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OPEN SKIES POLICY: A COMPARISON BETWEEN INDIA AND CHINA

Updated: Jul 29

[Authored by Amruth Anand, a 4th year B.B.A. LL.B. (Hons.) student at Christ (Deemed to be University), Bangalore.]

The Asian aviation market is poised to be the largest in the world in the coming decade. The focus for this growth centres around two large economies, India and china. India had the potential to become the third largest aviation market, just behind china and the united states by 2020 (when ones takes away the effect of COVID-19). The Asian market as a whole is only smaller than the European market, in terms of passenger numbers. But it was not always like this. The south and east Asian countries, which during the aviation boom in the 60s and the 80s (growth slowed in the 70s due to the oil crisis) in the west, were still developing. Flying was still considered a luxury and not the mode of transport for the masses.


The situation in India was no different, with the advent of ices. The Air Corporations Act of India, 1955 enacted by the first elected government[1] established a monopoly over the airlines that flew In India, there was the Indian airlines for the domestic aviation market and then there was Air India for international jet setters. The regulation extended to the Directorate General of Civil Aviation controlling every aspect of flying including granting flying licenses to Pilots, certifying aircrafts for flight and issuing all rules and regulations governing Indian airports and airspace and the Airports Authority Of India was entrusted with the responsibility of managing all the National and International airports was in charge of every aspect of air transport operation through Traffic control.[2]


This caused great hindrance to the economic development of the country, as a robust aviation industry is a good indicator of sound economic growth (this may be emphasised by looking at carriers such as Emirates, Singapore airlines and most flag carriers in Europe). India was therefore left to play catch up.

The airline industry had to be opened up. The two carries, Indian airlines and Air India were both running on massive losses[3] with the former under 4.4% losses in the 1990 alone. The survival of the national carriers was on subsidies. the aspect of economic growth was among the primary reasons for the deregulation, as summed up Committee on Transport and Tourism of the Parliament of India (Rajya Sabha) pointed out in its Fourth Report on Air Corporations (Transfer of Undertakings and Repeal) Bill, 1992,


"Under the new economic policy, investment in the private sector in the air transport industry has been permitted and the industry deserved from the exclusive purview of the public”[4]


The government began deregulating the airline industry with the passage of the Air Corporations (Transfer of Undertakings and Repeal) Act[5] which opened up the industry to private players and began the growth story of the Indian civil aviation market. it has been found that foreign exchange transactions worth US$22.5 billion are expected to be directly facilitated by civil aviation, with another US$96 billion indirectly through civil aviation services. About 40% of India's exports and imports.[6] Further, by march, 1993, India had bilateral Air Services Agreement with sixty-five countries[7]. An extended policy of liberalisation was also brought in for cargo operations. Under this new policy, any airlines, whether Indian or foreign carriers which meet specified operational and safety requirements were allowed to operate scheduled and non-scheduled cargo services from any airport in India, where custom and immigration facilities were available.[8] These included those airports that were classified as “international airports” and “customs airports”.


The other Asian giant in the industry being China, whose airline industry was founded during the early 1950s when the country was established and needed airlines as a national instrument to carry out its policy for government administration, trade, and tourism. Before 1949, air transport in China was in close nexus to military needs, and the few existing civil airports were reconstructed from military airports by airlines and local government together or individually.[9] The CAAC (Civil Aviation Administration of China) was established once the Peoples republic of china was created , and operated under the Central Military Commission until 1954. Between 1950 and 1978, the process of opening international routes was still slow, even though China established international air routes with the Soviet Union, Japan, France, and some South-East and West Asian countries. In 1980 , the CAAC became independent from the military, and then implemented various reform measures including the separating the management of airlines, airports and transforming airlines into profit-driven business entities; and allowing local governments to operate their own airlines and encouraging competition.[10] This led to the birth of Air China, China Eastern Airlines, China Southern Airlines, China Southwest Airlines, China Northwest Airlines, and China Northern Airlines as Chinese state owned airlines in 1987, that still dominate the Chinese aviation market today. in addition, foreign capital was allowed for investment in airlines and airports in 1994.


The major reasons for this deregulation was:


(1) Compared to the US and Europe, in recent decades China’s market share of the global aviation market has been rather small.

(2) The large-scale expansion of China’s international air networks happened only after China’s active participation in the global market in the 2000. [11]


However, the true deregulation happened in the period between 1997 and 2004. This is when the regional governments in china started to have a larger stake in the civil aviation sector. The new wave of carriers including Xiamen Airlines, Shanghai Airlines, and Xinjiang Airlines. Following a financial crisis in the years 1997–1999 major Chinese airlines faced considerable losses. This prompted the CAAC advocated airline consolidation and by 2002 this had resulted in the spilt into the three airlines that we today associate with the Chinese aviation market, Air China, China Eastern Airlines, China Southern Airlines[12].


The most significant development however was in 1996 when China’s airports were registered in the system of the International Civil Aviation Organization (ICAO), and Hainan province was allowed to open the third, fourth, and fifth freedom of the air, while Xiamen and Nanjing expanded the fifth freedom of the air.[13] This clubbed with the ‘big three airlines codeshare agreements with the likes of united airlines and JAL saw the boom in the industry, the effects of which are visible to this day. The implementation of the state-led consolidation in 2002 merged all state-owned airline companies into three major airline groups: China National Aviation Holding Company (core business is Air China), China Eastern Air Holding group (core business is China Eastern Airlines), and Chi china Eastern Air Holding group (core business is China Eastern Airlines), and China Southern Air Holding group[14].


The effects of such a liberalisation was significant in both the countries. In India, the open skies policy allowed for the operations of air taxi services. The operators were however, required to use aircraft with a minimum of fifteen seats and conform to the prescribed rules. The results were almost immediate. In 1990, the private air taxi-operators carried one thousand and five hundred passengers. This number increased to 4.1 lakh in 1992, 29.2 lakh in 1993, 36 lakhs in 1994 and 48.9 lakh in1995.[15] This ended up sparking stiff competition in the Indian aviation industry and the entry of low-cost carriers.


The effects were pounces in the Chinese sector too. China’s international aviation markets quickly expanded their new networks, the major connections of international routes were centralized in the national capitals of both China and foreign countries, except for the international route between Shanghai and Auckland. Furthermore, the annual number of international air passengers between 1990 and 2000 increased from 1.09 million to 6.24 million—an annual growth rate of 19.1%. The similarity however ends here. To understand the effects of the liberalisation we must understand how the two markets have evolved post the policy discussed above. Chine being the larger, geographically and industrially has led to a thriving domestic market and a multitude of airlines that fly to both domestic and international routes. The big three airlines too have a substantial market share. The airline industry continues in this case to be dominated by the state-owned airlines.


The situation in India panned out rather differently, the major reason being that stiff completion was seen with both the middle eastern and south east Asian airlines when it came to international routes. Time and time again we have seen that the full-service airline sector in India has never been able to sustain itself, either with the national carrier, Air India, the now defunct Kingfisher or Jet Airways. The market that has however seen exponential growth is the Low-Cost Carrier (LCC) sector which has turned out to be lucrative market to the price sensitive Indian consumer.


The outbreak of COVID-19 and its subsequent effect on the industry is something that cannot be ignored. The current market provides some insight as to how these two large markets may be in a post COVID aviation industry. China with its largely state owned and airlines is poised to find this path to recovery more favourable as they have easier access to funds, something that might prove a challenge to the Indian diaspora with the Indian aviation market largely relying on LCCs as the mainstay part of the industry. With the Indian finance minister announcing a various measure in the last couple of days to revive the civil aviation sector, only the time will tell if the once booming and east Asian aviation markets will see a return to the pre COVID levels.

[1] Air India, Ninth Annual Report, Bombay, 1961-62, p.20. [2]Reprivatisation of Airlines,, Chapter- 5, https://shodhganga.inflibnet.ac.in/bitstream/10603/97607/9/09_chapter5.pdf [3] Report of Committee on Public Undertakings (1986-87) [4] Fourth Report on Air Corporations (Transfer of Undertakings and Repeal) Bill, 1992. [5] THE AIR CORPORATIONS (TRANSFER OF UNDERTAKINGS AND REPEAL) ACT, 1994, ACT NO. 13 OF 1994 [21st March, 1994]. [6] Ministry of Civil Aviation, Government of India, 2003. [7] The Ministry of civil Aviation, Annual Report, 1992-93, New Delhi, p.49. [8] M.F.Bennett, and P.Eswaran, Development of Ports in India through Build, Operate and Transfer, New Delhi, p.20. [9] Wang, Jiaoe Air deregulation in China and its impact on airline competition 1994–2012 Journal of Transport Geography vol.44 2015/04/08. [10] Jin, F., Wang, F., Liu, Y., 2004. Geographic patterns of air passenger transport in china: 1990–1998: imprints of economic growth regional inequality and network development. Prof. Geogr. 56 (4), 471–487. [11] Lei, Z.; O’Connell, J.F. The evolving landscape of Chinese aviation policies and impact of a deregulating environment on Chinese carriers. J. Transp. Geogr. 2011, 19, 829–839 [12] Supra note 7. [13] Wang, C.; Jin, F. Spatial evolvement of China international relation through analysing aviation international networks. Econ. Geogr. 2005, 25, 667–672. [14] Shaw, S.L.; Lu, F.; Chen, J.; Zhou, C. China’s airline consolidation and its effects on domestic airline networks and competition. J. Transp. Geogr. 2009, 17, 293–305. [15] S.Peter Morrell, Airline Privatisation, 1946, Cranfield University, U.K, p.131.

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