Regional connectivity set to take off

Fare for 1-hr journey of up to 500 km capped at Rs 2,500; Flyers on many existing routes may have to pay more

The Narendra Modi-led government on Friday revealed its ambitious regional connectivity scheme under which airfares will be capped at Rs 2,500 for up to one-hour flights on unserved and under-served routes.

The scheme, mooted in the recently-released civil aviation policy to connect smaller cities, has been put up for stakeholders’ consultations, including state governments, airlines and airport operators. The stakeholders have been given three weeks to submit their comments on the draft scheme, which would be finalised by August.

Flyers on many of the existing routes may have to shell out slightly more for tickets to fund this plan. Under the proposed scheme, the government would set up a Regional Connectivity Fund (RCF) for viability gap funding. (CONNECTING BHARAT WITH INDIA)

Also, as part of the proposed scheme, a new category of airlines, scheduled commuter airlines, is being created where a new operator may be allowed to start operations with just one plane.

Union Civil Aviation Minister Ashok Gajapathi Raju, while unveiling the draft policy said, RCF would be created for funding the scheme “through levy on certain flights”. The government would charge a levy in the form of per domestic departure from the airlines on certain routes, a move which is expected to push up airfares.

The Ministry would contribute 80 per cent of the VGF, while respective state governments would chip in with the remaining 20 per cent to the fund which will have a corpus of Rs 500 crore each year.

When asked how much levy is likely to be charged, Civil Aviation Secretary R N Choubey said, “We are giving final touches to that aspect (levy amount), that will be announced very soon.”

Big airlines, however, aren’t happy with this move. “I don’t find it viable. This policy will push the fare on those routes from which they earn a chunk of their revenue hence hurting margins,” said  an executive of a private airline.

“The states are interested in connectivity… Their feedback will also be taken into account. The central government cannot bypass the states. We will take them into confidence and work along with them to make this happen,” Raju said.

The draft scheme identifies 406 airports and airstrips for which the airlines will have to participate in a reverse bidding process which means the one which bids for lowest funding will be awarded the route. Airlines which win routes through bids would enjoy exclusivity rights for first three years.

“We have identified about 30 unserved airports where flight services can be provided without any major cost towards revival. These are like low-hanging fruits,” said Civil Aviation Secretary Rajiv Nayan Choubey.

The airlines would have to submit a bank guarantee of Rs 50 lakh per route. “We want an easy entry and exit policy for the airlines. However, only serious operators will be encouraged so that the VGF is not misused,” said Choubey.

Subsidy will only be provided for up to 40 seats. Beyond that, the airline would be allowed to charge market price. “This will encourage operators with smaller aircraft towards the scheme,” Choubey said.

Most big airlines don’t have smaller aircraft suitable to fly on regional routes. Among them, SpiceJet has 14 Q400 Bombardier aircraft while Jet Airways has 18 smaller aircraft — a mix of ATR-72 model. While SpiceJet said it needs more time to study the policy, Jet Airways refused to comment. Regional airlines like TrueJet and Air Pegasus will be the immediate beneficiaries of the scheme. “We are already operating inside Andhra Pradesh through a VGF model. This will definitely help us to increase our business, we are evaluating the scheme and the kind of competition we will face,” said V Umesh, co-promoter and managing director at TrueJet.
 

Experts welcomed the policy saying it was market-driven and will simulate demand. “It has a right mix of fiscal and monetary incentive and also gives flexibility to the operator,” said Amber Dubey, partner and India head of aerospace and defence at KPMG.