The benefits of further capacity expansion will be significant. Notwithstanding the massive expansion in the airline industry over the past decade, there are still challenges to commercial viability, as well as policy-related restrictions on expanding capacity. The proposed measures pave the way for a significant expansion in capacity along with a potential rationalisation between domestic and international routes, which will provide much more convenient access to a much larger number of domestic destinations.
But there are components to the draft policy that carry unfortunate reminders of a discredited micromanagement approach. For one, the ambivalence on the much-despised "5/20" rule distorts the playing field against the new domestic players. It makes no sense to allow any foreign carrier to offer services while younger domestic carriers are denied permission to fly overseas. This rule needs to be done away with to create a genuinely competitive environment. Second, the government seems to be unable to resist the temptations to cross-subsidise air travel, an instrument that has been used for many years with limited success. Imposing a cess on some routes reduces demand on those, while lower fares on the less dense routes do not guarantee that traffic will increase. This obsolete approach must be replaced with a new one that emphasises development of an ecosystem that encourages flying to and from new destinations. This requires significant investment in airport infrastructure, which could be done through public-private partnerships as the policy proposes, but needs to apply reasonable user charges on airlines, which make the airports financially viable. The bottom line is that an effective civil aviation policy must encourage investment and expansion of services, which will be rendered viable through sustained growth in demand.