In an effort to take air travel to the masses, the Modi government on Friday proposed to cap small town route fares at Rs. 2,500 per flying hour per ticket in its draft civil aviation policy. However, it has also proposed a 2-per cent cess on all domestic trunk route tickets as well as international tickets.
If needed, the funds collected through the cess, which the government expects to be Rs.1,500 crore a year, will be used to subsidise flights on small town routes.
Civil Aviation Minister Ashok Gajapathi Raju said the draft policy was being unveiled after a wide-range of consultations, which were “never done before”.
The Ministry has invited public comments on the policy over the next three weeks, after which inter-ministerial consultations would be held. The final policy is expected to be decided in a couple of months.
Shares surge
Airline shares surged after the policy proposal was unveiled. While Jet Airways shares ended 9.34 per cent up at Rs 436.70 on the BSE, SpiceJet soared by 8.47 per cent to close at Rs 46.75.
“The draft policy is in line with the Prime Minister’s directive that the policy should promote aviation in a big way and take flying to the masses,” Aviation Secretary R.N. Choubey said. He said that one of the most important initiatives proposed is the Regional Connectivity Scheme (RCS) to boost air travel in smaller towns. Under the scheme, the government will work towards revival of un-served airports, build no-frills airports and also give incentives and subsidies to stakeholders. The 2 per cent levy from air tickets will also go into these funds.
The revised policy has floated the concept of Scheduled Commuter Airlines (SCAs), which would have relaxed norms and those entities would not be liable to pay airport charges for operations under the RCS.
The policy suggests a number of incentives for the Maintenance, Repair and Overhaul (MRO) sector, including service tax waiver, with an aim to develop India as an MRO hub in Asia. The policy document adds that States will be persuaded not to impose any VAT charges. It has proposed that MRO, ground handling, cargo, and ATF infrastructure located together at an airport will also get infrastructure status with benefits under Section 80-IA of the Income tax Act, among others.
The MRO business of Indian carriers is Rs.5,000 crore, 90 per cent of which is currently spent outside India – in Sri Lanka, Singapore, Malaysia and the UAE.
Further, the draft proposes open skies policy for countries within 5,000 km with effect from April 1, 2020. However, the policy, largely welcomed by the industry, provides no clarity on the 5/20 rule under which local airlines can fly overseas only after they have five years’ operational experience and a fleet of at least 20 aircraft. The government has sought more comments from stakeholders before taking the final call.
The policy has now proposed three options — abolish the norm, continue with it or link overseas flying rights with domestic flying credits.
New carriers like Vistara or AirAsia India have been pitching for abolition of the 5/20 norm. The Secretary, however, said, “There will be no ambiguity when the final policy comes out.”
Describing the revised draft policy as “pretty progressive”, SpiceJet CMD Ajay Singh said the focus on regional connectivity was good for the domestic aviation sector.
IndiGo president Aditya Ghosh said the policy was “broadly progressive” and setting up of low-cost airports would help bring more cost efficiency. The broader aim of the revised draft policy is to prepare the ground for 30-crore domestic ticketing by 2022 and 50 crore by 2027, besides targeting international ticketing at 20 crore.
