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General-automatics

Next wave of Growth

Regional Aviation in India

New Delhi. At the recently concluded India Aviation event in Hyderabad, the refrain was the urgency to ‘enhance air connectivity’, connecting Tier II and III cities. About ten days before the show commenced, the Ministry of Civil Aviation, the joint organisers of the event, had enunciated a policy on ‘regional and remote area air connectivity’. There is a strong belief in the sector that the ‘next wave of growth’ in aviation is expected to be spurred by regional aviation, though there is certain tentativeness now.

Exactly a year ago, about 15 players had applied for starting regional airlines. Only one – Air Costa from Vijayawada – took to air, while Air Pegasus from Bangalore announced end-2013 that it would soon commence operations. There is no news with regard to the rest. Some of the names that have been in the air include low cost airlines SpiceJet and IndiGo, besides Air Dravida from Chennai.

According to media reports in early 2013, IndiGo, the country’s largest airline by market share, is understood to be planning to set up a regional airline for connecting small towns using 70-80 seater ATR aircraft. Economic Times said that IndiGo promoter Rahul Bhatia met officials in the civil aviation ministry recently and discussed a plan to set up a subsidiary only to operate on regional routes.

In 2011, SpiceJet announced that it would launch a regional airline connecting smaller towns with metro cities in South India shortly. The airline announced its intent to tap the growing regional market with an order for 15 Bombardier Q400 turboprop aircraft — which can accommodate 70-80 people. The northern part of the country is well connected and the company had said it would focus in the south, reaching destinations which are less than two hours from Hyderabad. After these announcements, there has been no activity whatsoever.

It remains to be seen whether these applicants will make a fresh attempt, now that a new regional policy has come into place.

The civil aviation ministry is clearer now about the role of regional aviation and intends to promote regional and remote-area connectivity.

$12 BILLION INVESTMENT IN AIRPORTS

At the show, the Minister of Civil Aviation, Ajit Singh emphatically stated that pan-India air connectivity would get priority and accordingly the Airports Authority of India (AAI) is developing 50 low-cost airports in remote and interior areas. The government envisages an investment of $12.1 billion in the airports sector during the 12th Plan period, of which $9.3 billion is expected to come from the private sector for construction of new airports, expansion and modernisation of existing airports and development of low-cost airports.

Next wave of Growth-1NEW POLICY

With a view to achieving better regulation of air transport services and taking into account the need for transport services of different regions and remote areas, the Ministry has directed every operator to provide a minimum of air transport services to designated remote and strategic areas as well as areas designated in the new regional aviation policy.

The industry expected the government to do away with the Route Disbursal Guidelines (RDG), instead the government has offered a slew of incentives. Earlier, the RDG made it mandatory for airlines to deploy 10 per cent of their trunk-route capacity, like Delhi-Mumbai on non-metro routes or Category II routes, which are often financially unviable. Apart from this, scheduled operators also had to deploy at least 50 per cent of their trunk-route capacity on so-called category III routes, smaller towns and cities such as Coimbatore and Hubli.

The Airports Authority of India (AAI) has called for a relook at the RDG as passenger and aircraft traffic was heavily loaded towards 17 international airports as compared to 55 domestic airports. Domestic airports had less than 10 per cent passenger traffic.

SIX PER CENT MANDATORY

As per the new policy, it is now mandatory for all scheduled airlines to operate at least six per cent of their total domestic operating capacity to airports in remote or strategic areas. Areas/airports where operations mandated are – North East region with the exception of Guwahati and Bagdogra; all airports in J&K except Jammu; Andaman and Nicobar Islands and Lakshadweep.
It is also mandatory for airlines to operate at least one per cent of their total operating capacity on sectors/routes operated within the above areas. The total operating capacity means the number of seats operated by an airline in all its sectors, multiplied by sector distance in kilometres. The Ministry states that these areas/airports would be reviewed from time to time to ensure that the operators adhered to the norms.

PAN-INDIA CONNECTIVITY

The list of airports identified for providing concessions are – Cuddapah (Andhra Pradesh); Akola, Gondia, Jalgaon, Nanded, Nashik and Sholapur (Maharashtra); Keshod, Bhavnagar, Rajkot and Porbandar (Gujarat); Cooch Behar and Hoogli (West Bengal); Kota (Rajasthan); Shimla, Dharamshala, Bhuntar/Kulu (Himachal Pradesh); Bilaspur (Chhatisgarh); Jabalpur (Madhya Pradesh); Deoghar (Jharkand); Gaya (Bihar); Jharsuguda (Odisha); Tuticorin (Tamilnadu); Ludhiana (Punjab); Mysore, Hubli and Belgaum (Karnataka); and Puducherry, all under the Airports Authority of India (AAI).

The regional airports included are Sagar (Madhya Pradesh); Bareilly and Meerut (Uttar Pradesh): Karnal (Haryana); Diu and Jamshedpur.
The regional airports (civil enclaves) are Gwalior (Madhya Pradesh); Pathankot and Bhatinda (Punjab); Bikaner and Jaisalmer (Rajasthan); Jamnagar (Gujarat); and Kanpur and Allahabad (Uttar Pradesh).

CONCESSIONS TO SPUR ACTIVITY

The Ministry has announced the following concessions to any passenger or cargo aircraft which operate to the above airports for an initial period of three years. The concessions are: Exemption from landing and parking charges; RNFC chargers; PSF; Fuel throughput charges and any other charges levied by AAI.

SELF-GROUND HANDLING

Another important concession that is being provided to airlines/operators is self-ground handling at these airports. The Civil Aviation Ministry is requesting airports under the control of the Ministry of Defence to provide similar concessions. These concessions will be available to scheduled and non-scheduled airlines/operators that operate as per schedule for public. Other aircraft operators will not be entitled to these concessions.

ROLE OF STATE GOVERNMENTS

As State Governments are important stakeholders in improving air connectivity, the Ministry will be asking them to provide support to the aviation sector. The States will be asked to provide security and fire-fighting services; reduced VAT on fuel uplifted from within the State; infrastructure for proper access to airports; waiver of duty on electricity charges; waiver of municipal charges such as property tax/house tax etc for five years; and underwriting of seats.

Next wave of Growth-2AIR-CONNECTIVITY FUND

The policy also has suggested establishing an air connectivity fund as a long term measure to provide necessary financial support to promote regional aviation. The size of the fund, tenure and the institutionalised mechanism to administer the fund is to be separately notified by the government.

For development of low cost airport and to improve air connectivity to remote cities of the country, Essential Air Services Fund (EASF) may be created with the help of Central/State Governments and Airport Operators. The fund can also be collected from passengers who are flying on Category – I and III routes. The fund so collected can be used on routes which are commercially unviable for 3 – 5 years till they reach a level of maturity.

The policy has been long overdue but one must appreciate the fact that the Ministry had several discussions with various stakeholders. Consultancy firm KPMG had suggested that the government allow ‘no-frills’ airport model to lower the fixed cost of airport development and to improve the financial viability of Tier II and III airports.

The Airports Authority of India had pointed out that development of new or sustaining the existing small/remote airports was becoming increasingly unviable as significant investment in creation of new or improvement of the existing infrastructure is required. It should be appreciated if such capital expenditure is to be sustained it should be adequately remunerated. Airports should make reasonable returns not just to cover the cost of capital for the investors/lenders but also should allow the provision of high quality of service to passengers and airline while also having the funds available for investment in future growth.

In this context, in India most of the small and remote airports are mostly unviable from revenue point of view. The revenue generated out of operating these airports will not be even sufficient to meet the operational expenditure, let alone making profits out of the business. Therefore, funding to make such airports viable must include Government grant for putting up infrastructure and State Government assistance by sharing operational cost, as they are the direct beneficiaries.

The Association of Private Airport Operators (APAO) suggested that a Regional Scheduled Operator Permit (RSOP) be created as to help small airports and also operators. With the growing need for air connectivity, it is essential to support and encourage regional players to enter into the aviation sector.

Although delayed, the government has started making the moves for enhanced connectivity. It is now for entrepreneurs to give them wings.

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