between old and new airline is reminiscent of the protectionist and monopolistic pressures by vested interests' entities who seem to fear competition, as in a variety of other sectors over the years. These protectionist moves have held back progress in India compared to open economies that have thrived on competition overseas," Tata had said.

Air India, Jet Airways, SpiceJet and IndiGo are the domestic carriers that operate on international routes.

On the other hand, older carriers such as Jet Airways, IndiGo, SpiceJet and GoAir and the Federation of Indian Airlines (FIA) have opposed abolition of the 5/20 rule. IndiGo and SpiceJet had to wait for five years to fly on the international routes.