Monday, April 11, 2005
India's open skies policy
Some of you have been reading about India's new open skies policy, I presume. First, there was an agreement signed with the U.K., followed by one with the U.S. Negotiations are now ongoing for a similar agreement with Canada. Very briefly, an open skies agreement ensures unrestricted access by any number of carriers without specifying capacity, cities catered to, fares etc. An open skies agreement is almost always beneficial to the consumer since it brings down prices and increases the frequency of services, something that anyone who has tried to book a ticket to India in December will welcome.
Dramatic increases in the number of flights are also an absolute necessity for the Indian tourism sector to perform anywhere near its true potential. Andy Mukherjee addresses some of these issues in a column written for Bloomberg.
India needs visitors. Its "openness," measured as the combined share of inbound and outbound travel in gross domestic product, is lower than that of Iran and Nigeria. Nor is the 1.27 percent share much higher than 1.01 percent in 1995, according to World Bank figures. The continent-sized country got only 3.4 million overseas visitors last year, compared with 8.3 million in the city-state of Singapore. Lack of flights is the single biggest reason for India not getting its fair share. Between November 2004 and March 2005, when the Indian government temporarily relaxed controls on overseas flights to meet demand for peak season, it got flooded with requests for 2,400 additional flights, or about 500,000 seats.
If the malaise and the remedy are both known, as is the potential gain from easing the flight crunch, why isn't the government opening India's skies to all? The reason is Air India Ltd., the state-owned flag carrier. It was a leading Asian airline before the government nationalized it in 1953. Since then, the carrier has been usually profitable only because it has operated in a cozy cocoon, protected by the Indian government not only from foreign competitors but also from non-state-owned Indian carriers.
All that's changing now. There's pressure from foreign governments for greater access to more Indian cities. Meanwhile, private Indian airlines have prevailed upon the state to end its monopoly on international flights. From April 14, Jet Airways (India) Ltd., the country's biggest non-state airline, is starting a daily flight to Singapore. It will be joined next month by Sahara Airlines, another private Indian operator. Prices will crash on the lucrative -- and usually overbooked -- sector. And this will soon happen on other routes too, as Jet and Sahara extend their reach.
Dramatic increases in the number of flights are also an absolute necessity for the Indian tourism sector to perform anywhere near its true potential. Andy Mukherjee addresses some of these issues in a column written for Bloomberg.
India needs visitors. Its "openness," measured as the combined share of inbound and outbound travel in gross domestic product, is lower than that of Iran and Nigeria. Nor is the 1.27 percent share much higher than 1.01 percent in 1995, according to World Bank figures. The continent-sized country got only 3.4 million overseas visitors last year, compared with 8.3 million in the city-state of Singapore. Lack of flights is the single biggest reason for India not getting its fair share. Between November 2004 and March 2005, when the Indian government temporarily relaxed controls on overseas flights to meet demand for peak season, it got flooded with requests for 2,400 additional flights, or about 500,000 seats.
If the malaise and the remedy are both known, as is the potential gain from easing the flight crunch, why isn't the government opening India's skies to all? The reason is Air India Ltd., the state-owned flag carrier. It was a leading Asian airline before the government nationalized it in 1953. Since then, the carrier has been usually profitable only because it has operated in a cozy cocoon, protected by the Indian government not only from foreign competitors but also from non-state-owned Indian carriers.
All that's changing now. There's pressure from foreign governments for greater access to more Indian cities. Meanwhile, private Indian airlines have prevailed upon the state to end its monopoly on international flights. From April 14, Jet Airways (India) Ltd., the country's biggest non-state airline, is starting a daily flight to Singapore. It will be joined next month by Sahara Airlines, another private Indian operator. Prices will crash on the lucrative -- and usually overbooked -- sector. And this will soon happen on other routes too, as Jet and Sahara extend their reach.
