Govt moots waiving airport fees in tier II, tier III airports

The Ministry of Civil Aviation is rethinking its earlier decision of doing away with route dispersal guidelines (RDG), which make it necessary for all airlines to mount flights to remote areas like the North East. Instead, it is now thinking of offering a package which reduces costs of airlines operating to such areas by up to 10 percent as the RDG continues to be mandatory.

If all stakeholders agree to this ambitious proposal, airport development and connectivity can be fast tracked at places like Raipur, Devghar (Jharkhand), Kolhapur (Maharashtra), Mysore and Puducherry.

In the new scheme of things, it has asked Airports Authority of India (AAI) to waive navigation, landing and parking charges for all tier II, tier III and other non-metro airports. The ministry is also asking state governments to share a large part of cost involved with building airport infrastructure at these locations.[caption id=“attachment_806371” align=“alignleft” width=“380”] Connecting India. Reuters[/caption]

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Soon, the AAI is expected to write a detailed proposal to each state government, clearly stating what all functions the state will have to provide, free of cost, if it wants any air connectivity at all to its remote and otherwise non-lucrative airports.

Sources told Firstpost today that while AAI will waive navigation, landing and parking charges, states will have to:

• provide land free of cost for extension of runway or any other building needed to support an airport

• exempt the airport from all municipal charges

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• provide infrastructure like power and roads upto the airport free of charge

• underwrite some seats on airlines which agree to operate such non-profitable routes

• provide free security for terminal and perimeter premises of the airport

• reduce sales tax on Aviation Turbine Fuel

“All these concessions should reduce any airline’s operating cost by 10 percent,” sources said.

The flip-flop in the ministry’s stance on RDG follows a lukewarm response to the earlier proposal, where it was mulling a subsidy of Rs2,800-3,000 crore for airlines which would have had to bid for non-metro, tier II and tier III routes. As of now, no firm decision has been taken on the way forward on RDG.

Besides concessions from state governments and from AAI, the Ministry of Civil Aviation may also agree to a proposal to levy a cess of Rs 40-50 per departing domestic passenger to part-fund connectivity to remote towns and cities.

According to a report on ‘Promotion of Regional and Remote Area Air Connectivity in India’ which Deloitte has prepared on instructions of the ministry, it was earlier thinking of asking the Centre to set up a fund of Rs2,800-3,000 crore to offer subsidy to airlines for promoting connectivity over the next decade. But the passengers who fly on metro routes or big cities will also have to pay the cess to help fund this exercise.

In its report, Deloitte recommended,“Based on indicative values of input variable presented above, the total fund requirement is estimated to be Rs2,800-3,000 crore over 10 year period (at constant prices). Considering a number of other assumptions around existing passenger base, growth in passengers expected over the next 10 years as well as likely increase in costs on account of inflation, the passenger charge/cess per departing passenger is indicatively estimated to be in the range of Rs40-50.”

It also said that the final cess figure will be determined by the ministry but will need to be revised at least every three years.

That there is an urgent need to enhance connectivity to tier II and tier III towns is not in doubt. The Deloitte report made it clear that as per DGCA data, seat deployment is largely concentrated on flights which connect two metros or those which connect a metro to a tier II town. These two types of flights account for almost 70 percent of set deployment. In other words, one in seven seats on domestic flights are deployed on these routes. Then, one in four seats is deployed for metro-tier III routes and only 7 percent seats between tie II and tier III towns.

The Deloitte study identified 52 towns and cities where provision of air connectivity should be prioritized.

A senior ministry official had spoken to Firstpost earlier about the ministry’s plans to boost connectivity and had indicated that among the towns which could soon join the aviation map were Meerut, Jhansi, Bareilly, Hubli, Belgam, Shimoga, Mysore, Rajamundri, Bhavnagar and Kutch. All of these are towns which have dense population and enough demand but whose residents at present need to travel to respective state capitals of Lucknow, Gandhinagar (or Ahmedabad) and Bangalore to be able to take a domestic flight.

This official had said airlines would be encouraged to bring small aircraft which are already allowed several concessions. For example, ATR aircraft (which seat up to 72 people) are already exempt from airport charges, get Aviation Turbine Fuel at 4 percent VAT against 25-30 percent for other aircraft. In addition to these concessions, the Airports Authority of India (AAI) will not charge any navigation charges from aircraft which fly on regional routes.

So far, so good. But what happens if airlines do not want to fly unviable routes despite the subsidy? Will the proposal to bring down operating costs by just 10 percent be enough to lure them? The proposal to increase regional connectivity is welcome, but should not be done by arm twisting airlines which are already bearing a high cost burden due to irrational taxes on jet fuel.