5 ways in which airlines will be impacted by aviation policy
The aviation policy has finally been cleared by the Union Cabinet, notwithstanding the aggressive stance taken by older airlines against concessions for newer ones. Aviation stocks are trading higher after the policy announcement. But will the rally sustain or will these stocks come down as the fine prints are deciphered especially since some of the measures announced are socialist in nature. We take a look at five things in the Aviation Policy that will affect aviation stocks. 1. Subsidy element in air ticket: CNBC reports that in a bid to improve regional connectivity government will likely cap airfares for flights up to one hour at Rs 2,500 per passenger and at Rs 1,200 for those up to 30 minutes. Government will reimburse 80% of the losses to airlines. While the move will increase air traffic, markets might not like the idea of government reimbursing the subsidy element. Every sector which has a component of subsidy in them, be it fertilisers, oil and gas or power have had trouble with the government in collecting their dues. If oil prices would move higher, these companies would be severely hit as they would be need the liquidity sustains through the tough times. Unfortunately higher oil prices would also tighten government’s financial thereby increasing the liquidity crisis for the airlines. 2. Costlier air tickets: Reports say that in order to fund the subsidy element government will be imposing a two per cent cess in domestic and international air travel for the regional connectivity fund that will be set up. In a price sensitive market like India, companies might absorb these prices at the risk of volume, especially during off-season. 3. Tightening of refund policy: Cancellation charges were a straight addition to airline company’s profits. The aviation policy seems to have taken notice of the indiscriminate policies of some domestic airlines on cancellation and refunds and has proposed a number of steps to rein them in. These include a timeline of 15 days for refunding the money and refund on all fares including promotional and special rates. But what is likely to hit airlines is the policy of enhancing of the cancellation amount of up to Rs 10,000 for flights cancelled within 24 hours of departure. 4. Increased competition on account of changes in 5/20 rule: Government has cleverly walked the middle path on the 5/20 policy which required a new airline company to have five years of experience and 20 aircrafts in the domestic market to get a license to fly abroad. The five year rule has been relaxed but the airlines will need 20 aircrafts in the domestic market. Newer airlines that are still testing water will have to increase their fleet size, thereby increasing competition which will impact airline company’s profits. 5. Code sharing liberalised: Reports say that airlines will be free to enter into code-sharing agreement with foreign carriers for any destination within India on a reciprocal basis. Code sharing will help Indian companies in filling their seats for foreign travellers thereby improving their occupancy. The aviation policy which has taken nearly a decade to be released has addressed many points from the travellers point of view and some from the industry’s point. Though marginally negative in the short term, the policy can increase air travel volume in the medium to long term. Johnathan Cyprien Womens Jersey
Aviation policy cleared: 5/20 likely eased, capped fares mooted
The government today approved its long-awaited National Aviation Policy, which contains various measures to boost the country’s under-penetrated aviation sector and boost connectivity across towns. The details of the policy are not yet known but sources have told CNBC-TV18 the government has tweaked the 5/20 rule, which requires a carrier to be in operation for five years and have fleet of 20 aircraft before it is allowed to fly to international destinations. Under the tweaked rule, sources say the government has now stipulated airlines to have at least 20 aircraft but done with the five-year requirement. This would come as good news to recent entrants AirAsia India and Vistara, who will though still be required to scale up their fleet size to be able to fly abroad. In a bid to improve regional connectivity, the government has likely capped airfares for flights with less than one hour duration at Rs 2,500 per passenger and those under 30 minutes at Rs 1,200 for routes under the regional connectivity scheme (RCS). In the draft aviation policy released last year, the government had suggested some sort of subsidy should carriers incur losses at such fares but details of this are not yet known. Experts said the move would help improve regional connectivity between tier II and III cities and could boost demand by 15-20 percent. The policy has also likely taken a number of steps to boost aircraft maintenance, repair and overhaul (MRO) activity in India, a Rs 5,000 crore market for Indian carriers, which is 90 percent served by India’s neighbouring countries. Civil Aviation Minister Ashok Gajapati Raju will hold a press conference at 4 pm outlining details of the policy. Jerome Baker Jersey
Air carrier owned by Indian couple shuts
Malaysia’s Rayani Air, the country’s first Sharia-compliant airline owned by an ethnic Indian Hindu couple, was shut down today, months after it was suspended for failing to adhere to aviation rules. The Malaysian Aviation Commission (MAVCOM) revoked Rayani Air’s Air Service Licence (ASL) after finding Rayani Air had breached the conditions of its licence. It said the airline also lacked the financial and management capacity to continue operating as a commercial airline. “As a consequence, Rayani Air can no longer operate as a commercial airline with effect from today,” it said. The airline was founded by Ravi Alagendrran and his wife Karthiyani Govindan and started operations in December. They used parts of their first names for the airline’s name. TJ Brodie Womens Jersey
Civil aviation should no longer be a central subject, asks PM Modi
Indian PM Narendra Modi has said that states should have a significant say in the implementation of the regional air connectivity programme under the new civil aviation policy which is to be unveiled this week. He has said that giving states more space to decide on aviation-related matters is necessary since aviation should not only be a central subject. “The Prime Minister’s Office had asked to provide more powers to states on deciding the airports they want to launch flights from and on a few other things,” a senior ministry official told ET while requesting anonymity. The official added that these changes have been made in the policy document and have been sent to the Cabinet. As per the proposed regional connectivity scheme, the government will offer a subsidy to flights that connect currently non-operational airports at a pre-decided fare of Rs 2,500 per hour of flight. The analyst hired by the civil aviation ministry welcomed the government’s move to bring states on board. Patrik Berglund Authentic Jersey
Air India wants its ground staff with flying licence to become pilots
Air India is giving its ground staff and crew a chance to become pilots with the airline, a Hindustan Times report said. Air India said it wants to give an opportunity to several of its ground staff that hold commercial pilots’ licences (CPL) but were forced into other jobs due to a slowdown in the Indian aviation industry which led to an indefinite freeze on recruitment. Many young Indian pilots were rendered jobless and were forced to take up maintenance or ground operations jobs, or even change their careers because of the slowdown in the aviation industry that was caused by the fall of Kingfisher Airlines and other domestic airlines. The situation seems to be improving slightly now in the domestic arena, and Air India wants to cash in on the tide and give its in-house CPL holders to get a chance to fly its planes first. The report says that all the eligible Air India employees will have to clear all the tests before getting a chance to become a pilot, like all the regular candidates. The tests will begin on July 2. “We want to provide an opportunity to our in-house candidates to realise their dream of becoming a pilot,” Air India chairman and managing director Ashwani Lohani was quoted as saying in the report. Evan Fournier Womens Jersey
Regional air connectivity plan rekindles hopes of Kolhapur
The regional air connectivity plan proposed by the Union government, which gives more power to the state governments in making decision on starting aviation service, is likely to benefit cities like Kolhapur. Commencement of flights from Kolhapur to Mumbai is a pending demand for the past five years. Sources said the Union cabinet is set to clear the proposal in the next two days, which will benefit many states which are keen on such services. In most of the cases, the state governments have promised some financial support to promote the services. District guardian minister Chandrakant Patil said, “Once the new bill gets cleared by the Union cabinet, I am going to take the issue with chief minister Devendra Fadnavis. There is also a plan to go ahead with land acquisition without acquiring the forest land, which could also benefit us. If it is helpful, then airport expansion will be pushed with some financial support and persuasion with the Union government.” As per reports, the Prime Minister’s office has asked to provide more powers to the states on deciding the airports they want to launch flights from and on a few other things. Under the proposed regional connectivity scheme, the government will offer a subsidy to flights that connect currently non-operational airports at a fare of Rs 2,500 per hour of flight. The civil aviation ministry has hired a consultant to prepare a detailed plan for implementation of the scheme. Brice Butler Jersey
Market forces should decide airlines’ pricing norms: Experts
Even as passengers looked forward to the government implementing its new proposals to regulate cancellation, refund and baggage norms of domestic airlines, aviation industry experts warned that potentially this can even push up fares and that pricing policies must not be micro-managed. Industry observers said the new proposals tend to tweak the free-market pricing mechanism which could lead to negative consequences for the sector-as will be the case once Saturday’s proposals unveiled by the government come into force to rein in indiscriminate practices of some domestic passenger carriers. “The government should refrain from getting into micro-management issues like free baggage allowance, baggage-fee per kilo. It is best left to market forces,” said Amber Dubey, partner and India head of aerospace and defence at global consultancy KPMG. “Airlines that over-charge or inconvenience passengers will anyway get punished through word of mouth and social media. The government should consider stepping in only in extreme cases-but this definitely appears to be an overkill,” Dubey said. Jean-Sebastien Giguere Authentic Jersey
GoAir set to take delivery of its first fuel-efficient Airbus
Private budget carrier GoAir is all set to take the delivery of its first fuel-efficient Airbus A320 neo plane this week. “Our first A320 neo (new engine option) will be landing at the Indira Gandhi International Airport here on June 2,” a GoAir official said. “The aircraft should be in operations by early next week,” the official added. The Mumbai-based carrier was originally scheduled to induct these aircraft in the fleet from April this year. As of now, another budget airline IndiGo is the only operator of A 320 neo in India . The induction of the new aircraft will increase GoAir’s fleet size to 20 and make it eligible to fly it international. As of now, it has 19 Airbus A320 planes in the fleet. The existing regulation requires an Indian carrier to have a minimum five years of domestic flying experience and a fleet of at least 20 planes to fly overseas. Airbus claims that this new type of aircraft burns 10-15 per cent less fuel than the existing versions. The Wadia Group-promoted no-frills carrier had, in June 2011, placed order for 72 new A320 neo aircraft, valued at about Rs. 32,400 crore on list price, with the European aviation major Airbus. “GoAir plans to induct a total of eight A320 neo planes this fiscal of the 72 planes on order,” the official said, adding the first A320 neo is expected to be deployed on the Mumbai-route. Tobias Rieder Authentic Jersey
Special group to fix maintenance issues at Chennai Airport
A special group will soon be formed to fix various maintenance issues at Chennai airport, Minister for Civil Aviation Ashok Gajapathy Raju said. Recently, he took to Twitter to make the announcement after top officials of the Civil Aviation Department and the Airports Authority of India inspected the airport and recommended measures for improving the airport. He tweeted: JS MOCA and chairman AAI inspected Chennai airport; suggested changes. Special group to be set up for improving facilities and maintenance. The inspection by the officials came weeks after Mr. Raju said he had received several complaints on the maintenance of the Chennai airport. Ken Boyer Authentic Jersey
Airport at Kothagudem to take wing soon
The Central government has given its nod for setting up of an airport at Kothagudem in the district, said Minister for Roads & Buildings Tummala Nageswara Rao. He was speaking at a special meeting of the Zilla Parishad held here on Sunday. The meeting was convened in connection with the ensuing Telangana State Formation Day celebrations slated for June 2. Addressing the ZPTC members and MPPs at the meeting, the Minister said the land acquisition process for the proposed airport at Kothagudem, the coal hub of the State, will be completed soon and the land required for the proposed mega facility will be handed over to the executing agencies. Jaromir Jagr Womens Jersey