Charter Operations refers to hiring an entire aircraft for transportation from a charter company which offers its customers the flexibility in choosing departure as well as arrival timing and location. In Air Charter business, instead of individual seats an entire aircraft is chartered for ad hoc transportations like private journeys, urgent time sensitive cargo, air ambulance services etc. This service covers a variety of air objects like
- Light Jets
- Mid size Jets
- Super Mid size Jets
- Heavy Jets
- Turbo props
- Seaplanes etc.
It is estimated to have more than 15,000 business jets available worldwide for charter operations. Charter operations are gaining more attention nowadays across the globe with US being the largest market followed by Europe. India is one among the growing markets in World’s Chartering business.
Indian Aviation Sector:
Indian is one among the fastest developing aviation market with civil aviation being a vital part of country’s national infrastructure and a prime mover for India’s economic growth. India is the 9th largest civil aviation market in the world with a market capitalization of USD 16 million and is expected to be the 3rd in 2020 and the largest by 2030. A glance at Indian Aviation Sector is given in Exhibit 01.
FDI in Indian Aviation Sector:
Globally, the aviation industry remained as an exemption to economic liberalization with several restrictions imposed in terms of operations ownership and control. But with India’s aggressive expansion plans in civil aviation, it becomes evident that foreign direct investment is very much required to supplement the domestic capital, technology and skills. To make the sector more investment friendly GoI is reviewing FDI policies on an ongoing basis. Indian Air Transport (including Air Freight) has witnessed FDI Equity inflow of INR.2985.47 Crores ( USD. 603.96 million) from April 2000 to September 2015. This accounts to about 0.23% of total FDI inflows in the country.
On November, 2015 GoI has relaxed the FDI cap on Non Scheduled Air Transport Services. The details of FDI policies prevailing in Indian Aviation Industry ( Transport Services) is given in Exhibit 02.
Non Scheduled Air Transport Services refers to air transport services for the carriage of passengers, mails and goods between two or more places without publishing a regular timetable. They are allowed to operate a series of flights on any sector within India by selling individual seats but are not allowed to publish a time table for such flights. Non Scheduled Operators are allowed to operate to international destinations with the permission from DGCA. They can operate based on per seat basis or by chartering the whole flight or both ways. Charter Flights refers to a Non Scheduled Air Transport Services where the operator operates a single flight or a series of flights for private individuals, corporates or any public on remuneration basis as per the requirements of customers from time to time. In charter operations a whole aircraft is chartered for a particular journey rather than individual tickets sold to passengers. A brief outline of Non Scheduled Operations in Indian aviation industry is given in Exhibit 03.
Out of the total 81 Non Scheduled domestic (aircraft) operators in India, about 15 operators account to have the major share of domestic flights operated. Similarly 15 out of 37 Non Scheduled international (aircraft) operators have the lion share of international fights operated. The case is same for Non Scheduled Helicopter operators where 3 outshine among 37. These stats points out the lack of seriousness in this sector.
What could be the Outcome of Revised FDI Policy:
FDI (Foreign Direct Investment) refers to an investment made by a company or an entity on another company or entity which is established in a foreign country. With the relaxation of FDI cap on Non Scheduled Air Transport services to 100%, foreign companies can set up their subsidiary or associated companies for Non Scheduled Operations in India which will result in establishment of some new companies in this sector. Domestic Non Scheduled operators can also get benefitted by having a foreign partnership through JV’s or they being acquired by foreign companies through stake sale or having a merger with foreign companies. This will eventually result in foreign Non Schedule operators including Charter operators having their base in India.
The Key drivers for such foreign companies having their base in India are
- Flourishing Tourism Sector:
India’s relevance as a popular tourist destination in world’s tourism map is gaining much attention with the country’s recent economic growth as well as the measures taken by the government to flourish tourism sector like e-visas, promotion of cultural heritage etc. Recently India has moved up 13 notches to 52nd position in Travel & Tourism Competitiveness Index (TTCI) 2015, of the World Economic Forum which shows India’s potential to boost international arrivals as a business travel destination. The Foreign Tourist Arrivals constitutes to an important aspect of international air traffic to and from India. The details of international air traffic in India is given in Exhibit 04.
Globally, Charter airlines are contracted by tour operators to fly tourists to their holiday destinations. Big holiday companies in western countries have their own in house charter flights which operates to tourist destinations and changes their destinations based on seasons. With the bulk buying of accommodation and fuel they could effectively use their aircraft to achieve the lowest operating costs in the world and offers services similar to low cost airlines. Western Countries like US, UK are having the largest Charter markets across the globe. India has the largest share of foreign tourists arrivals from these countries which indicates the possibility of foreign charter operators from these countries to have their base in India with the relaxation of FDI cap.
- Corporate’s inclination towards air charter services:
There is an increasing trend among Corporate’s to Charter fights for its companies and its key employees. This model is finding favor as it isolates them from the entire compliance and regulatory aspect of owning a private aircraft. Business persons finds air chartering more effective as it provides the comfort of flying to destinations which are not so well connected with commercial airlines as well as provides a quicker get in and get out at airports thereby improving their productive time. Moreover these flights can offer more customized luxurious experience than commercial airlines. Because of the comfort, luxury, time saving and productivity enhancement it offers, air charter services are gaining popularity among corporate’s and entrepreneurs.
- A growing generation who wishes to make everything “extraordinary”:
With the increased access of aviation services at ease coupled with increasing income levels, the affluent in India are finding new ways to make their moments memorable which includes birthday celebrations bachelors party, pre-wedding shoots etc. on air by way of chartering flights. Also the first generation entrepreneurs are using air chartering as a novel way for hosting their corporate events like product launch ceremony in the air.
- Penetration of Civil Aviation into other sectors:
Air Crafts are finding various uses in other sectors such as Oil and Gas, Pharmaceutical, Film Industry, Event Management Companies, Sport Sector etc. for transporting personnel as well as cargo. Charter flights offer operational flexibility in remote areas and difficult environmental conditions. They are now increasingly finding application in aerial surveying, mapping the urban development and mining operations.
Impact of Charter Operations on LCC’s / FSNC’s:
Indian civil aviation, the 9th largest aviation market in the world mainly consists of scheduled and non scheduled air transport services. The scheduled operators like Full Scale Network Carriers (FSNC) and Low Cost Carriers (LCC) operates on published schedule, while the non schedule operators like Charter flights offers flexibility to customers in terms of choosing the departure as well as arrival time. The Charter airlines can outshine the FSNC’s and LCC’s in remote areas which are not well connected by scheduled operators. Chartering a whole aircraft for an organization or travel groups ensures seat availability for everyone in the organization or travel groups by selecting the right kind of flight which suits their needs. Since these flights are exclusive for the purpose its being charted for, it provides various options to the customers in selecting the trip itinerary ,date, time as well as location for departure as well as destination. By this way they can cater well the needs of particular business or groups rather than the Scheduled Carriers which are open to all commuters.
By the efficient use of aircraft through bulk booking, these charters might be able to provide fares similar to that of low cost air lines for bulk travel or business groups. There could be significant difference between a business class fare provided by the commercial airline and the cost of chartering an aircraft which may make some business persons opt for travelling in commercial airlines to their destination rather chartering a whole aircraft. But the charter airlines can leave behind commercial airlines in the priority list of entrepreneurs and business class via the comfort it provides for getting in and out of airports quickly, the customized luxury experience and the status it provides making charter flights a practical luxury for them.
Economic growth, rising income levels and the increasing number of leisure travelers may offer a good arena for the foreign charter operations in India. This might bring in competition, expertise and professionalism in the sector which can create a positive impact to the growing Indian Civil Aviation. But the infrastructural bottlenecks and higher cost of operations might make Indian skies a tough market for the chartering industry to crack. The air traffic in India is witnessing a positive growth but a lot more measures are required to make Indian Civil Aviation a business proposition for the private players which in turn help the country in achieving its target to become the largest aviation market by 2030.