The 5/20 Rule

NCAP 2015 Regional Aviation India

This section discusses the 5/20 rule that the Ministry is planning to keep, abolish or replace. Summary:

  1. Only 4 airlines / airline groups in India fly International.
  2. Air India and Jet Airways deploy more capacity on international than domestic.
  3. 5/20 has served no purpose so far.
  4. Non-Uniform implementation of rules: Air India Express on a separate AOP was allowed to fly international from day one.
  5. 300/600 DFC rule: Theoretically, a LCC with a 180 seat airplane can accumulate 600 DFC in 1.5 years.
  6. 300/600 DFC rule has loopholes that defeat the Ministry’s intent.
  7. 300/600 or 5/20 rules prove no point.
  8. Abolishment of 5/20 is necessary to help achieve domestic travel targets.

The rule regarding permitting domestic carriers to fly international has very evidently been swayed by vested interests. This rule needs an airline to have flown domestic for atleast 5 years and have a minimum fleet of 20 aircraft before it can fly international.

Of the 10 airlines in India, today, only four airlines fly international. Of those four, only Air India and Jet Airways fly international on massive scale. Jet Airways and Air India (Including Air India Express) together contribute to 92% of the total international capacity deployed by Indian airlines. On the other hand, these two airlines together contribute to just 38% of the domestic capacity deployed by Indian airlines.

International and Domestic Capacity Shares

If 5/20 is to promote domestic connectivity at the expense of international flying, then one questions the huge imbalance of international-domestic operations by these two airlines. To compare the domestic to international mix of Jet Airways, the airline’s domestic capacity is just 62% of the airline’s international. Air India’s domestic capacity is just 36% of the airline’s international capacity. IndiGo and SpiceJet deploy international capacity equivalent to just 12% and 27% percent of their domestic capacity, as these two airlines are more focused on the domestic market.

Those that have the right to fly international either over use it or under use it. The 5/20 rule has served no purpose, so far, in trying to strike a balance between international and domestic capacity.

Domestic and INternational Capacity fo all 4 international Indian airlines CY2014

If India really wishes to witness the economic benefits of increased domestic travel, it must allow for international flights of all domestic carriers. This will bring in foreigners who may then need to fly domestic to their destination. This is the only way to increase the chances of realising a 300 million domestic ticketing by 2022, as the demand will not come from within the country alone.

A peculiar case is that of Air India Express, which is registered as Air India Charters Ltd. Although a subsidiary of Air India, it is a different airline, with a AOP number S-14, distinctly different from Air India’s S-9. S-14 for Air India Express was issued on 22nd April, 2005. Aeronautical Information Circular (AIC) 2 of 2005 dated 21st January 2005 specifies the 5/20 rule. Yet, the airline started operations on 29 April 2005 with a flight from Thiruvananthapuram to Abu Dhabi. The first flight was international, despite being on a separate AOP. Even if one is to argue that this is a subsidiary of Air India, it was the first time that the Boeing 737NGs were operated by Air India. The airline had no prior experience, crew, nor maintenance facilities for the 737NGs. A new operator, with a new aircraft on which it had no prior experience, managed to fly international from day one.

The Ministry proposes three options: Retain the 5/20 rule, or abolish it, or replace it with the need for airlines to accumulate 300 domestic flying credits (DFCs) before commencing flights to SAARC countries and countries with territory located entirely beyond a 5000 km radius from New Delhi, and accumulate 600 DFC before starting flights to the remaining parts of the world.

Theoretically, an airline that inducts one 180 seat Airbus A320 every month, and deploys every aircraft immediately on 8 flights a day can accumulate 600DFCs in 1 year 6 months, ignoring the capacity deployed on CAT II routes.

5_20 Rule 300_600DFC Airline achieve target 1.5 years

However, till September 2015 (16 months of operations), AirAsia India has accumulated 153 DFCs. At the present capacity rates of AirAsia India, of 20 DFC per month, AirAsia India will accumulate 300DFC before May 2015, and 600DFC before July 2017. July 2017 will be 3 years of operations of the airline. Of course, as the fleet size builds, capacity gets added and the target DFCs are achieved sooner.

However, the 300/600 rule serves no real purpose at all. If an airline must earn atleast 300DFC every year to keep flying international, why must it earn 600DFC in the first place? The purpose of DFC is to encourage more domestic flying. Now consider this : 7 Airbus A320s flying all year can earn more than 300 DFC. If an airline has a fleet of 100 A320s, does it mean that it can deploy 93 airplanes on international and just 7 on domestic to meet the requirement? Wouldn’t this be the opposite of what the Ministry is hoping for – greater domestic connectivity?

The options of international destinations with 300DFC are SAARC countries and countries entirely beyond a radius of 5000km from New Delhi. SAARC countries are operationally and commercially doable. However, flying beyond 5,000km is both operationally and commercially unviable for a startup airline. Flying beyond 5000km will need airplanes with longer range, and will reduce the number of narrowbody or regional aircraft that India will need to catalyse the domestic passenger growth. The 5000km radius from New Delhi excludes nearly the whole of Asia, and the whole of the middle east  – the very places from where there is sufficient traffic.

Below is the map showing a 5000km radius from New Delhi.

5000km radius from New Delhi

Since there is no option other than the 5/20 or the 300/600, it is best for the ministry to abolish the rule altogether. Abolishment will pull in traffic that will further feed the domestic market. The economy multiplier effect will do good for the country and consumers.

However, many start-up airlines that are either insufficiently capitalised or poorly managed, may have safety issues that may eventually downgrade India’s rating. Close monitoring of flight safety at airlines is required.

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