India’s government plans to change the way it allocates capacity to foreign airlines from a state-negotiated method to an auction process to protect domestic carriers from overseas competition, a person with direct knowledge of the proposal said.
Foreign carriers that have already exhausted their seat capacity will need to buy additional capacity through an auction, said the official, who asked not to be named as the plan needs to be approved by Prime Minister Narendra Modi’s Cabinet. Currently, the number of seats an overseas airline can fly to India is governed by bilateral agreements between two countries.
The UAE has for years sought thousands more seats but has been refused under India's tightly controlled aviation sector. Airlines including Emirates and Etihad argue they could increase their flights multiple times if they were allowed access to the lucrative market.
An auction, instead of handing over the seats without charge through the inter-government agreement, could add to the costs and may lead to higher fares. The price gap to a domestic airline can then be exploited by Indian carriers such as Jet Airways, which is part-owned by Abu Dhabi-based carrier Etihad, and IndiGo.
Limited by smaller fleets and losses through much of the past decade, India’s domestic carriers have mostly not been able to fully utilize their capacity in a bilateral agreement while bigger overseas carriers almost always exhaust them and then demand additional capacity, the person said.
Civil aviation ministry spokesman Mayank Agrawal didn’t immediately respond to two phone calls and a text message seeking comment. The seat auction policy will be enforced only on routes that are within a radius of 5,000 kilometers (3,000 miles) from India, the person said.
Most bilateral aviation agreements hand over similar capacity to both countries. When one side exhausts the quota, the two sides need to renegotiate the bilateral to increase the total for both parties, instead of one country alone getting more seats. Money earned by auctioning the seats will go into subsidizing rural flights in India, the person said.
Source: Arabian Business