Industry
More rights for foreign airlines: who will fly high?
Summary
- Bilateral rights are granted under air service agreements between two countries. They are a set of commercial aviation rights granting an airline the right to enter another country’s airspace.
With a new government at the Centre, bilateral air service agreements are back in focus. In the past, these agreements, which give certain rights to countries, have elicited mixed reactions from stakeholders. Mint explains their working, the impact on airlines and passengers.
What are bilateral rights?
Bilateral rights are granted under air service agreements between two countries. They are a set of commercial aviation rights granting an airline the right to enter another country’s airspace. The rights cover the frequency of flights, number of seats mounted by carriers from either side and the type of aircraft. These bilateral air service agreements also mention the exact Indian airport or city from which a foreign airline can operate. Currently, India has bilateral air service agreements with 116 countries. The last major increase in rights, on a busy route such as India-Dubai, was agreed in 2015.
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Why isn’t India increasing such rights?
Since 2016, India has been wary of enhancing bilateral entitlements (more seats, flights, airports etc.) as foreign airlines have been able to better utilize their share of bilateral rights. Indian airlines weren’t able to fully exploit entitlements as they are saddled with older fleet and fewer wide-body planes (suited for international flights). The broader policy of the government has been to wait for global aviation hubs to be set up in India and make domestic airlines utilize their rights effectively. This was especially the case when it came to agreements with Dubai, Bahrain and other countries in West Asia.
What do foreign airlines have to say?
The domestic air travel penetration rate is only 4-5%, implying runway for growth. Foreign airlines see this as an opportunity. Also, Indian travellers are ditching domestic travel for short- to medium-haul foreign destinations. As a result, Emirates, Etihad and Saudia have been at the forefront of demanding an enhancement of their bilateral agreements.
Will increasing rights bring down fares?
An increase in the number of flights available on a specific route will invariably reduce fares, despite a sustained increase in demand as well. Routes such as India-Dubai suffer from high fares due to restricted capacity and heavy demand. Meanwhile, in order to address international ambitions, Indian airlines have placed orders for more than 1,600 aircraft. But travellers will have to wait for another decade for any good news when it comes to capacity enhancement. Aircraft deliveries take time.
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What is the new government likely to do?
It’s likely to seek an increase in foreign flight quotas on existing destinations such as Dubai, Qatar and Singapore. New Indian airlines want rights to fly to these lucrative markets, and older ones want enhancement for more flights. Two officials aware of the plan told Mint talks with the industry started even before the elections in view of the demand from both airlines and some Indian airports. However, the domestic industry remains divided—some fear it could harm Indian carriers in the long run.
