The Official Blog of Acuity Knowledge Partners

The New Civil Aviation Policy: A Game Changer?

Published on August 17, 2016 by Karthik Seetharaman

India’s aviation industry may finally wake up from its slumber and begin to realize its potential. The catalyst? The new civil aviation policy, approved after months of debates, consultations, and lobbying by the industry.

Changes are expected across regional flights, aviation-related transactions, bilateral rights, low-cost domestic airports, and a broad spectrum of support infrastructure such as MRO, ground handling, cargo, and ATF.

With the government’s scrapping of the 5/20 rule, which mandated 5 years of domestic operations and a minimum fleet of 20 aircraft before flying on international routes, in favor of the 0/20 rule, new airlines can factor in international traffic while planning network capacity and hubs. The immediate beneficiaries will be Vistara and Air Asia India, both keen on making India a hub for transit and international traffic. The resultant competition would mean more options for flyers in terms of frequency and connectivity. Wake-up call for logistics firms

Besides, demand for leased aircraft will increase over the next couple of years as new airlines look to ramp up their fleet size to service international markets. With Boeing’s revised estimate for the market, India’s new-aircraft demand will touch 1,850 over the next two decades.

So what does this mean for the domestic market? The new policy proposes to push regional connectivity by incentivizing airlines to fly on regional routes and seeks a fare cap of INR 2,500 ($37.5) for an-hour-long domestic flight, with any loss on such routes funded by the central government (80%) and the state government (20%). It will also increase passenger capacity and terminal investments in regional airports

Additionally, a renewed push for easing code-share agreements will see foreign and domestic airlines serving new destinations, completely liberalizing code-share. There are plans to revive regional air strips and invest in neglected low-cost airports. Growth in low-cost airports can stimulate the domestic aviation market owing to low cost of operations for airlines (reduced taxes and airport charges) and lower airfare. It will also provide opportunities to the MRO, ground handling, and cargo operators.

A spike in aircraft demand is bound to increase demand for ancillary and support services within the industry such as portfolio planning, market analysis, demand forecasting, consulting and strategy services, and technical support services.

The reforms are set to become a game changer for the industry, and our Aviation practice is strategically positioned to meet the information and strategy needs across stakeholders.

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About the Author

Karthik Seetharaman is a member of the firm’s Corporate Strategy, Research & Aviation practice. He oversees multiple client engagements in the strategy space and is the practice lead for the Aviation practice. Karthik has more than 10 years of experience across diverse fields such as research, consulting, and aviation.

Prior to joining Acuity Knowledge Partners, he worked in a leading aviation consulting firm, where he largely served as a consultant for global airlines and airports and managed business relationships. He has a Master’s degree in Internal Business and a Bachelor’s degree in Commerce from Delhi University.

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