Levy for regional connectivity to make air travel more expensive

New Delhi, Nov 11 (IANS) Domestic air travel is set to get costlier as the central government has decided to impose a new levy per flight operation to fund its regional connectivity scheme (RCS).

According to Civil Aviation Secretary R.N. Choubey, the government plans to impose a levy of about Rs 7,500 per flight for travel up to a distance of 1,000 km.

Similarly, the levy per flight journey between 1,000 km and 1,500 km would be Rs 8,000 and for distances above 1,500 km the cess will be Rs 8,500.

This information was revealed at the stakeholders conference on pre-bidding of RCS routes which was held here.

According to the Ministry of Civil Aviation, the objective of RCS christened as UDAN (Ude Desh ka Aam Naagrik) is to enhance air passenger traffic in the country by stimulating demand on regional routes.

“Amount collected as Regional Connectivity Fund (RCF) will be used to provide financial support to airlines in the form of Viability Gap Funding (VGF) for operations under the scheme,” the ministry said in a statement.

“As per the directions of MoCA (Ministry of Civil Aviation), RCF will be funded by a small levy per departure on all domestic flights other than the ones on Category II / Category IIA routes under RDG, RCS routes and aircraft having maximum certified takeoff mass not exceeding 40,000 kg.”

The ministry pointed out that RCF would channel funds generated from the sector to stimulate further growth and development of the sector itself.

“A part of the fund will also be contributed to by the states that have signed the UDAN MoU: as of date, 19 states have either signed or given their consent,” the statement said.

“The national scheduled airlines providing services on domestic routes where such fee per departure is levied would also be eligible under the scheme to avail benefits of RCS.”

“Similarly, even the passengers would be benefited through additional connectivity on regional routes at prices which are at or below the airfare caps.”

The ministry added that this proposed levy is a small amount but which can go a long distance in bringing more travellers and cities to the Indian aviation network.

“Given the high growth in the sector we expect that the airlines could be in a position to absorb a part of the levy and not adversely impact the passengers significantly,” the statement said.

The ministry estimated that RCF will collect around Rs 500 crore (or $ 75 million) which will be roughly one fourth the size of the $ 290 million that the US government would spend in promoting its Essential Air Service (EAS) in 2016.

On October 21, Civil Aviation Minister P. Ashok Gajapathi Raju had said that the first flight under RCS is expected to be operated by January 2017.

The UDAN scheme will be in operation for a period of 10 years.

The operations under the scheme are intended to provide air connectivity to un-served and remote routes with airfare being capped at Rs 2,500 for an hour’s journey of around 500 km.

The allocation of routes under the scheme will be based on a reverse bidding mechanism, with selected airlines’ getting a VGF, apart from various other financial concessions for a period of three years.

The scheme is a key component of the recently approved National Civil Aviation Policy (NCAP), whose main objective is to “enhance regional connectivity through fiscal support and infrastructure development.”

Travel industry observers said that the levy will have a marginal upward impact on air fares.

“The levy imposed by the government to fund its regional connectivity scheme will lead to a marginal increase of 1-2% in air fares and will not impact the growth sentiment that the domestic air passenger market has seen over the past 18 months,” Sharat Dhall, Chief Operating Officer for B2C, Yatra.com.

“On the other hand, improved regional connectivity should act as a big boost for the sector as a whole and drive even more growth in the air market.”