The subsidy provided by the Centre to airlines under the regional connectivity scheme (RCS) may be tapered if the passenger load factor increases to a decent level, according to the new civil aviation policy.
“Continuance of VGF [viability gap funding] for a particular route will be subject to appropriate passenger load factor continuously for a prescribed period,” according to the policy.
The Centre will subsidise the losses incurred by airlines by flying on the regional routes in a bid to allow them to charge Rs.2,500 to passenger for an hour’s flight. The Centre will create a regional connectivity fund through a small levy on departure of each flight, as per the policy. While Centre will contribute 80 per cent for the viability gap funding, the rest 20 per cent will come from the states.
“If airlines are able to fill 70-80 per cent of their seats, the subsidy could be reduced,” said a senior civil aviation ministry official. The subsidy will be reviewed after every three years, according to the policy. The RCS will give airlines an easy exit option in case they find the unconnected routes unviable.
“We don’t want to bind the airlines by telling them that they need to serve the routes under RCS for, let’s say, another three years. The airlines will be free to enter and exit the policy,” said a senior civil aviation ministry official.
In a bid to boost the cargo volumes the freight industry has also been offered a slew of incentives such as zero airport charges and waiving off terminal navigation landing charges. However, the cargo industry will not be entitled to viability gap funding from the government.
The aviation policy gives a level of comfort to the states by allowing them to charge service tax on 10 per cent of the ticket costs to passengers flying in and out of the airports falling under the scheme.
The draft policy had said that service tax on tickets will be exempted from the RCS.