Ministry to auction unviable routes to lowest bidder

Eighty tier 3 towns, cities will be offered in auction

The Civil Aviation Ministry has finalised a draft policy under which commercially unviable routes from eighty tier 3 towns and cities will be offered in auction to airlines that will have the monopoly to run their services for a period of two to three years.

Under the auction process the airlines which bids in the auction asking for the least subsidy from the government to run services on the route would be the winner. There will be just one slot up for grabs on each route.

The process is akin to what the department of telecommunications has undertaken to encourage private sector telcos to roll out telecom services in rural India by auctioning circles to the bidder who offers to take the least subsidy which is paid through the USO Fund (money raised from telcos as percentage of their revenue)   .   

A top ministry official said that it expects that the draft note, which will be announced by the end of this month, will be cleared by the cabinet in the next few months.

As part of the government’s effort to develop regional routes as many as 40 towns which include Asansol (West Bengal), Muzzaffarpur (Bihar), Bilaspur(Chattisgarh.), Jalgaon(Maharashtra), amongst forty others have been identified in the first phase.

In order to finance the subsidy, the ministry has already set up an Essential Air Services Fund. According to the estimates, annual subsidy of around Rs 250 crore to Rs 300 crore would be required for 40 towns of first phase. The money for the fund will be provided partly through budgetary support and partly by imposing a cess on passengers flying between the country’s metros.

As part of the plan initially the bidding for these routes will be “with subsidy”. If traffic grows on that route, after the lock in period the same route will be re-auctioned again without any subsidy, the official added.

These finer modalities of the policy which has been worked out by global consultancy Deloitte are in alignment with the recommendations of Naresh Chandra Committee which suggested disbanding of existing route dispersal guidelines which was primarily meant to impel airlines to fly to remote areas of the country. Under those rules an airline has to deploy 10% of its total capacity to north east and Jammu & Kashmir amongst others.

The existing Route Dispersal Guideline policy however has failed to deliver the goods as airlines tend to fly bigger planes to commercially viable destinations within the Northeast, such as Guwahati and Dibrugarh, leaving the other remote areas unconnected even though they meet the guidelines.

Operations to these towns would be cheaper as the airports and demand mostly would permit smaller aircraft, such as ATR-72s, having weight less than 40 tonnes which is exempted from airport taxes. Moreover, aviation turbine fuel filled in these aircraft has only 4% sales tax on it vis-a-vis 24% otherwise generally.

The ministry official said the levying the cess might not lead to rise in fares to metro cities; it would only make the process more transparent. “Currently also, the airlines cross-subsidise non-viable routes via travellers on the metro route but the amount a traveller has to pay is unknown. With the new system, he will know what he is paying. So, we do not expect fares to rise with the levy of this cess,” the ministry official added.