INDIA is the fastest-growing aviation market on the planet, according to the International Air Transport Association (IATA), an industry trade group. No thanks to government. After being elected last year on a pro-business reformist ticket, Narendra Modi, the prime minister, is back-pedalling on his administration's pledge to modernise the sector. After 15 months in power, opined one columnist, “reforms have moved at a pace it takes…to travel from Delhi to Hyderabad by foot, rather than by an aeroplane.”
India's aviation boom has long been a story of quantity over quality. Its airlines carry nine times as many passengers today as they did before deregulation in 1994. No-frills carriers, unheard of two decades ago, provide two-thirds of domestic capacity. One in every three domestic passengers flies with IndiGo, whose bulging order-book of 430 aircraft makes the Gulf carriers look miserly by comparison. IndiGo's market-leading position helped it post the only sizable profit in the local aviation sector in the 2014-2015 fiscal year. Taken in isolation, this boom in budget travel is no bad thing for an emerging economy like India. But taken together with creaking airport infrastructure and regulations that strangle airline profitability, it can make flying a testing experience.
Hopes of reform were running high after Mr Modi's election in May 2014. His aviation ministry had two troublesome regulations in its sights. The first, the so-called 5/20 rule, prohibits start-ups from flying internationally until they have acquired 20 aircraft and completed five years of operations. Given the low rewards on offer in the crowded and price-sensitive domestic market, this rule ring-fences many of India's most lucrative routes for incumbent airlines. The second regulation, the Route Dispersal Guidelines, forces all carriers to devote a percentage of their networks to public-service-obligation (PSO) flying. That entails serving unprofitable, remote regions such as north-east India, the Andaman Islands, and Jammu and Kashmir. Lowering State-imposed fuel taxes was identified as another priority, though its urgency has since waned with the downturn in oil prices (which, in turn, lifted airline profitability forecasts for 2015/16).
After more than a year of wrangling, the government's draft aviation policy was finally set to be published in September. Reports suggested that a new system of Domestic Flying Credits would replace both regulations; easing the restrictions on new market entrants while incentivising carriers to fly to remote regions. But just days before the policy was unveiled, Mr Modi kicked it into the long grass with a new wave of public consultations. His climb-down followed intense lobbying by state-owned Air India and the Federation of Indian Airlines, a grouping of carriers that already fly internationally.
For local start-ups like Vistara, a joint venture between Mumbai-based TATA Group and Singapore Airlines, delayed reforms are a double-edged sword. Though eager to see the back of the 5/20 rule, Phee Teik Yeoh, Vistara’s chief executive, grumbled that politicians “have come up with a replacement model which appears to be even more complicated”. Mr Yeoh accepts the need for government to mandate PSO routes, but wants it to butt out of wider commercial planning. At present, he notes, 50% of the capacity Vistara deploys on metro trunk routes must be allocated to flying between smaller cities. “We are in full support of the remote-region connectivity, but let's not split hairs over where the rest of the capacity should go,” he argues. “They should let market forces prevail.”
Alas, letting market forces prevail in the aviation sector has never been a strong point of Indian policymakers. The country currently has 33 "non-operational" airports, according to the Airports Authority of India. Popularly dubbed “ghost airports”, facilities such as Jaisalmer Airport in Rajastan (pictured), which was built in 2013 to accommodate 300,000 passengers a year but recently closed without flying a single one, are a relic of successive, failed attempts at promoting economic growth in small cities and townships. With Mr Modi vowing to build 200 low-cost airports over the next 20 years, many more are expected. India's well-intentioned airports policy—much like its egalitarian Route Dispersal Guidelines—ultimately has too much faith in the public sector's ability to stage manage private-sector growth. Shiny new airports bereft of passengers do little to spur local economies; likewise for half-empty flights operated by financially struggling airlines.
India may have the fastest growing aviation sector in the world, but for the majority of its citizens flying is still an expensive impossibility. That partly explains why the government tinges its aviation policies with populist shades, even as it talks up the need for reform. Mr Modi's vocal opposition to “predatory pricing”—raising ticket prices close to the date of travel—is another misguided strategy that hurts airlines under the guise of protecting passengers. If he really wants to help Indians, he should fast-track liberalisation of a sector that goes hand-in-hand with prosperity and growth.
