In a bid to boost regional connectivity, the civil aviation ministry plans to give domestic carriers the choice of regional airports that they may find viable to fly to. Taking a cue from the ‘Swiss Challenge’ model, the airlines will submit their proposals for operating on any regional route they wish to fly, along with the proposed viability gap funding they would seek from the government.
The airline’s proposal would be put in the public domain and other airlines will be allowed to reverse bid on the subsidy proposal. The airline seeking the least financial support to fly on the regional route will get the subsidy amount.
On routes where a proposal comes from only one airline, the government will give the subsidy based on normative pricing, meaning it will calculate the subsidy amount based on various parameters.
In the draft civil aviation policy, the government has proposed a cap of airfares at Rs.2,500 for an hour’s flight as part of its regional connectivity scheme. The airlines will recover the possible losses incurred on such routes by way of viability gap funding from the government.
Demand-driven“Airports should be demand driven,” said a senior civil aviation official. “We don’t want to develop infrastructure around the airstrips without knowing the response from the airlines or its traffic potential. We will take the help of airlines to identify the potential airports,” the official, who didn’t wish to be identified, said.
Some experts said regional airports need to be developed based on techno-commercial feasibility analysis considering the local economy, per capita incomes, growth projections, distance from nearby airports and the feedback from airlines.
“The airline view is critical,” said Amber Dubey, partner and India head of aerospace and defence at global consultancy KPMG.
“Many regional airports in the past have been set up without checking with airlines and have predictably ended up as ghost airports. Investment of scarce government funds in the airport should done only after a binding agreement between the airline, aviation ministry and the state government,” Mr. Dubey said.
The Centre is looking to revive unutilised and underutilised airstrips to boost regional connectivity. “We propose to partner with state governments to revive some of the 160 airstrips owned by them as also to develop 10 out of 25 non-functional airstrips with the Airport Authority of India,” Civil Aviation Minister Ashok Gajapathi Raju told Parliament, while replying to a debate on the Demand for Grants for aviation ministry.
“To keep the ticket prices affordable, the Viability Gap Funding is also being looked at,” the minister said. “It will be a variant of the Swiss challenge model,” another ministry official said.
“Here, airlines will not develop the airport infrastructure but only bid for subsidy to recover operational losses.” Under the Swiss challenge model, any bidder can offer to improve upon a project proposal submitted by another player. However, the project developer, who had originally submitted the plan, is given an opportunity to match the bid amount.
Central subsidyThe Centre will provide 80 per cent of the subsidy to airlines by setting up a regional connectivity fund (RCF).
It has sent two proposals for financing the RCF to the ministries for discussion – one, a 2 per cent levy on all air tickets and the second, increasing the landing charges for airlines by Rs.8,000-Rs.10,000, officials said. The state governments will give the remaining 20 per cent of the subsidy along with concessions on electricity, water charges and security charges.
