Govt panel for seat underwriting on flights; 4 states on board

Underwriting seats should be accompanied with lowering the state taxes on jet fuel.

Written by Smita Aggarwal | New Delhi | Published: February 4, 2012 1:27 am

A government panel has recommended “seat underwriting” or buying seats on a flight by states to incentivise private airlines to provide connectivity on loss-making routes that remain either unconnected or under-served. Four states — Madhya Pradesh,Mizoram,Chhattisgarh and West Bengal — are learnt to be agreeable to such an arrangement.

The committee headed by Rohit Nandan,now Air India chief,has advocated states’ financial support as a critical factor to bring connectivity to the region and “guarantee of some business to the airlines”. The report,submitted to the civil aviation ministry in January said,“State governments can utilise these seats for their own employees and also to boost tourism,on the other hand the airlines will find some number of seats blocked.”

Underwriting seats should be accompanied with lowering the state taxes on jet fuel. It further added that the burden on state exchequer would decrease once the market grows.

Set up in April 2011 to address air connectivity issues,the committee held extensive consultations with all stakeholders. Of the sixteen states consulted,including six in the northeast,four — Tamil Nadu,Andhra Pradesh,Himachal Pradesh and Kerala — have ruled out any seat underwriting. While Uttar Pradesh and Meghalaya have said they can examine the proposal depending upon the specifics of each case and load factors,West Bengal and Madhya Pradesh are keen to adopt such a model.

The Madhya Pradesh government has allocated up to Rs 12 crore per annum for providing internal connectivity in four towns – Gwalior,Bhopal,Indore and Jabalpur till 2013. The West Bengal government too is working out direct subsidy on seats to a regional operator. In a recent meeting,private airlines had pitched hard for seat underwriting by respective states to maintain basic operational cost.

Private airlines have long protested government policy on a mandatory flying quota,or Route Dispersal Guidelines (RDGs),on such routes.

Airlines demanded incentives similar to Air India’s subsidiary Alliance Air,which operates in the Northeast,and receives direct subsidy of Rs 35 crore from the central government since it launched its operations in 2002.

The Centre also subsidises state government-run air tickets by 75 per cent in the six northeastern states of Tripura,Sikkim,Meghalaya,Arunachal Pradesh and Nagaland.

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