 "Remote connectivity: Reverse bidding route for airlines")
“Subsidies may not be necessarily provided on all the regional air tickets. Airlines will be free to avail of the subsidy and may even choose to charge passengers based on market forces,” a civil aviation ministry official said. In its proposed aviation policy, issued last Friday, the Union government had proposed an airfare of Rs 2,500 for an hour’s flight on airports to be revived through a Regional Connectivity Scheme. To do so, a subsidy to airlines would come from a proposed Regional Connectivity Fund (RCF).
Government officials said viability gap funding would be provided to the airlines on limited seats “through a competitive bidding process”.
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The Centre and the state government concerned would together provide the subsidy to airlines, to recover the cost of operations on specific routes. The RCF is proposed to be set up by levying a two per cent cess on domestic and international tickets, and by collecting the proceeds from auction of bilateral seats. The Centre will give 80 per cent of the subsidy. The government hopes to collect Rs 1,500 crore each year for the RCF.
The Naresh Chandra committee had in 2003 recommended a fund to incentivise airlines to operate on remote routes. It had also recommended that “such support should be allocated through a transparent process of minimum subsidy bidding”. It had noted that a competitive tendering of subsidy was an established practice in several countries, “as it allows such routes to survive but on the basis of fair competition and at the lowest cost possible to the tax payer”. The Essential Air Services Program in the US and the Remote Areas Subsidy Scheme in Australia follow the minimum subsidy bidding model, it had said.
A recent report by the Centre for Asia Pacific Aviation had said combined subsidies of $260 million were given to airlines in the US in 2014-15 to operate services to 163 regional communities. Similarly, Australia and Britain gave $15 mn and $30 mn to airlines, respectively. The report said Germany also provides a subsidy to carriers on non-viable routes, in addition to an upper limit on fares.
The Centre will take the help of airlines and state governments in identifying potential at under-served regional airports. On these, state governments will provide concessions such as free land, reduced rates of power, water and other utilities, and one per cent or less value-added tax on aviation fuel, among others.
The Centre will also waive service tax for tickets on regional routes and the aviation fuel drawn by airlines from such airports will be exempt from excise duty. These concessions will be only for scheduled commuter airlines using aircraft with 100 seats or less.