Tuesday, December 20, 2016

Exclusive Interview with Jayant Sinha, Civil Aviation Minister

Seasonal Magazine met with Minister of State for Civil Aviation, Jayant Sinha, for this exclusive interview:

Once again, it is festive time across India and the world, and for the aviation sector it is boom time as well as blame time. Boom due to the year-end holidaying, and blame due to the opaque surge pricing extracted by all airlines in the country.

This time, the effect is more felt by more passengers, as thanks to PM Modi's demonetization drive, most corporates have been driven to salvage their badly hit operations by squeezing out impossible performances from their employees. This has translated to last minute leave approvals for professionals and managers, and good business for the predatory airlines.

When Seasonal Magazine met Jayant Sinha, Minister of State for Civil Aviation, in New Delhi, for this exclusive interview, we raised the issue of surge pricing by the various airlines, but the Minister Sinha was equally concerned about the commercial feasibility of doing away with surge pricing, citing that it was a universal model followed by airlines across the world.

Despite the ground realities with regard to demonetization, especially the kind of sharp pain it has caused to the common man, Jayant Sinha strongly defended Modi's demonetization plan citing the need to root out corruption. But it is an open question whether a minister as learned and experienced as Sinha would have agreed to demonetization if he were the minister in charge of finance when it happened.

Jayant Sinha had been handpicked by Prime Minister Narendra Modi, from his earlier role as Minister of State for Finance, to nurture India’s fast growing air travel sector, as the vast country has its own unique challenges in growing this vital transportation mode. Going by his initial successes in the civil aviation ministry, Sinha might succeed in his objectives, even if his earlier portfolio of finance is likely to suffer hugely due to demonetization.

Because, if India wants to be a truly developed nation then our aam aadmi need to fly. Towards this, the Minister of State for Civil Aviation, has launched the much awaited UDAN scheme which will see the number of airports in the country getting doubled within the next few years. Plans are on to operationalize available airports in various tier-2 and tier-3 cities across the country through a unique bidding process for operating smaller planes.

Jayant Sinha understands that to achieve parity with rail in volumes, the air fares need to be competitive with a/c train coaches, but feels that eliminating surge pricing by airlines is not the way forward.

Sinha is also on track to develop airports and their efficient use by airlines through the hub-and-spoke model, and is also ambitious about introducing voice and Wi-Fi data services on flights. He foresees a future where air travel in India will be as ubiquitous as mobile phone usage. 

Seasonal Magazine recently met Jayant Sinha for this interview on a wide range of topics:

Since taking over, you have launched the long pending UDAN project. How will India benefit from this scheme in the long run? Is the plan to double the number of airports, a part of this scheme?

Let me give you a few key highlights of the scheme. Right now, we have 75 airports with scheduled services. And there are many airports, around 35 in our estimation, in our Tier-II and Tier-III cities that are operational but don’t have commercial flight service. So our hope is that by launching UDAN, we can make many of these airports operational, over the next 2 years, and we will double the number of operational airports from 75 to 150. Among the 35 airports I mentioned are Kanpur, Agra, and Gwalior where we need commercial flights operating on schedule. Every year, there would be two schedules - summer and winter schedules. Once an airline commits to a schedule, then you have to fly flights on a regular basis. Therefore, what we would want to do is to get our airlines like Indigo, Spicejet, GoAir, and AirAsia to be able to launch commercial services into these under-served airports.

How is UDAN going to be funded?

Through UDAN, we have come up with a unique market-based mechanism, where we will provide viability-gap funding and subsidies for these airlines to fly into these airports. That fund will be financed through a levy, which we are calling as the regional connectivity fund, which is going to be based on the type of aircraft and the distance that the aircraft flies and the subsidy will be used to subsidize flights to these underserved regions. So the airline has to bid for this fund and we believe this will bring about competitive bidding so that we may not have to get subsidies at all for people to fly to these routes. Along with the subsidy, we have also provided some important benefits. We have lowered their costs dramatically. We have reduced the taxes on the aviation turbine fuel to only about 3%. We have waived off all airport and navigation charges for these flights. In addition to that, we have been able to lower the costs of operating in these airports by having the local bodies and state governments extending support.

What will be the main attraction for the various airlines to be a part of UDAN?

Along with the cost-reduction measures, we have decided to give exclusivity to these routes for up to 3 years. So if you get the Gwalior-Delhi route, you win it by bidding for it, then you get the route exclusively for 3 years. But you have to stick to a certain price cap. So, half the seats have to be at a certain price cap or lower. This has been done so that at different flying distances, there is a different price cap. What this entails is that for a one hour flight, it shouldn’t’ cost more than 2500 rupees. Half the seats are capped in terms of price because you are getting the benefits and half the seats can be at market price. So in a nutshell, the airline is bidding for a specific route and you are bidding a certain subsidy level for 50% of the seats. Suppose you are flying a 72-seater, you are bidding for a subsidy on 36 of those seats. This we think will jumpstart the regional aviation market into Tier-II and Tier-III cities and will add many more travelers to our overall market. That is what the UDAN scheme will do: “Ude Desh Ka Aam Naagrik.”

You have mooted a plan to use the smaller airstrips lying unused in states like Tamilnadu for the use of smaller aircraft. Most of these are, however, in tier-2 or tier-3 cities where people travel more by rail or road. Do you think airlines will bid for these strips to fly 9-seater or 18-seater planes?

The answer is yes. The price cap is such that it makes travelling by air very competitive compared to other modes of transportation. Obviously when you fly by plane, you get many conveniences like comfort and time saving. So even if the prices are marginally higher, we believe that taking the time factor into consideration, the value proposition of flying is high.

Do you think that a mere bidding system will transform the aviation sector in the terms you elucidated or is there a need to provision some money to ensure that the services sustain for a longer period of time?

See, it is very simple. Suppose an airline wins a route, let us say it is the route from Bikaner to Jaipur where they bid very low for it that is a zero-subsidy level and they get it exclusively for 3 years under an agreement that they would fly 7 flights a week. But, then we find out that they do just 3 flights a week, then in 6 months we can take the route away from them and re-bid the routes. Those who are not able to mount the service, will have to give up the route. What may happen is that, let us say, somebody bids for 40 seats, since they have to bid for seats also and if the 40 seats are not competitive, they will drop out and the 9-seater bidder will come in and be given flying rights to these routes.

While domestic air travel has improved to 9 crore passengers, just the air-conditioned coaches in trains carry 13 crore people, and this is set to rise as the common man is increasingly using a/c coaches in trains. When do you think Indian air sector will achieve real parity with rail?

“Rail parity” is a term that I coined. As I’ve said, you have to look at it in terms of fares. So, today a/c coaches vs air fares are about the same. You can also look at it in terms of segment of travelers: you had cited only domestic travelers but if you are to include domestic plus international travelers, then the figure nears 14 crore. But you have to account for the fact that domestic traffic is growing at 20% a year right now. Even if it were just 10%, and rail AC coach traffic will be pegged at 13 crore a year, then in a few years time, there is no reason why air traffic wont can’t catch up. Every indication that we have now says that air traffic is set to grow 10-15% a year for many many years. The idea is that flying will be available to everyone and it will be affordable and not an elitist service. There was a time when mobile phones were considered to be an elitist asset but it is increasingly becoming a mass product. This is how I would locate the tremendous potential of air travel. It is becoming increasingly conspicuous over the years: an air traveler who used to fly just once in 2-3 years now fly 2-3 times a years because of the affordability.

You cited the management of a regional connectivity fund for the UDAN scheme. Let us say even after a successful bid of a route, there could still be a failure on the operator’s part. So do you see merit in the government chipping in whenever an airline fails to meet the requirements just so that the entire process does not get derailed?

Of course, we are totally committed to its success. We believe that the funding of 500 crores is sufficient for the UDAN scheme. If there is competitive bidding and we find a lot of people coming for air services for different routes, then we will see how other alternative modes of funding will take shape. For the moment, let’s see how the bid works.

Why is the ministry still allowing variable pricing or surge pricing on airlines in a country like India which has been struggling to make the common man fly? Often it is the common man who has to book tickets in an emergency at the last moment, and he is the one hit by this surge pricing..

We have looked at the question of pricing very carefully. We have found that the final bucket of tickets left in a situation of emergency booking is a very small percentage of the total number of tickets sold. Only 1-2% of the tickets comprise the higher fare bucket whereas the vast majority of them are sold at the lower fare buckets. In aggregate, the fare pricing is coming down sharply over the years. Overall people are getting much cheaper tickets and as long as people plan sufficiently in advance, they will get much cheaper tickets. Yes, like in any other deregulated, open and competitive sector, when you pay at the last moment you may have to shell out more. We have found empirically that the number of seats sold at the highest price point is very low. But, there are exceptional situations, when for example the Kashmir crisis happened and people found it tough to travel to Kashmir and during the Jat agitation, we relaxed the fares so that people weren’t burdened during an emergency. But, people have to understand that there are busy periods of the year when prices do go up and because of that it is better to plan ahead of time. So we want to encourage that behavior as well.

Why are the airlines reluctant to make the booking process across various pricing-buckets transparent? And why has been the government not pushing them hard enough?

What we have found out from the airlines is that their competitiveness and strategies takes a hit if they make their number of seats transparent. If they make it obvious as to what they are going to do, then it would difficult for them to compete. But, we are definitely looking into the matter.

You have proposed to introduce voice and data / WiFi services in Indian flights. What are the chief impediments to this proposal, and when can India see this becoming a reality?

This matter is under consideration and we are awaiting Department of Telecommunications to study this thoroughly and get back to us soon. We are also waiting to hear from the airlines if they are fully in favor of this idea or not. It’s certainly possible so we are just buying time to understand the whole feasibility of it.

Since airports and airlines are known to develop synergistically along a hub-and-spoke model, are there plans to develop larger airports that can act as highly efficient hubs?

Yes, we would also like the airlines to add more services and use the hub-and-spoke approach. Certainly, Air India is already doing this and Delhi is a hub airport. Mumbai has traditionally been a hub airport for Air India and Jet Airways. We are sure that over a period of time, more airports will serve as hubs both from a regional perspective – like how Guwahati is the regional hub for the North East - and from an international perspective – like how Delhi is right now.

On the personal front, you and your wife were buzzing in social media for giving up your spacious first-class seats for helping an ailing passenger. Do you think the airlines need to have more number of spacious seats for the comfort of such sick passengers?

I find the airlines to be very considerate for passengers with special needs. There are also aisle seats and in the emergency aisle which they set aside for people with these needs. As long as passengers plan such requirements and communicate it to the airlines, it is always possible to call these things out. All of us, like how I decided to forego my seat, will continue to show our empathy to such passengers.

A couple of questions on the demonetization move of the government. Leaving aside the question of whether the move actually targets black money or not, some commentators strongly believe that this has the potential to transform India in a way not seen since 1991. If the next few moves are played right, could India be in the midst of the largest wealth redistribution program in history?

This is a profound transformation of the Indian economy. Our honorable Prime Minister has said that we are trying to set India on a new path. The Finance Minister has said this would create a new normal for India. In the new economy, we would really have compressed the parallel black economy, much better tax compliance, less reliance on cash to prevent another black money scenario, lot more digital payments and transactions and much more convenience for consumers provided the behavior change happens. This will also result in lower cost for the financial system, which is otherwise very expensive. This will help us see through a far better economic trajectory, but decades into the future. The big structural change that has happened, very much like the 1991 reforms, will enable us to increase our growth rate and the compounding effect of the high growth rate will be extraordinary. Before 1991, our economy used to grow at an average of 4-5% every year but now it grows at 6-7%. So, yes we are far better-off since having made that structural change in 1991. This is precisely what we should expect in the coming years after this move.

Do you think it was necessary that the confidence in cash had to be irrevocably shaken – now that any future government can repeat the move?

No, not exactly. Confidence in cash has not been shaken at all. In fact, I would view this as an exceedingly important confidence booster to those who would operate within the legal system and pay their taxes. We have made it amply clear that those who operate in an illegal parallel economy will have to face severe action. This is where I think former PM Dr Manmohan Singh was wrong in his reading of the situation. Firstly, he was wrong in economic terms when he claimed that there would be a 2% reduction in GDP. You can’t view this purely in economic terms though. There are in fact two aspects which may be economic at some level but are outside the realm of economics if it was analyzed objectively. Firstly, we have send a strong signal to those outside the legal system that they have no place to hide. We have done this through a slew of measures like the Foreign Black Money Act, Domestic Black Money Act, Benami Transaction Act etc. We have conclusively shown that any violation can entail legal action. Secondly, we have shown that we have a strong state and not a weak state. That is if you carry out any illegal activity outside the legal economy, then you are on the verge of facing punitive action.

Well, this is certainly an initiative that is one of its kind in India’s economic history. But what about the reforms like electoral funding..

Well, the PM has categorically stated that a consensus should emerge and we can certainly look into it. As far as election financing is concerned, let us have a debate. We want to do this one step at a time. This is also linked to whether we should have assembly and union elections simultaneously and introduce public financing of elections. Whatever the issues or constraints are, let us see what we can do. Ultimately, it is about arriving at a national consensus. The people wanted that we crackdown on corruption and black money. The psychological message that we send through such measures is being grossly underestimated. These are non-economic, intangible in nature, which to our mind is very important.

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