How to open up the aviation sector in India

It is welcome that low-cost carrier AirAsia is taxiing for takeoff in the Indian skies and has promised to be "disruptive in pricing" in an extremely fare-sensitive market — access to aviation is still a dream for about 99.5% of the people. What is not welcome, however, is the reported move of AirAsia India to unilaterally "unbundle" a host of services and charge even for baggage without clearance from the Directorate General of Civil Aviation. Note that while airlines in India are allowed to unbundle or charge for services provided such as in-flight refreshments, they need to inform the regulator beforehand.

Now, AirAsia is reputed to be have the world’s lowest cost per available seat kilometre, which it is able to maintain in several ways. It makes use of low-cost terminals, has a high aircraft utilisation rate, or quick turnaround time between flights, and low ticketing costs with most sales done on its website (so, low commission charges).

The airline is also known to earn as much as 18% of its revenues from ancillary services via unbundling (the like figure for full-service carriers is in the low single digits). All the same, it would earn valuable brand equity by keeping a set of services included in the airfare. The growth potential for aviation in India is massive, it could be the world’s number one by 2030, says a recent KPMG report.

But we need proactive policy. The notion that flying is for the elite needs to be dropped. The Centre needs to rationalise local taxes on aviation fuel — as a few states have done — incentivise maintenance, repair and overhaul (MRO) services and shore up connectivity by having no-frills airports in tier-III towns (the concept of low-cost terminals is yet to take wing). At present, all MRO activity gets done outside India, thanks to obtuse policy. In aviation, the sky is the limit here.