July 1, 2022

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Twist in the Tale

In aviation circles, it is widely believed that the mandate from the Prime Minister Modi was to come up with a policy which will make it possible for the masses to fly.  That is the message with which the Modi government is set out to work with and promote regional and rural air connectivity.
The Modi government is indeed getting closer to the final draft of its civil aviation policy – a wide-ranging rulebook that will map out the regulatory landscape for India’s Aviation. The Civil Aviation Minister Ashok Gajapathi Raju has said that India was trying to evolve a policy that would help it realise the potential of the domestic aviation sector. Turkey’s Ambassador to India Burak Akcapar is of the view that there are a lot of opportunities in the bilateral ties and the aviation sector can be a catalyst.

Under the draft civil aviation policy, one of the proposals is to cap the ticket price at Rs 2,500 for flights to unconnected areas. The draft policy has suggested various measures to tap the growing potential of the domestic aviation sector, including 2%  levy on all air tickets to fund regional connectivity.

The Civil Aviation ministry has proposed in the new policy an upfront subsidy funded through a 2% levy on air fares for both domestic flights on trunk routes and on international commercial flights to airlines. The proposed move could result in an increase in flight ticket prices on trunk domestic air routes such as those connecting major metros as well as international routes. This attempt is aimed at bringing down the cost of air travel on non-metro routes to about Rs 2,500 per flying hour under the freshly conceived Regional Connectivity Scheme (RCS) . The levy is expected to generate Rs 15,000 million per annum.

Recently, the Civil Aviation Minister Ashok Gajapathi Raju at an event organised by industry grouping PHD Chamber in New Delhi released a report of study prepared by Auctus Advisors on ‘Regional and Remote Connectivity in India’.

The report says : “To promote regional and rural connectivity, airlines should have flexibility in pricing of tickets rather than capping air fares at Rs 2,500 for one-hour flights. The proposed all-inclusive cap of Rs 2,500 on air fare is even lower than the first AC train fare for longer routes covered by one-hour flights (600-800 kms). The cap on air ticket should be linked to distance traveled.” According to the report, since there is a high risk of a lower load factor on regional routes, more flexibility should be given to airlines for pricing the tickets. The cap should be applicable to a fixed proportion of seats, and carriers should be given flexibility of pricing rest of the seats.

Earlier in December 2015, in a written reply to the Lok Sabha, the Minister of State for Civil Aviation Mahesh Sharma had said that that the air fares were not controlled by the government. There was no proposal before the government to regulate economy class air fares for domestic routes. According to him, airlines were free to fix the ticket rates after they take into account various factors including cost of operation and characteristics of service.

Apart from other suggestions, the said report has mooted the idea of having a separate department at the Civil Aviation Ministry to promote regional and remote connectivity.

If local media reports are to be believed, there has been a new twist to the policy review including the proposed 2 per cent cess on air tickets at a high-level committee meeting held at the Ministry of Home Affairs, which was chaired by the Home Minister Rajnath Singh. (See Lobbying). The government has second thoughts on the 2 per cent cess which was proposed by the Ministry of Civil Aviation in its draft civil aviation policy.

The cess, which could have fetched Rs 15,000 million to the exchequer per annum, was endorsed by the private players who had been hoping that they would get the much needed viability gap funding for plying on unserviced routes.

It is clear that the Modi government is reluctant to impose the 2% levy. It appreciates that there are various other means to generate the required Rs 15,000 million a year. This was pointed out earlier too. (See Air fares Cheaper).

By imposing 2% cess, LCC travel will become costly and will lose much of its charm. People may not find air travel attractive. The government looks towards the more opportunistic avenue for fund raising in aviation which is widely regarded with high esteem in rest of the world, namely, non-aeronautical revenue.

If properly addressed, non-aeronautical revenue can regularly generate much more than the required Rs 15,000 million a year. This conclusion is based on a practical fact. That is, in India for every 1 airline passenger arriving or departing at an airport, there are at least 10 people (relatives, friends, staff, vendors and other visitors) who are not  flying. This directly impacts the footfall at the airport which, in turn, adds to the non-aeronautical revenue. It ranges from the ad printed on the reverse side of the boarding pass to the fee paid at the car parking.

The need of the hour is an Aviation Policy which respectfully addresses this issue.

Who knows, the funds generated could be enough to feed all the air operators’ costs.

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