Government subsidy to enable low-cost regional flights

Airfares may go up on metro routes to fund connectivity.

July 01, 2016 03:50 pm | Updated November 26, 2021 10:23 pm IST - New Delhi

The government on Friday announced a draft regional connectivity scheme with a fare of Rs. 2,500 for hour-long flights operating from regional airports.

Airlines will be provided subsidy by both the Centre and States to put a ceiling on airfares for 200-800 km air travel. Airlines will charge Rs. 2,500 for a flight covering a distance of 500 km (around one hour flight) and the cap will be proportional to the air distance.

The cap on airfares will be applicable on half of the seats and passengers will get subsidised fare on a first-come-first-serve basis.

While the Centre will provide 80 per cent of the subsidy by setting up a regional connectivity fund, the rest 20 per cent will flow from the states.

The regional connectivity fund will be financed by charging some levy per departure to airlines on all domestic routes, except remote and north-eastern States. This may marginally increase the airfares on such routes as the airlines may pass on the costs to the customers. The civil aviation ministry will decide the levy from time to time.

The states will also have to provide concessions such as police and fire services free of cost, power, water and other utilities at minimal rates.

The airlines which wish to fly on regional routes will have to deposit a bank guarantee of Rs. 50 lakh per route to the government. The airline will get exclusive rights to fly on the route.

Reverse bidding

The subsidy to airlines will be provided through a reverse bidding process, which means if there is a demand from multiple airlines to fly on regional routes the ones asking for the least financial support will get the subsidy. 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.

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