Modi government’s ambitious regional connectivity scheme is a laudable initiative that can help transform India’s aviation sector like never before.
While the move is praiseworthy, airlines and government need to arrive at a consensus on how to make it work and they need to do this quickly.
Under the regional connectivity scheme, UDAN, government is offering a subsidy to participating airlines that operate to airports where either no scheduled flight operates as on date or where the frequency of flights is very limited.
Fares on RCS routes have been capped at Rs 2,500 per hour of flying.
The scheme – and herein lies the problem – would be funded through a regional connectivity fund (RCF) created from levy of Rs 7,500 – Rs 8,500 charged to the airlines on a per-flight basis.
The Federation of Indian Airlines (FIA), which represents Jet Airways, SpiceJet,
GoAir and IndiGo – has opposed the levy.
“Members of the FIA believe that the objective of the civil aviation policy is and, as has been stated in the policy itself, is to reduce costs. Already, 50% of an airline ticket cost goes in various forms of direct and indirect taxes and fees and so on. Here is something that adds to that cost for consumers and that’s what we oppose,” a senior airline official said as he explained on why they had opposed the move.
The government, airlines say, should make every effort to bring down the cost of aviation, bring down fares and stimulate the market. The airlines seem to have a valid point here.
Airlines feel there are other ways in which the scheme can be paid for – either as a budgetary grant or in terms of Airports Authority of India, which with its large deposits and high profitability, can step in.
“It’s their airports which will get populated and a lot of their dead assets will become viable again once the scheme takes off. Perhaps there could be another way of funding this scheme. We feel we should not put another additional charge on passengers. Every additional charge is limiting our ability to reduce fares,” said another airline official.
India is the fastest growing aviation market in the world today. Growth happens when you stimulate.
This has been India’s experience in the telecom sector as well.
“How much can the fares go up? Our ATF prices are already the most expensive in the world,” the official said.
What airlines are saying, it seems, makes sense. The high taxes and fuel prices have seen many airlines fold up in the past and a great initiative like the RCS shouldn’t add to the passenger’s and airline’s misery.