October 25, 2021

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New Civil Aviation Policy could have Made Air Fares 2% Cheaper

The draft civil aviation policy disclosed by the Civil Aviation Ministry on October 30 has proposed to impose the 2% levy on most domestic and international air tickets to raise funds to improve regional air travel infrastructure. Then, understandably,  the normal air travel will become a little more costly.

That proposal was expected to come into effect from January 1, 2016, but it has to be deferred by the government.

The reason being the fact that the draft note being prepared by the Ministry for the Cabinet, will be ready only by December 25, following which it will be sent for inter-ministerial comments. The approval is expected by 15 Jan 2016.

“As per procedure, various ministries concerned including Finance, Home, Defence, Law, MEA among others will be given 15 days time for their comments,” Ministry sources have said. They did not say anything on their available manpower strength, the lack of which might have caused their homework completion being delayed. Thus, time-lines are being missed. If this is the condition before policy implementation, then one wonders how the Ministry will handle the workload after the aviation policy is put into practice.

The proposed levy is part of draft policy and hence it can’t be implemented without Cabinet approval.

In the draft policy, the Ministry has proposed a number of measures to bolster Regional Air Connectivity. Levying additional cess to providing Viability Gap Funding (VGF) being one of them. The levying of a 2% cess on domestic and international tickets is a part of the Regional Connectivity Scheme (RCS) proposed by the government to boost regional air traffic.

The cess is applicable on all domestic and international tickets other than Cat IIA routes.

Routes connecting airports in the North-Eastern region, Jammu & Kashmir, Andaman & Nicobar, and Lakshadweep are generally known as CAT IIA routes.

The government expects to mop up about Rs 1,500 crore annually from imposition of the levy.

The scheme is likely to come into effect from April 1, 2016. Under the scheme, airfares will be capped at Rs. 2,500 for an hour’s flight on remote routes which will be a part of the scheme. To do so, the cess charged on airfares will go towards the regional connectivity fund which will meet part of the airline’s expenses incurred on the regional routes.

Inherently Flawed.

The aviation sector in India, experts have opined, has great potential; the RCS  can survive without such spoon-feeding tactic. [See Great potential]. On the contrary, in the coming days, the air fares would have come down by at least 2%, if not more. Reasons being –

  • Decreasing ATF prices  

  • Maintenance costs brought down, taxes cut
  • More operators coming up, competition gearing up
  • Passenger and cargo loads showing increasing trends in sync with economy, and ABOVE ALL
  • 50 or more new airports coming out of extinction under RCS.

Not able to bring down the airfares,  clearly indicates that the aviation policy which is going to be followed is inherently flawed.  

The government has estimated a total project cost of Rs 24,000 crore for the development of 14 greenfield airports in the country. [See Greenfield Airport]. Regional connectivity, small town airports help airlines to geographically increase the footprint. The government plans to coordinate with all the stakeholders to provide greater regulatory certainty under the PPP mode. According to IndiGo President Aditya Ghosh, the creation of low cost airports would bring down lots of cost efficiency in the business; if ground handling becomes efficient then lower fare would actually become a possibility.

But, the new aviation policy does not recognize the true potential of a new country-side airport. It does not propose anything  to capitalise on the quanta of non-aeronautical revenue that each such airport would bring along.  It appears to be happy with the Rs 1500 cr a year earning that the 2% cess will bring. But, experts feel that, if applied professionally, the non-aeronautical revenue from 50+ airports  could be much more than Rs 1500 cr a year. Then, in that scenario, the RCS players, if asked, will happily offer 2% or more to bring down the air fare.

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