Open Skies Policy

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					AVIATION LAW PROJECT

         ON

 “OPEN SKIES POLICY”




               SUBMITTED TO:

                IAAM-NALSAR

               SUBMITTED BY:

          ADITYA MAHESHWARI
                                       Open Skies Policy


                             INTRODUCTION


Indian aviation sector – 20 years of the open skies policy
India is one of the fastest growing aviation markets in the world. The Airport Authority of
India (AAI) manages a total of 127 airports in the country, which include 13 international
airports, 7 custom airports, 80 domestic airports and 28 civil enclaves. There are over 450
airports and 1091 registered aircrafts in the country. In the early fifties, most of the operating
airlines were merged into Indian Airlines or Air India and this monopoly under the Air
Corporations Act continued till about the 1990s. 1991, was the year when the Indian
Government came up with the Open Skies Policy and the Indian skies were never the same
again.

As of today, India has 1 government airline (that’s if one considers Air India and Indian
Airlines as “Indian” – which surely was, is and will be one of the biggest disaster decisions
taken by anyone) and 7 private airlines – Paramount, Air Deccan, Jet (includes Jet Lite
(formerly Sahara), Jet Airways and Jet Konnect), Spice Jet, Go Air, Indigo and Kingfisher
(includes Kingfisher and Kingfisher Red (previously Air Deccan).

The open skies policy introduced by the Government brought such a huge change in the
aviation scene that suddenly everyone wanted to start their own airline. That’s the problem
with our country. If there’s an opportunity to do something, everyone rushes to get into it
without even realising if there are any problems or difficulties associated with it or whether
everyone would be really so successful as the others in getting into that particular field. No
one thinks about all this. At one time, phones were a luxury and the rates across the nation
were really expensive. But then there was a plethora of mobile networks which started their
operations and mobile communication rates reached the lowest in the world in India. But
everyone started encountering the message “Is route ki sabhi line vyasth hain (All the lines of
these route are blocked” because the networks were never built to encounter such a huge base
of users. The same thing happens with roads, railways, infrastructure everything in our
country. And as we will see, the same happened in the Indian aviation industry.




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Jet Airways and Sahara Airlines were the first private airlines to begin their services after the
Govt opened the skies to private players. And lo and behold! Change became the order of the
day. People were treated to a much better and organized service with well groomed crews,
better seats, easy options of ticketing and a good overall feel of being in an aircraft. People
started flocking to these airlines like never before. But still the monopoly of the two – Air
India and Indian Airlines remained on the international sector. They also had slightly cheaper
rates than both the private players. In between, a lot of other lines like ModiLuft, East West
Airlines, Vayudoot which had set up shop due to the expected boom in air travel had to close
down due to reasons ranging from the death of the head to total bankruptcy.

Around 2003-2004, another revolution took place in the Indian aviation industry. This
revolution was bigger than any other seen before and definitely bigger than the one in 1991.
Simplify Deccan – an airline started by Captain Gopinath gave birth to the idea of Low Cost
Carriers (LCC) or budget airlines as they are called in our country. He was single handedly
responsible for making millions who had not even seen a plane let flown on it, dream of
flying. With prices as low as 1 Rs (It doesn’t include taxes ), no food (with the option of
buying food at moderate prices – though some like Jet Konnect charge freaking 120 for a veg
sandwich..GOODNESS GRACIOUS!!!!).

Basically if one doesn’t want to or doesn’t have the money to spend on other things, he / she
can just buy the ticket, board the flight and reach his / her destination. He doesn’t need to
spend money on all other activities. And as usual as things happen in India, since this model
succeeded, even Spice Jet, Indigo and Go Air began their operations on this model. All these
were owned by some industrialist or the other like the Modi family, the Wadia family etc.
Suddenly the Indian aviation industry which had seen bad times during the 2001 WTC
attacks started looking up. People were lining up in hordes to travel on planes like never
before.

But then the bubble had to burst someday. With things like SARS, the economic depression,
swine flu, terrorist attacks, the industry went into a tailspin. Something had to be done and
fast. After years of serving millions of customers, Simplifly Deccan became Kingfisher Red
and merged with Kingfisher. Kingfisher is and will always be India’s most luxurious airline.
With its amazing service in terms of food, ground services, baggage handling and the overall
feel of the aircraft one surely feels that he / she is in an international airline. It’s the only
airline in the country to have been given a 5 star rating by Skytrax – The best airline rating
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agency in the world! The most famous or infamous however you may call it thing about
Kingfisher is that it employs mostly models aged 20 – 25 as its airhostesses. On merging,
Kingfisher Red though its still called a LCC, became a full cost carrier. Because one gets low
prices on very few seats and those who get should book 1-2 months earlier!! just that its
prices were lower than Kingfisher. Jet Airways acquired Sahara (Jet Lite) and Air India
merged with Indian Airlines. These steps were taken to prevent any airline from going bust
and keep the Indian aviation industry in the green.

In between all this, Paramount Airways, an airline with a unique model of providing business
class seats with economy class fares with use of Embraer Jets and having no middle seats was
started in Madurai. It positioned itself as a business airline and after capturing a 27% market
share in the South, it moved to the West, then East and is now set to move to the North.
Recently it had the highest on time performance among all airlines. Slowly but surely, it has
made a name for itself on the aviation map of the country.

This sector is greatly expected to grow as the disposable incomes of the people across the
country continue rising. But most importantly, until the infrastructure issues like the size of
the airports, the number of airports, the ability to handle more no of planes etc are sorted out,
we will continue to face the same problems that we have been facing over the years, day in
and day out.




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                                        Open Skies Policy


Need for Open Skies Policy


A recurring demand often voiced by interested parties is that, in order to promote Travel &
Tourism, India should adopt an Open Skies policy. It is argued that the current policy restricts
the access of foreign airlines. As a result potential tourists are not offered a choice of airlines
or seats when travelling to India. This problem is exacerbated during the holiday season when
it is difficult, if not impossible, to get a seat either into the country or out of it. It is argued,
therefore, that India should adopt an Open Skies approach to any foreign carrier wanting to
fly into India, which literally means allowing them unlimited service, capacity and points of
call.




Meaning of ‘Open Skies’


At the outset we must point out that the concept of 'Open Skies' is much misunderstood in its
meaning and implications. Strictly speaking Open Skies means unrestricted access by any
carrier into the sovereign territory of a country without any written agreement specifying
capacity, ports of call or schedule of services. In other words an Open Skies policy would
allow the foreign airline of any country or ownership to land at any port on any number of
occasions and with unlimited seat capacity. There would be no restriction on the type of
aircraft used, no demand for certification, no regularity of service and no need to specify at
which airports they would land. Defined in this manner, it is not surprising that Open Skies
policies are adopted only by a handful of countries, most commonly those that have no
national carriers of their own and that have only one or two airports. No sovereign country of
any eminence practices Open Skies least of all the European Union, UK, USA, Japan,
Australia or countries in South East Asia.




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                                       Open Skies Policy


Bilateral Treaties


However, almost 99 per cent of Members of the International Civil Aviation Organization
(ICAO) follow the system of negotiated bilateral treaties determining the aviation relations
between two sovereign Contracting parties. In fact, the bilateral aviation regime is considered
the fundamental basis for a disciplined and regulated aviation system between the nations of
the world. It provides not only regularity of operations through scheduled services but also
stipulates the basis of ownership, number of seats to be utilized, type and certification of
aircraft and visiting ports of call. The Bilateral Agreements also protect the different kinds of
aviation Freedoms granted to contracting parties by specifying the reciprocal rights to be
enjoyed by each.




Indian Bilateral Treaties


India has signed over 180 Bilateral Agreements with different countries. In 2002 the total
number of seats available was 38.09 million. Of this, the capacity operated was
approximately 19.174 million seats. Since the average size of traffic to and from the country
is slightly in excess of approximately 14 million passengers, normally the contracted rights
should suffice the traffic demand.




Utilization of Bilateral Treaty Contracts


It is in the actual utilization of the contracted seats that the problem arises. Of the contracted
amount, 50 per cent are to be utilized by the national carrier and 50 per cent by the airline
owned by the contracting country. However, whilst the foreign carriers are in a position to
use over 70 per cent of their entitlement, the national carrier is only able to utilize 29.4 per
cent of their share. It is this shortfall that creates pressure on seats, particularly during peak
tourism national carriers do not have sufficient aircrafts to be able to utilize the bilateral

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                                         Open Skies Policy


rights available to the country and enter into commercial and code sharing arrangements to
maximize revenue. Whilst this does improve their profitability in the short run, it has a long-
term adverse effect in that it deprives the country of much needed air bridges to bring in
tourists and carry trade.



Under the present bilateral system, the utilization of the traffic rights on international routes
to and from India, as negotiated by the Government of India, is restricted to the two
Government owned 'national' carriers - namely Air India and Indian Airlines and either or
both these carriers are the Indian designated carriers under the various Air services
Agreements. The Operating Permits restrict the privately owned carriers, such as Jet Airways
and Air Sahara, to operate only domestic routes within India.




   INDIA MOVING TOWARDS OPEN SKIES POLICY

The Union Government's announcement allowing private domestic airlines with over five
years experience and fleet of 20 aircraft to fly to all international destinations barring the
Persian Gulf is a welcome move and an extension of the earlier liberalisation measures
announced for the domestic aviation sector.

On the one hand, this move will see a significant improvement in the utilisation of Bilaterals
and on the other, there will be a significant improvement in the synergy of Air India and
Indian Airlines which should lead to both players operating profitably.

Bilaterals are based on reciprocity between two governments and are signed on the basis of
Air Services Agreements (ASA). India has ASAs with 97 countries of which only 46 are
being utilised which indicate that 51 are dormant and 44 being used by foreign countries
while Air India and Indian Airlines use only 20 of the ASAs — a meagre 35 per cent
utilisation of bilateral entitlements.

Jet Airways and Air Sahara, the two airlines who fulfil the criteria to operate overseas, have
between them, 64 aircraft (43 for Jet and 21 for Air Sahara) and enjoy a market share of 55




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                                       Open Skies Policy


per cent plus. In fact, including both, their fleet and the expanded fleet of Air India and Indian
Airlines, 40 per cent of the bilateral entitlement would still go a begging.

Globally, the aviation industry is going through a regulatory revolution. Bilaterals are giving
way to multilaterals. Countries in the Middle East, Singapore and even Sri Lanka follow an
Open Sky policy and slowly most of international aviation is moving towards it. India needed
these internal changes to relate effectively to the changing environment externally.

The focus for the other players in the sector like Air Deccan — the pioneer in domestic low
cost air travel — and Kingfisher, which has still to commence operations will, for now,
remain in the domestic market.




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