Feasible Flying: National Civil Aviation Policy 2O16

5 Months agoIndia has become the 9th largest civil aviation market today. To further encourage the civil aviation sector in India, the Ministry of Civil Aviation (MoCA) released the National Civil Aviation Policy 2016 (NCAP). The major focus of this policy is to make flying affordable to the masses and to strengthen the regional air connectivity.

Historically, Indian aviation has gone through a major transformation in a century. The world’s first airmail service was started in the country when Henri Piquet carried 6500 mails from Allahabad to Naini on a 9- kilometre long flight by a Humbler Biplane on February 18, 1911. Piquet's flight marked the beginning of civil aviation in the country.1

India has become the 9th largest civil aviation market today.2 It has the market size of USD 16 billion along with a potential to become the biggest aviation market by 2030.3 The Indian aviation sector witnessed 23% domestic air passenger growth during January-August 2016, according to the data by Director General of Civil Aviation (DGCA). The number of domestic passengers carried by the airlines during the same period was 64.4 million.4

The phenomenal growth in civil aviation is being led by the rise of low-cost carriers, competitive tariffs and quality service by India’s extensive airport network. The Government of India is encouraging affordable flying in the country through various initiatives by the Ministry of Civil Aviation (MoCA).

National Civil Aviation Policy 2016

Low-cost airlines hold the largest share of the aviation market in India. According to the data by DGCA, LCC Indigo had a market share of 38% in India’s aviation market. The report by a government regulator for civil aviation also stated that passenger load factor (PLF) was highest for LCCs (Low-Cost Carriers) like Spice Jet (91.1%), GoAir (86.3%), IndiGo (85.1%) and AirAsia (82.7%).5

To further encourage the civil aviation sector in India, the MoCA released the National Civil Aviation Policy 2016 (NCAP) in June 2016.6 The major focus of this policy is to make flying affordable to the masses and to strengthen the regional air connectivity. The comprehensive policy which was finalised after receiving feedback and consultation by public and sector experts will create an integrated ecosystem for the growth of the industry by addressing 22 areas of the Civil Aviation sector.7

To stimulate the growth of LCCs and other airlines in India, some of the highlights of NCAP are:

Regional Connectivity Scheme (RCS)

The RCS routes will be equivalent to an hour-long flight or cover the distance of 500 kilometres to 600 kilometres. The airfare on these routes will have a cap of Rs.2500 per passenger. The Viability Gap Fund (VGF) will be created where MCA and state governments will contribute with the ratio of 80:20. For North-eastern states, the ratio will be 90:10. The payments will be made from this VGF called Regional Connectivity Funds (RCF).

But the RCS is not just about selling tickets at prescribed prices; it will also revive a significant number of underutilised airstrips and airports in the country.8

According to the data by MoCA, only 75 out of 450 airstrips/ airports in India have scheduled flights. The draft RCS plans to encourage the construction of low cost ‘No-Frills’ airports within the budget of USD 7 million to USD 15 million. Apart from tax incentives such as reduction in Value Added Tax (VAT), airports will get cost effective security and power at concessional rates by the respective state governments.9

Route Dispersal Guidelines (RDG)

RDG was enacted to provide air connectivity to remote regions of India. Under the guidelines, the various air routes in India were divided into three categories according to the traffic on these routes. The Category I (Cat I) routes will include distance more than 700 kilometres.

The remaining types of routes (Cat I and Cat II) will comprise of tier II or tier III towns. These cities will receive connectivity through internal cross-subsidy by airlines. To ease the undue financial burden on the airlines, Cat I routes will be rationalised every five years and time will be given to airlines to adjust the schedules.10

Maintenance, Repair and Overhaul (MRO)

India’s current MRO market size is expected to be around USD 750 million.11 Apart from civil aviation, defence aviation sector in India also has a high demand for MRO services. The government has taken positive steps to stimulate MRO industry through NCAP.

The provisions made in the Union Budget 2016-17 will provide MRO tools with an exemption from the customs duty. Incentives such as faster sanction of visas to MRO experts, temporary landing permits to foreign pilots working for MRO and removal of airport royalty charges for five years period are aimed at making India an MRO hub of Asia. According to the aviation major Boeing, MRO market in India is expected to grow at the Compound Annual Growth Rate (CAGR) of 7% for next seven years. By 2020, it will be a market worth USD 1.2 billion.1213

Easier international operations

The ‘5/20 rule’ to start international operations has been modified to make it easier for the airlines to begin international operations. According to the ‘5/20 rule’, each airline requires minimum five years of domestic flying experience and a fleet of at least 50 aircrafts to commence international operations.

The NCAP 2016 allows airlines to commence international operations if they allocate 20 aircrafts or 20% of its total capacity for domestic operations.

Aviation infrastructure development

State governments, the private sector and the Airports Authority of India (AAI) will be encouraged to develop airports under NCAP 2016. Cargo, Aviation Turbine Fuel (ATF), MRO and ground handling will get the benefits of ‘infrastructure sector’ as these facilities will be included into a ‘Harmonised List of Infrastructure’.

NCAP 2016 will take the growth story of Indian aviation ahead by making flying sustainable and mutually beneficial for the consumers and airlines as well. A release by Airports Council International (ACI) said that airports in India continue to remain a key driver in terms of solid passenger growth in civil aviation.14

A large number of people in the middle-income bracket, its unique location in Asia and favourable policy environment will help the country to realise its full potential in civil aviation. With all factors in its favour, India aims to be the largest aviation market by 2030.15

Citations:
1. http://pib.nic.in/newsite/efeatures.aspx?relid=69345
2. http://www.india-aviation.in/pages/view/26/The%20Industry.html
3. https://www.kpmg.com/IN/en/Press%20Release/Press-Release-Indian-Aviation-Report.pdf
4. http://dgca.nic.in/reports/Traffic-ind.htm
5. http://www.dnaindia.com/money/report-indigo-leads-with-384-market-share-jet-airways-air-india-follow-in-march-2204915
6. http://pib.nic.in/newsite/PrintRelease.aspx?relid=146238
7. http://pib.nic.in/newsite/PrintRelease.aspx?relid=146238
8. http://www.civilaviation.gov.in/sites/default/files/Final_NCAP_2016_15-06-2016-2_1.pdf
9. http://www.civilaviation.gov.in/sites/default/files/Final_NCAP_2016_15-06-2016-2_1.pdf
10. http://www.civilaviation.gov.in/sites/default/files/Final_NCAP_2016_15-06-2016-2_1.pdf
11. http://aviationspaceindia.com/content/aviation-mro-india-opportunities-and-challenges
12. http://www.civilaviation.gov.in/sites/default/files/Final_NCAP_2016_15-06-2016-2_1.pdf
13. http://aviationspaceindia.com/content/aviation-mro-india-opportunities-and-challenges
14. http://indianexpress.com/article/business/aviation/india-poised-to-be-one-of-worlds-largest-aviation-markets-airports-council-international-2994315/
15. https://home.kpmg.com/in/en/home/media/press-releases/2016/03/aviation-report-march.html