Draft aviation policy proposes 2% levy on air tickets for improved connectivity

The draft policy has now been put up for public consultations, after which it will be circulated for inter ministerial consultations and then taken to the Union cabinet for approval.

Sindhu Bhattacharya October 31, 2015 11:05:15 IST
Draft aviation policy proposes 2% levy on air tickets for improved connectivity

New Delhi: The draft civil aviation policy has proposed many measures for improving domestic air connectivity and may put the hinterland on the aviation map. But it seems to fall short in tackling the issues airlines face. It has shown very little patience in proposing measures to reduce the cost of doing business for airlines in India by staying mum on rationalisation of taxes on ATF.

Draft aviation policy proposes 2 levy on air tickets for improved connectivity

New draft aviation policy. Agency

Besides, it lacks direction by offering three options and no concrete way forward in the controversial 5/20 rule, which has already divided domestic airlines right down the middle. The policy also proposes a 2 percent cess on tickets for popular domestic routes - something which will make flying for many existing flyers a tad expensive.

The draft policy has now been put up for public consultations, after which it will be circulated for inter ministerial consultations and then taken to the Union cabinet for approval. This entire process could take another two months.

Here are 10 things to know from the draft:

1. Cap fares for regional routes at Rs 2,500 per hour through a regional connectivity scheme. Viability gap funding to scheduled commuter airlines to keep this cap. VGF to be shared between Centre and state in 80:20 ratio. Levy 2 percent on domestic and international tickets to fund this increased regional connectivity. RCS will be made operational only in those states which reduce VAT on ATF at these airports to 1 percent or less. Policy envisages four fold increase in domestic traffic to 30 crore within the next seven years to 30 crore by 2020. International traffic is projected to be 20 crore by 2027.

2. New airline category proposed: Scheduled Commuter Airline for enhanced regional connectivity. Eligibility: Rs 2 crore paid up, aircraft with 100 seats or less, no restriction on number of aircraft. Allowed to code share with other airlines

3. Currently around 75 out of 476 airstrips/airports have scheduled operations. No-frills airports will be done at a cost not exceeding Rs 50 crore from among these airports, mostly through AAI. Requirement of 12 percent project IRR will be relaxed for revival of these airports, wherever the airport is under AAI control.

4. Three options suggested for the 5/20 rule. It may continue as it is, be abolished with immediate effect, or domestic airlines will be asked to follow the DFC model. This means they need to accumulate 300 DFCs before commencing flights to SAARC countries and countries with territory located entirely beyond a 5,000 km radius from New Delhi. They will need to accumulate 600 DFCs before starting flights to the remaining parts of the world. The DFCs earned by an airline will be equal to the Available Seat Kilometer (ASKM) deployed by the airline on domestic routes divided by 1 crore.

5. Immediate ‘Open sky’ air services agreements on a reciprocal basis with SAARC countries and countries with territory located entirely beyond a 5,000 km radius from New Delhi. Unlimited flights above the existing bilateral rights will be allowed directly to and from major international airports within the country as notified by MoCA from time to time.

For short haul countries partly or fully within 5,000 km radius, where domestic airlines have not fully utilised their quota, additional seats above existing bilateral rights would be allotted by bidding out these rights for a three-year period, without requiring reciprocity, the proceeds of which will go to Regional Connectivity Fund (RCF).

Increase in FDI in airlines from 49 percent to above 50 percent will be examined if the government decides to go in for open skies for countries lying within 5,000 km radius

6. Indian carriers will be free to enter into code-share agreements with foreign carriers for any destination within India on a reciprocal basis. International codeshare between Indian and foreign carriers will be completely liberalized, subject to the ASA between India and the relevant country.

No prior approvals from MoCA will be required. Indian carriers simply need to inform MoCA 30 days prior to starting the code-share flights.

7. There are a number of incentives for the MRO sector. The draft policy proposes waiver of service tax, exempting tools and tool-kits from customs duty. It proposes that foreign aircraft brought to India for MRO work be allowed to stay for up to six months, provided they undertake no commercial flights during the stay period. MoCA will persuade State Governments to make VAT zero-rated on MRO services

8. Some welcome tweaking is proposed in the route dispersal guidelines which currently mandate airlines to mount flights to regional and remote locations. Category I routes will be rationalized by adding more routes based on a transparent criteria. The criteria proposed for a Cat I route is a flying distance of 700 km, average seat factor of 70 percent and annual traffic of 5 lakh passengers. The traffic to be deployed on Cat II, IIA and III expressed in terms of a percentage of CAT I traffic will remain the same. Revised categorisation will apply 12 months after the date of notification in order to allow sufficient time to airlines to plan their operations.

9. A new proposal for easing ground handling restrictions has also come in the policy. The airport operator will ensure that there will be at least three Ground Handling Agencies (GHA) including Air India’s subsidiary/JV at an airport to ensure fair competition. But domestic airlines and charter operators will be free to carry out self-handling themselves or through their own subsidiaries or to outsource the same to other airlines or to a GHA. The policy says ground handling staff will be on the rolls of the airlines or their subsidiaries or the GHA and not of a manpower supplier.

10. AAI will take up new greenfield or brownfield airports subject to the following conditions: i) Project should be financially viable with non- zero IRR, except for no-frills airports developed under RCS. State/Central government will provide VGF to AAI if the project is strategically important but financially unviable. Land will be provided free of cost by state government without treating it as equity. Other incentives like compensation to AAI in case an airport is proposed within 150 km radius of an existing airport are also proposed.

Updated Date:

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