ANALYSIS: Restrictive practices are limiting India’s airlines

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Comment from the April 2013 edition of Airline Business

Incredible India is the slogan for the country's international tourism campaign. It is also used ironically by those who have dealt with Indian bureaucrats. And, despite the finance ministry's recent attempt to promote investments and growth amid a faltering economy, India's civil aviation ministry continues to be enamoured with red tape.

India's potential and challenges are clear. Passenger numbers, which reached 120 million in 2011, could hit 450 million by 2020. Yet Indian airlines lost $2 billion in the year ended 31 March 2012, after losing $3.5 billion over the previous three years. That led New Delhi, in a surprisingly liberalising mood, to ease the restrictions on foreign airlines and allow them to own up to 49% of an Indian carrier.

Etihad and Jet Airways continue to court, with an engagement imminent. However, Malaysia's AirAsia and its chief executive Tony Fernandes took the first plunge via a joint venture with India's largest business group Tata Sons. The low-cost carrier group will bring cost-discipline and competition to India, benefiting domestic and international passengers. Yet, it has received only a tepid welcome from civil aviation minister Ajit Singh and his officials.

A day after the announcement, Singh lamented that he would have preferred Tata to start an airline on its own. He then hinted at "procedural issues", saying the new policy may limit foreign airline investment into existing carriers only.

The commerce ministry, which drafted the policy, clarified that it applied to both new airlines and existing ones. Its Foreign Investment Promotion Board has cleared the AirAsia joint venture, leaving the ball in the civil aviation ministry's court.

Civil aviation ministry officials then suggested AirAsia may get only a "regional" permit to bolster a policy encouraging connectivity to tier two and three cities, limiting the airline to operations around its Chennai hub. They are "concerned" about AirAsia's plans to quickly grow its fleet, hinting that this could be curtailed by the ministry's aircraft acquisition committee - which Singh heads.

"AirAsia is a business, not a charity. Fernandes has said that they will fly to tier two and three cities, but the airline will not serve unprofitable routes that the bureaucrats promote for political reasons," says one exasperated observer. "And why does the ministry approve aircraft imports? That is a business decision backed by banks and leasing companies. Bureaucrats must have other pressing things to do."

They certainly do. Slots could be more efficiently allocated and unused ones redistributed quickly - Kingfisher Airlines stopped flying international services a year ago but the ministry only just took away its rights. A proposed civil aviation authority is a good idea only if it is independent and does not just add another layer of bureaucracy.

Pressure could be put on the finance ministry, state governments and airports to cut fuel taxes and landing charges. These make India one of the most expensive markets in the airline industry. India does not need more committees studying tier two and three cities, only more definite plans to build airports across the country.

Air India should be fixed or shut down. Even if a tenuous argument for the state's continued investment in the beleaguered flag carrier is made, the ministry should enforce KPIs and force the management and employees to reform the airline. Otherwise, the airline will continue to be a black hole that sucks up taxpayers' money.

With so much on their hands, Singh and his ministry should stop wringing them over AirAsia.

Fernandes says that he has become "battle-hardened" after dealing with regulators in other Asian countries, but his biggest battle lies ahead. As a country, India is incredible - but so are its bureaucrats.