The new national and integrated aviation policy is touted to be a “game changer”. One of its foundations is the Regional Connectivity Scheme, or RCS, which is expected to lead to cheap tickets and, hence, prove to be a boon for the consumers, and connect the small cities and towns with the bigger ones in each state. It is indeed a commendable idea, but there are several grey areas that need to be clarified.

In effect, the scheme is a non-starter – inherently grounded – if its contours are not changed in the near future. In this piece, we look at three issues that could prevent the scheme from taking off.

Reality behind the Rs 2,500 ticket
Let us begin with a distortion. The Rs 2,500 cap on tickets for short-haul routes (500 km-600 km – up to one-hour flights) is not applicable on all the routes. It is only meant for the RCS routes, which will include the development of some of the 375 airports that do not have scheduled air operations. More importantly, it is only an indicative price. As the policy states:

“Ministry of Civil Aviation (MoCA) will target an indicative airfare of Rs 2,500 per passenger approximately, indexed to inflation, for a significant part of the capacity of the aircraft….”

Thus, the price is indicative, and only applicable if the capacity utilisation of the air operator is below a certain yet-to-be specified capacity. Clearly, it is not applicable on all the 500-600 kms, up to one-hour routes.

Subsidies behind Rs 2,500 ticket
The “indicative”, and not final, price of Rs 2,500 is based on a number of subsidies and concessions that will be given by the central and states’ governments, Airport Authority of India, and concerned airlines. For example, the Centre’s Service Tax “will be levied (only) on 10% of the taxable value (of the ticket).” Similarly, the Centre will charge only 2% excise duty on aviation fuel used by the airlines on only these RCS routes for a period of three years.

But this will be allowed from the date of the notification of the policy. Since most airlines will take a year or two to be able to operationalise and ply the RCS routes, this is not likely to help too much.

In addition, the Centre will share the bulk (80%) of the Viability Gap Funding, which will be given to the operators for a period of 10 years. The remaining 20% will be funded by the respective states. This funding is meant to make up for the losses that the airlines will incur on the RCS routes. The states have to also pitch in, and offer several concessions to the operators. For example, they will need to provide “land free of cost and without any encumbrances” for the development of the RCS airports. In addition, they will have to ensure “multi-modal hinterland connectivity”, that is connectivity through roads, rail, metro and waterways, to and from the airports.

Then there is another caveat for the states. The RCS will be operational only in those states that reduce the:

“VAT [Value Added Tax] on Aviation Turbine Fuel (ATF) at these airports to 1% or less for a period of 10 years.”

To further encourage the airlines to ply the essentially loss-making RCS routes, the states “will provide police and fire services free of cost. Power, water and other utilities will be provided at substantially concessional rates.” Even the Airport Authority of India and private airport owners will need to take a hit. They will not be allowed to charge anything from the passengers who fly into and out from the RCS airports.

Clearly, the success of RCS depends on a number of ifs and buts. It is logical to assume that the states will focus on some of the RCS routes, and not on others. In fact, the choice of the routes may become politically motivated as used to be the case for railway stations – that is, the powerful regional politicians will put pressure on the airlines to fly to their constituencies, and their preferred cities and towns, and not to others. In addition, one can argue that if the Centre and states can provide such concessions on some of the routes, why can they not extend it to all the routes that take less than one hour to fly.

Rob Peter to pay Paul
Well, it would still be a laudable policy to connect smaller and little-used airports, and benefit potential passengers in these areas, if the various governments were willing to fund the operators’ losses out of their pockets. But this is not the case.

The new policy states that a Regional Connectivity Fund will be created to finance the payment of Viability Gap Funding to the operators. But where will this money come from? “RCF will be funded by a levy from a date to be notified…. The RCF levy per departure will be applied on all domestic routes”, apart from the smaller ones, including the RCS ones, and those who travel by smaller aircraft of less than 80 seats.

In effect, it is the frequent fliers on the longer routes – that is you and I – who will need to pay a bit extra each time we fly.

So, in short: Our tickets will get expensive so that others can fly at Rs 2,500.