Air India sulks as draft aviation policy wants to jettison 5/20 rule

The Draft Civil Aviation Policy, which is set to be placed in front of the Union Cabinet this week, has suggested the scrapping of the controversial 5/20 rule that restricts airlines from operating international flights under certain conditions. The 5/20 rule mandates that Indian airline companies must operate on domestic routes for at least five years and have a fleet of at least 20 aircraft for them to be eligible to fly on international routes. However, the proposal to scrap 5/20 is being opposed by established carriers, including Air India, the national carrier.
“We want a level-playing field in the aviation sector. It is a huge industry, the 10th largest in the world. And the 5/20 rule unreasonably puts shackles on airlines that may be capable enough to operate on international routes. We are planning to go ahead with the domestic flying credits (DFC) formula. I feel that will be a better way to move forward,” a senior bureaucrat in the Ministry of Civil Aviation told The Sunday Guardian.
“According to the proposed norms, a new carrier will be eligible to apply for operating on international routes once it has operated on domestic routes and achieved at least 200 DFCs. After reaching the 300-DFC-mark, the carrier can approach us (government) for permission to operate long-haul flights on international routes that have a flying time of over six hours. We will do an assessment on our end. If all is in order, we do not have any problems,” he added.
A large section of the airline industry, however, does not want the 5/20 rule scrapped. The Federation of Indian Airlines, which has member carriers like IndiGo, SpiceJet, Jet Airways and GoAir, has voiced its objections to any relaxations. The scrapping of the 5/20 rule will be beneficial to new entrants such as Vistara and AirAsia India, two companies that are lobbying for the removal.
“Currently, the 5/20 rule does not have any standing. If the government wants to slingshot the Indian aviation industry onto the global stage, the 5/20 rule must be scrapped completely. But, if they plan on replacing it with another guideline like the DFC system, I think it needs to be drafted in a way which makes it pro-growth, pro-business and pro-people,” Phee Teik Yeoh, CEO of Vistara told The Sunday Guardian.
Domestic flying credits (DFCs) are calculated by evaluating revenue generated per passenger per kilometer flown by an airline in a year. DFCs are earned by flying to 20 major cities in India and smaller cities that have airports. Under the DFC formula, carriers will earn one DFC credit per available seat kilometer (AKSM) on category-I routes. Category-I routes are the major trunk routes that connect India’s top 20 cities.
“India wants to become one of the top three countries globally in terms of domestic and international passenger traffic,” the Draft Civil Aviation Policy, 2015 has stated. India has seen a growth of over 20% in passenger traffic in 2015 from 2014.
Last year, national carrier Air India asked the government to reconsider the proposed easing of the 5/20 rule, which will help new entrants to fly overseas without flying as much as the others have done on domestic routes. AI said that the move would be detrimental to the established players who waited years to run international flights and underwent a lot of financial troubles.
The government has been involved in accelerated discussions with all stakeholders, including the FIA, and has taken into consideration a total of 450 comments it had received on the Draft Civil Aviation Policy released in October 2015.
“The eased regulations should not in any way undermine the security of passengers and financial viability of other carriers,” a senior Air India officer told The Sunday Guardian. An Air India official statement in 2015 said, “The sudden withdrawal of the protection of 5/20 rule might be the proverbial last nail in the national carrier’s coffin without bringing any significant benefit to the nation.” “In this background, Air India would recommend that the government, while rationalizing the 5/20 rule, may adopt a pragmatic, simple but cautious policy, based on a duel criteria of safety and extent of domestic operations,” the statement said. “Keeping a target of just 200 crore ASKM (Available Seat Kilometres) as threshold to qualify for international operations is completely inadequate as it would entitle airlines with no experience and no safety record to undertake international operations, risking both the lives of passengers and national reputation,” the statement said.
According to sources, the airline lobby has continuously tried to persuade the government to keep the 5/20 rule in place. The airlines have been involved in exhaustive discussions with the Civil Aviation Secretary Rajiv Nayan Choubey, but the ministry seems intent on opening up competition to give a boost to the aviation industry.
The ministry has proposed the capping of fares to Rs 2,500 on certain domestic routes to increase domestic passenger traffic from 70 million to 300 million a year by 2022. Sources in the ministry said: “This proposal has drawn protest from all of the carriers but in the long run, it is going to help them. We are strongly against monopoly and want air travel to replace railways as a preferred mode of travel for the middle class. This move will ensure that it happens soon.”