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New system has more grey areas than abolished 5/20: AirAsia

The aviation space has been in focus with the government proposing to do away with the 5/20 rule. However, this puts new players into disadvantage. As per the proposal, new airlines will be allowed to fly international for over six hour flight. The new system also involves earning domestic flying credits that may give some protection to the existing airlines. Moreover, it also bars new airlines from flying to Gulf and Southeast Asia. For flying to these destinations, these airlines will need 600 DFCs (Digital Flying Credits).

In an interview to CNBC-TV18’s Shereen Bhan, the board of AirAsia, including founder & group CEO Tony Fernandes, AirAsia India CEO Mittu Chandilya and Non-Executive Chairman S Ramodarai discuss on the new rules and ease of doing business in India.

Below is the transcript of S Ramodarai, Tony Fernandes & Mittu Chandilya’s interview with Shereen Bhan on CNBC-TV18.

Q: You have spoken candidly in the past about the ease of doing business in India and this government has been talking about how it would like to improve the ease of doing business specifically on the 5/20 rule. The proposal now is to do away with 5/20 but to link international licenses to your ability to fly domestically and connect or improve domestic connectivity? Domestic credit is what the government is now talking about and maybe in the initial years you won’t be even able to do the short-haul international route. You will possibly be able to do only the long-haul international route. How do you take this?

Fernandes: Obviously we are extremely disappointed. We saw this is an opportunity now to rationalise the Indian domestic aviation market, make it more like the rest of the world where there is no differentiation between international and domestic. We came in here to invest, to build, to create jobs, to bring tourist into India, to allow small-medium enterprise (SME) businessman to take their business outside of India. AirAsia has been a great facilitator for SME businessmen to move forward.

The new system is complicated and I am not sure it benefits the people of India but that’s what we are seeing at the moment, the policy. We were hoping that the 5/20 rule would be abolished and that would allow Indian airlines, new airlines to compete on a level playing field. I think now you have a three tier system; you have incumbents who looking at it. I assume all the potential to do domestic and international short-haul and long-haul. You have foreign airlines that have an advantage over the new Indian airlines, so Emirates can fly in and fly out whenever they want to internationally yet airline such as ours are third division airline which is only allowed to operate domestically. So it’s really disappointing. However, for me, I was so excited about coming in here, we have invested, we were more confident with the new government coming in that this is going to be a new beginning for Indian aviation.

Q: Does this alter your view on India; does this alter your expansion plans for the Indian market?

Fernandes: Yes, it will alter our expansion plans because of this law. I am still optimistic that common sense will prevail and if you put people first then the decision is very simple; compete and allow the best man to win. I have come from a free market. I had to compete with government airlines, state owned co-operations but if you look at the success of AirAsia in south East Asia coupled with other airlines, the people have benefited. We are phenomenally popular product in Malaysia, Thailand and Indonesia.

Q: As it stands today and this has become a contentious issue. We have seen back and forth on what to do with 5/20 for the last 24 months now if not longer but aggressively over the last 24 months specifically. What does this mean now as far as AirAsia’s expansion in India is concerned? You have brought in your fourth aircraft, behind schedule; Vistara that launched in January has already brought in its sixth aircraft. Is this going to mean a more wait and watch approach as far as AirAsia India is concerned?

Chandilya: We have big ambitions. What we decided to do was instead of inducting planes in when the frequency that we had hope for and then having to change our network strategies, change bases, change locations that we fly to. We said let’s take a pragmatic view and see how the regulations pan out.

Frankly it’s very disappointing to see what has come out. Our view has always been the 5/20 needs to be abolished and abolished in its entirety without restrictions, without any kind of prohibitions or clauses. Unfortunately what is coming out now has a lot more grey area to it and has a lot more areas which would confuse and make it more complex for airlines to adhere to flying internationally. We still have our plans for growth but we are still looking at this policy.

Q: Would it be safe to assume that if this were to become the norm and this is of course pending cabinet approval but if this were to become the norm then we are looking at AirAsia India going slow as far as its expansion is concerned?

Chandilya: If you break it down, we have always had a plan to grow robustly within the domestic market but we are ambitious about going international and whole idea is that we want to — as Tony just said give more Indians the ability to fly internationally, abroad, get them to places that they have never gone before and give people who have never flown an opportunity of flying.

Q: What about the domestic opportunity because you articulated that India is a size of a continent, the domestic opportunity is huge. Don’t you believe that maybe it would make economic sense if you were to focus on domestic connectivity even with the international constraints being in place and that would perhaps serve you better?

Fernandes: There are two things here – (1) India is unique and (2) domestic fuel is much higher than international fuel. If you were to get rid of state taxes then again you level up the playing field. So we have so many different steps here and to compete effectively — we are competing with one hand tied behind us when Indigo or Air India or Jet Airways has an ability to fly international, ability to hub and spoke and yet we are not able to compete.

Q: If this continues, would you review your investment decision for India, would you review being in India?

Fernandes: After this I would say we will fight. This industry cannot be controlled by one or two people. Yes, we may take a step backward now.

Q: But you still believe the vested interest at play. You don’t believe that this is a government decision, a sound government thought through policy. You still believe that this is the rest of the industry ganging up against you and Vistara?

Fernandes: Yes 100 percent because look at the rest of the world. The vested interest has been able to convince that this is beneficial. We, Vistara and whoever else has to show that actually India benefits by more competition.

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