The government had imposed the freeze in March last year with the objective of protecting the financially strained Air India from more competition on foreign routes.
The new move could impact the national carrier adversely. Air India has over 20 per cent market share of international air travel from India but will now face tough competition from nimble-footed private players.
In the West Asian sector, Air India offers around 50 per cent more seats than private Indian airlines. In the Southeast Asian sector, Air India offers 32 per cent of nearly 25,000 seats and private carriers offer 23 per cent. These differences will be bridged once the private carriers scale up internationally.
Explaining the change in stance, the civil aviation ministry said in a press statement on Tuesday that it had "decided to allow Indian scheduled carriers, including Air India, to utilise the allocated bilateral till such time they reach the maximum permissible limit under Air Service Agreements (ASAs)".
A senior ministry official explained it would mean all those who had applied would get the permission to fly internationally.
"There are proposals from IndiGo and SpiceJet and those will get cleared immediately. Any other application from our carriers will also be allowed as and when they apply. So, the freeze gets lifted and airlines can look for international expansion," said the official on condition of anonymity.
He also said it did not mean Air India's right of first refusal would go. "Air India will continue to enjoy that privilege," he said.
The move will give a major boost to domestic carriers keen to operate more international flights. For instance, IndiGo, which flies to Bangkok, Dubai, Muscat, Kathmandu and Singapore, applied for permission to fly to Doha and Dammam several months ago.
The airline, which became eligible to fly to international destinations last year, also wants to increase frequency on its existing international routes.
SpiceJet, which operates flights to Colombo and Kathmandu, is awaiting permissions to fly to Male, Dhaka and two destinations in the Commonwealth of Independent States, including Armenia, Azerbaijan, Kazakhstan, Kyrgyzstan, Moldova, Turkmenistan, Tajikistan, and Uzbekistan.
Owing to the availability of fuel at international rates, domestic private carriers have been pushing for more foreign flights, which provide better margins.
A top executive of one of the airlines that applied for new destinations explained flying on short-haul international routes was financially beneficial in many ways.
"We get fuel 15-20 per cheaper than domestic fuel. High fuel prices are a key reason for poor financials. Our margins are much better flying abroad. Another benefit comes in the form of higher auxiliary revenue through in-flight sales," he said.
He said flying internationally raised fleet utilisation, as international operations could happen during the otherwise idle night hours.
"Low-cost carriers like us utilise aircraft for 12 hours a day and that can increase up to 18 hours in the case of international operations."