Boosting Regional Air Connectivity

Boosting Regional Air Connectivity:

Introduction

The Ministry of Civil Aviation (MoCA), Government of India released the National Civil Aviation Policy 2016 (NCAP 2016). One of the objectives of NCAP 2016 is to “enhance regional connectivity through fiscal support and infrastructure development”.  

The Regional Connectivity Scheme, Ude Desh ka Aam Naagrik (UDAN), has become a game-changer as this flagship program has a built-in mechanism to develop stakes of State governments in the growth of the sector.

Challenges associated with regional Air Connectivity

Land acquisition is a major problem due to land scarcity and huge capital requirements.

Policy reluctance due to the financial non-viability of the models to connect remote areas through small aircraft. 

The capital intensive nature of the airline industry disincentivizes the airlines to start operations in such areas where there is a lack of enough passenger traffic to make them profitable.

Only about a third of the 232 routes to connect 137 cities that have been awarded to airlines under the RCS program are currently operational. There is a limited appetite for the airport offerings, not only because of poor infrastructure, including landing systems but also challenging geography like hilly areas.

several regional airlines have ceased operations in the last two years, particularly small operators like Air Odisha, Zoom Air, Air Carnival, Supreme Airlines, etc.

Congested major airports also find it difficult to allocate slots to regional airlines, which mostly fly turboprop aircraft that take longer to land and take off.

States should cooperate and be instrumental in putting up state aviation policy to cater to the unique challenges of each place under state administration.

The reluctance of some states in giving up tax concessions on Aviation Turbine Fuel(ATF) and other financial incentives to attract airlines to operate in relatively underdeveloped regions.

Fundraising for Viability Gap Funding (VGF) is a major challenge. The civil aviation ministry contributes 80 percent of the VGF amount, while the remaining comes from the state governments.

Key Policy Intervention through UDAN

Reducing tax on Air Turbine Fuel (ATF): For any airline in India, the cost of ATF forms about 40% of the total operational cost. Reducing the Tax will incentivize the airlines.ATF has not been included in GST yet. State impose VAT sometimes as high as 25% which can be reduced.

Development and Management of airports:

There are many regional airports which can be developed by States on their own or in collaboration with the Airports Authority of India (AAI). 

Different public-private- partnership (PPP) models can be leveraged to develop infrastructures. Innovative models can be explored to create viable ‘no-frill airports’

Under UDAN, the Union government, with the help of the States, has operationalized 24 unserved airports over the past two years; 100 more are to be developed in the next five years.

Airport Development in Remote Areas

Govt has made budgetary allocations under the UDAN scheme for airport development.

Incentives by state governments in the form of financial support such as Tax reduction; sharing of viability gap funding with airlines, and non-financial incentives such as providing security and fire services free of cost to airport operators.

Way Forward

The proactive role of states is necessary to boost regional air connectivity. They need to create a conducive business environment to facilitate the strong aspirations of the Indian middle class to fly.

States need to think in terms of the long run. For those who are apprehensive of revenue loss should see that the losses, if any, can be compensated by enhanced economic activities as a result of increased air connectivity to the region.

States may converge their relevant schemes relating to tourism, health, and insurance for supporting air connectivity to supplement the objectives of regional connectivity.

Developing airports, incentivizing airlines, and pooling resources of both the Union and State governments can accelerate the growth of the Indian civil aviation sector which would be equitable and inclusive.

Currently, the penetration of the aviation market in India stands at 7%. There is potential to be among the global top three nations in terms of domestic and international passenger traffic.