Airlines oppose government policy on connectivity to remote areas

New Delhi: Airlines and private charter operators have opposed the government's draft policy on air connectivity to regional and remote areas, saying it will have severe impact on their financial strength.

Almost all major airlines, including the proposed Tata-SIA carrier Vistara, and business jet operators have submitted their opinions to the Civil Aviation Ministry over the past few days opposing various provisions of the draft policy, and called for further deliberations.

To discuss the policy and other issues like high taxation on jet fuel with top airline officials, Civil Aviation Minister Ashok Gajapathi Raju has convened a meeting here next week, official sources said.

The revised draft policy on air connectivity to regional and remote areas was made public last month by the Ministry, which proposed a major shift in the route dispersal guidelines and promised several incentives and exemption from various charges to airlines which fly to such unconnected places.

Terming the state governments as major stakeholders in improving air connectivity in the hinterland, the policy asks them to take financial measures like slashing VAT on jet fuel and underwriting of some seats to encourage aviation growth. It also suggests that the state governments should waive electricity and municipal charges like house and property taxes for five years for airport infrastructure.

The draft proposes increase in the number of trunk routes from present 12 to 30 and identifies 87 regional "incentive destinations". It makes it mandatory for scheduled airlines to mount capacity "which is at least equal to the capacity deployed on trunk routes" by October 2015.

In its submission, private airline Jet Airways said the policy requirement to deploy 100% of trunk route capacity on regional routes could cause overcapacity and hence this should be should be reduced to 50%.

Terming the airline industry's financial situation as "very precarious" due to high debt burden and mounting costs, Jet said the losses of Indian carriers on routes connecting North-Eastern region, Jammu and Kashmir, Andaman and Nicobar Islands and Lakshadweep "continue to be a significant contributor to these industry losses".

In its response, SpiceJet said that in order to meet the proposed requirements, it would have to increase its fleet strength by 20% in the next two years which would be "almost impossible to achieve".

Tata-SIA, in its reply, said compelling its airline to serve on regional and remote areas in the first few years of its operations would "add significant challenge to what is already a tall order to stay profitable in the present (economic) environment". With the existence of the rule which allows an Indian airline to fly abroad only after it operates domestic for five years and acquires 20 planes, Tata-SIA also urged the government to impose the remote connectivity policy "only when an airline has been given international flying rights".

No-frill carrier GoAir said, "Equal capacity deployment (on regional and remote routes vis-a-vis trunk routes) may not be commercially viable" as the non-trunk routes were not yet ready with demand.
The Business Aircraft Operators Association (BAOA), which represents private and charter operators, asked the government to consider capital subsidies, in terms of soft or low- interest loans by banks for purchasing aircraft.

The demand was made as BAOA pointed out that interest on loans from Indian banks was higher than in the global market. On the other hand, international capital was not coming to Indian companies, especially after the Kingfisher debacle. BAOA suggested that since a new concept of Scheduled Commuter Airline (SCA) was proposed to be introduced for the first time through the policy, there should be flexibility in rules and regulations for the first three years. BAOA also said that state governments, besides providing various exemptions, should also provide for complimentary ground handling services at the Tier-II and III airports to reduce the burden on the SCAs or charter operators.