Regional aviation in India, despite a well-intentioned policy framework, is yet to take off. It is no consolation that civil aviation as a whole has not yet reached a subsistence level of stability.

The stark fact that there is only one regional airline functioning in India at the time of writing this is an apt and adequate comment on the state of regional aviation in India. In the past, several aspiring airlines went through the process of getting no objection certificates (NOCs)—the first pre-requisite towards launching a regional airline, but only one actually started operations. MDLR Airlines was launched in 2007 on a ‘full service’ model and served the Northern region but after struggling for two years, it suspended its operations for various reasons. It is yet to re-commence business. The airline was promoted at a time when there was promise of growth in civil aviation, but could not sustain itself. Since then, Religare’s Air Mantra has been the only other regional airline to actually start flying while Air Costa is reported to be almost ready to go. With an expansive territorial stretch, more than 500 airports/airstrips in varying stages of repair, and a growing economy, India appears to be an ideal arena for proliferate domestic regional aviation. So what is the problem that holds it back?

Route Dispersal Guideline

The first problem with the existing model is the Route Dispersal Guideline (RDG). Rohit Nandan, Chairman and Managing Director (CMD), Air India, has stated that the current RDG has outlived its purpose now and that we need to look at newer ways to evolve it. The RDG was first introduced in 1994; all routes were divided into three Categories-I, II and III. Route categorisation was based on traditionally surplus generating routes (Category-I), loss-making routes (Category- II) and the remaining routes (Category-III). The Category-I routes were profit-making inter-metro routes and crosssubsidised losses largely on Category-II routes that served regions of difficult terrain and destination in remote areas (North-eastern region, Jammu and Kashmir, Andaman and Nicobar Islands and Lakshadweep). Category-III comprised routes other than those included in Category-I and Category-II. The RDG mandated that every operator deploy on Category-II routes at least 10 per cent of the capacity deployed on routes in Category-I (capacity deployed is reckoned in available seat kilometres (ASKM)). Of the capacity thus required to be deployed on Category-II routes, at least 10 per cent needed to be deployed on services or segments thereof operated exclusively within the North-eastern region, Jammu and Kashmir, Andaman and Nicobar and Lakshadweep. Also every operator must deploy on routes in Category-III, at least 50 per cent of the capacity the operator deploys on routes in Category-I. Understandably, the international airports, which include the metros, dominate passenger traffic figures with more than 90 per cent of the total.

A Scheduled Regional Air Transport Service (or Regional Airline) is defined by the policy to mean an airline which operates primarily in a designated region and which, on grounds of operational and commercial exigencies, is allowed to operate from its designated region to airports in other regions, except the metro airports of other regions. Regional airlines are not permitted to operate on Category-I routes except in the Southern region which has three metros wherein a regional airline is allowed to operate between the metros within the Southern region, namely Bengaluru, Chennai and Hyderabad. Thus, as can be seen, the RDG applies only to national airlines and not to regional ones. As an analogous extension of that logic, regional airlines are not permitted to trade-off their ASKM on Category-II, IIA and III routes with national airlines. They are thus constrained to fly routes within their region. Moreover, they are denied the benefit that could have accrued from a reciprocal arrangement with a national airline which did not have an aircraft suitable for short trips typical of regional aviation.

The 1994 policy has been tweaked minimally since then but the airline industry as well as the Ministry of Civil Aviation (MoCA) have realised the need to make significant changes to the RDG. At least 10 airports originally placed under Category-III now meet the requirements to be categorised as Category-I and need to be brought onto Category-I. This will ensure that, in conformity with RDG, airlines would be obliged to fly additional sectors on Category-II Routes and Category-III which are at present underutilised. This single policy change would provide a substantial fillip to regional services.

The Burden

A back-breaking burden for all airlines has been the high rate of value added tax (VAT)/sales tax charged on aviation fuel. One step that the state governments could take is lowering of the VAT/sales tax on aviation fuel (currently varying from 4 to 30 per cent). While the MoCA is favourably inclined towards including aviation fuel into the declared goods category (the implication is that VAT/sales tax will be reduced to four per cent across the country), state governments have been dragging their feet. With the complex coalition politics that our policy-making machinery is burdened with, getting all states to agree has proved impossible so far.

According to Amber Dubey, Director (Aviation), KPMG, “One has to be cognisant of the extreme financial stress that the airline sector is going through. Many of these (small town) routes provide just 40-60 per cent occupancy and are a lossmaking proposition.” An oft-mooted proposal is the creation of an Essential Air Services Fund (EASF) with the help of the Central Government, the relevant state government and the concerned airport operators. This fund could serve the purpose of development of low-cost airports and improved air connectivity to remote cities of the country. Some suggest the collection of a fee from passengers who are flying on Category-I and Category-III routes. The fund so collected could be used on routes which are commercially unviable till they reach a level of maturity, as also for promotion of air operations on routes identified by the Ministry of Tourism as destination of high tourism potential.

Distant Destinations

Despite the existence of a policy intended to bolster regional aviation, 11 states have remained comparatively deprived of air connectivity. These are: Bihar, Chhattisgarh, Gujarat, Jharkhand, Madhya Pradesh, Meghalaya, Odisha, Punjab, Rajasthan, Uttar Pradesh and Uttarakhand. Their capitals have air connectivity of some sort but other towns are largely unconnected. The EASF mentioned above could contribute to increased connectivity but perhaps there is an additional role for the governments of these states. Either a direct subsidy or underwriting of a minimum percentage of seats on these routes could bring in the required air connectivity to the deprived towns. The Ministry of Development of North-Eastern Region (DoNER) had committed a subsidy to Alliance Air, an Air India subsidiary, for operating flights in the region but as services of the airline were not found “satisfactory”, DoNER is rethinking on continuing the assistance. The North East Council (NEC) finances Alliance Air’s operations in the region each year through viability gap funding (VGF) under a memorandum of understanding. Alliance Air’s VGF estimates for 2012 and 2013 are Rs. 52 crore and Rs. 55 crore respectively but the amounts have not been paid to it so far. NEC has fouled up on payments for the last two years and NACIL is threatening to pull out of the Northeast if the dues are not cleared. The Central Government is seriously considering a proposal to provide subsidy to private airlines operating flights on loss-making routes in the North-Eastern region. DoNER came out with this proposal after a few private airlines, including Jet Airways, sought government clearance to scale down their flights to the region in order to stem operating losses. If the proposal is approved, private airlines may get a subsidy of Rs. 35 crore annually for operating flights to socially important but financially unviable routes in the North-eastern states.