A sky more open

The industry may have a point in being sceptical about the RCS which the government hopes to kick-off by April 1, 2016, by subsidising air travel to underserved and unserved destinations.

The government has unveiled a draft aviation policy that features a regional connectivity scheme (RCS) aimed at improving access to remote areas, fiscal and other concessions aimed at helping airlines and operators to lower their operational costs, a 2 per cent levy to ensure an all inclusive airfare not exceeding Rs 2,500 per passenger for one hour of flying on some regional routes and plans to revive at least 300-odd airports in various parts of the country that are not in use by upgrading their infrastructure to equip them as no-frills airports at an investment of Rs 50 crore each. It also talks of allowing higher foreign direct investment, of up to 50 per cent, and a review of the rules on allowing Indian carriers to fly abroad. Some of these proposals, such as those designed to encourage the building of airport infrastructure and concessions or incentives, both fiscal and regulatory, are sensible, considering the investment in the sector over the last decade, which has seen a rise in passenger traffic in India. This would also mean building airport infrastructure beyond Mumbai, Delhi, Kolkata, Chennai and Hyderabad to keep pace with growth in a market projected to emerge as one of the top five over the next few years, in line with the broader growth of the Indian economy. This is where roping in states as stakeholders could help. Kerala’s experience in building its airport in Kochi is a case in point.

The industry may have a point in being sceptical about the RCS which the government hopes to kick-off by April 1, 2016, by subsidising air travel to underserved and unserved destinations. This is because of the track record of airlines, many of which have folded up after having positioned themselves as regional operators, keen on serving India’s growing tier-two cities and towns. It may not be easy to justify such a cross subsidy unless it is to link areas such as the Northeast with a larger policy goal in mind. As in the case of many other industries, in a price-sensitive market such as India, the big players would prefer to operate on key trunk routes in a business that is fragmented and cash-guzzling.

A higher FDI of 50 per cent, linked to open skies, should help boost operations and profitability, besides ensuring competition. But it falls way short of the 100 per cent foreign investment that an expert committee had recommended a few years ago. It may be of some comfort that globally, airlines will collectively end up with a net profit of $25 billion — half of it coming from North American carriers, according to estimates of the International Airport Transport Association. To ensure sustained growth, India’s policymakers at the Centre and in the states will have to focus more on lowering operational costs while building infrastructure.

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