Policy Not Enough, Regional Carriers Seek Active Support

The draft policy outline issued for feedback and suggestion on the much-hyped Regional Connectivity Scheme (RCS) by the civil aviation ministry promises lucrative airfares linked to distance travelled. But regional airlines and business aircraft operators want concrete measures in order to make RCS a success.

Last week, when a delegation of the Business Aircraft Operators Association (BAOA) met the civil aviation ministry officials, they sought interest subsidy on loans or a cap on interest rates, easier access to funds for small airline firms, ability and flexibility in mortgaging of smaller aircrafts to take loans among others. Then older demands of allowing carriers to have their own ground handling service and lower parking charges at bigger airports were reiterated. The delegation wants the central government to bring down the interest rates for loans to small aircrafts in line with international practice.

The draft RCS says the Passenger Service Fee (PSF), Development Fee (DF) and User Development Fee (UDF) will not be imposed on the air tickets. This means the airfare under the scheme will purely be distance based. As proposed, a flight up to 225 kms could be capped at less than Rs 2,000 (Rs 1,770) or under Rs 8 per kilometre. And a flight up to 800 km would cost Rs 4,070 or Rs 5 per kilometre, the draft says.

While the slabs for fixed wing aircraft are measured in kilometres, for chopper services it is measured on time. Therefore, for the helicopter service under regional connectivity scheme, the first 30 minutes are proposed to be capped at Rs 2,500. For a chopper service between 31 minutes to 35 minutes, the cap will rise by Rs 400 to touch Rs 2,900. And for a chopper ride of 56-60 minutes, the cap will be Rs 5,000.

The draft proposal has sought comments for finalizing these airfares from the stakeholders.

For a fixed wing flight under the scheme, a 501-525 km service could be capped at Rs 2,500 while a 700 km service could be capped at Rs 3,540. When it comes to Viability Gap Funding given to airlines by the government, an airline would get Rs 4,170 for a ticket for a 776-800 km journey on fixed-wing aircraft. For the 501-525 km slab, the VGF could be a maximum of Rs 3,790.

As proposed, the government will not provide any VGF for a chopper ride less than ten minutes. But for a helicopter ride of 11-15 minutes, the VGF would be Rs 1,200, for 16-20 minutes ride, it would be Rs 2,400 and for a 60 minutes chopper service, the VGF could be Rs 7,200.

Regional Players Struggling

According to news reports, Air Costa, Air Pegasus and TruJet, the three regional airlines that started operations over a year-and-half ago are not in the best of financial health. High operational cost, mounting debt and an inability to quickly expand the fleet size are among the challenges troubling these airlines.

The good news for them is that the new civil aviation policy talks about imposing a small cess on domestic flights. This will create a corpus from which regional operators will be subsidized by as much as 80 per cent of their cost. Because of this proposed corpus, the government says the ticket price will be kept at Rs 2,500 per half hour of flight time.

The BAOA has made the following suggestions to the civil aviation ministry in the past. They want action on the same.

Here are some of the demands made to the government:

-Urgent need to plan for airports that cater for movement around the metros

-Development of dedicated helipads/heliports a must

-Optimal use of existing smaller airstrips and phased development of infrastructure

-Government should roll back import duty on non-scheduled operators and private operators, as it has severely hampered the growth.

-Royalty charges imposed by airport operators on MROs need to be disallowed to make them competitive. Also, ensure rationalization of ground handling charges on business aircrafts at metro airports, especially at MIAL & DIAL. There is urgent need to standardize the existing variable and high ground handling charges at AAI airports for achieving optimal growth of the sector.

-Periodic & unjustified increase in rentals for hangars, levied as non-aeronautical charges, at metro airports should be rationalized to keep maintenance costs reasonable.

-Penal charges imposed for parking at Mumbai, while denying use of available additional parking, has affected the movement of Business Leaders at the Commercial Capital of the Country. This needs to be taken up with Mumbai airport immediately.

-High taxation on aviation fuel to be lowered immediately to match with international prices of ATF.

Basics of RCS

The Draft RCS is in public domain to enable stakeholders to give their suggestions. To operationalize the Scheme Aircrafts and helicopter operators would be required to assess the demand on various routes and submit their proposal for providing connectivity on such routes. They would be required to earmark certain number of seats on every flight for the RCS. The fare for such seats would be capped based on flight distance and time. An index has also been prepared for airfare caps for the RCS seats for fixed wing aircrafts and helicopters depending upon the distance.

Airport Authority of India will be the implementing Agency for the Scheme. The RCS route would have to include un-served airports i.e. airports where there is no scheduled commercial flight or under-served airports i.e. airports which have 7 or less scheduled commercial flights per week. The RCS routes would cover a length between 200 to 800 km. But these criteria would not apply to hilly areas, islands, North-east region and for helicopter operations.

The Central Government will support the RCS Scheme by levying an excise duty of only 2% on Aviation Turbine Fuel (ATF) purchased at RCS Airports for a period of three years. The service tax will be levied at only 10% of the taxable value of tickets for RCS seats for a period of one year. The operating Airline will be free to enter into code sharing arrangement with domestic and international airlines. The regional connectivity scheme is expected to result in a 3 fold increase in air passengers.

The State Governments will charge Vat of 1% or less on ATF at RCS Airports for a period of 10 years. It will also provide security and fire services free of cost, besides providing electricity, water and other utility services at concessional rates.

Airline Operators will exempt RCS flights from landing charges, parking charges, and terminal navigation landing charges. The selected airlines on their part would be expected to commit 50% of the seats on RCS flights to be sold at the specified airfare cap. They would also be required to maintain a frequency of minimum, three flights per week and maximum seven flights per week.

A Regional Connectivity Fund would be created to subsidise the operation of the RCS. The Viability Gap Fund (VGF) would be calculated on normative basis. The VGF support for respective routes would be indexed to inflation and ATF prices which would be reviewed periodically. The VGF support would also be linked to the passenger load factor. The Exit Mechanism for selected airlines would be made easy after a period of one year.

Monday, 18 July, 2016
Business World