Why It Matters

Delhi fuels key aviation sector

In India, the world's fastest-growing aviation market, taking a flight is actually not all that common. There are just over 80 million fliers in a country of 1.25 billion. A majority still prefer travelling by train, the cheapest form of long- distance travel.

So, the revamped aviation policy, finalised after a decade, is important for a sector that is growing fast. But the industry remains a tough space for carriers because of the high costs of operations and the price-wary consumer. The sector saw the collapse of Kingfisher Airlines in 2012.

The policy tries to strike a balance between protecting passengers by keeping airfares low and cutting down on certain regulations to improve ease of doing business.

The government tries to make flying more affordable by capping airfares for "un-served" and new routes at 2,500 rupees (S$50) for a one-hour flight. It encourages the setting up of no-frills airports to connect smaller cities and keeps the levy low on all departures, except those in remote areas. At the same time, it has offered to give financial aid if the airlines suffer losses on such routes.

The rules hope to encourage more people to take to the skies, particularly in smaller cities and towns that are expected to power the sector's expansion. India is predicted to become the third-largest aviation market by 2022 and the largest by 2030.

The policy has received mixed feedback, with some saying that the rules do not go far enough to liberalise the sector.

It is now easier for newer domestic carriers to fly overseas, with the government removing a restriction mandating five years of domestic operation. But newer carriers still need to have 20 planes or 20 per cent of capacity on domestic routes.

Adding to the revamped aviation policy yesterday, India said it will allow foreign entities, such as funds and portfolio investors, to fully own local airlines, up from an earlier cap of 49 per cent.

A version of this article appeared in the print edition of The Straits Times on June 21, 2016, with the headline 'Delhi fuels key aviation sector'. Print Edition | Subscribe