RCS: AN AP­PRAISAL

There is a long way to go for the Re­gional Con­nec­tiv­ity Scheme and there are a host of chal­lenges that lie ahead for this seg­ment of the In­dian air­line in­dus­try

SP's Airbuz - - Front Page - BY B. K. PANDEY

AS­TUDY CON­DUCTED JOINTLY BY the Fed­er­a­tion of In­dian Cham­bers of Com­merce and In­dus­try (FICCI) and the renowned con­sul­tancy firm KPMG, has pre­dicted that In­dia which is cur­rently the ninth largest civil avi­a­tion mar­ket in the world with a mar­ket size of $16 bil­lion, was well on its way to oc­cupy the third slot by 2020 af­ter US and China and the largest by 2030. How­ever, forecast in 2016 by the In­ter­na­tional Air Trans­port As­so­ci­a­tion (IATA) in com­par­i­son, was some­what less op­ti­mistic. As per IATA, In­dia would be third largest mar­ket only by 2026. How­ever, both the stud­ies have in­di­cated that one of the fac­tors driv­ing growth of the In­dian avi­a­tion in­dus­try would be en­hanced re­gional con­nec­tiv­ity. RE­GIONAL CON­NEC­TIV­ITY SCHEME. With these re­ports in the back­ground, in June 2016, the Min­istry of Civil Avi­a­tion (MoCA) un­veiled the new Na­tional Civil Avi­a­tion Pol­icy (NCAP). The ma­jor fo­cus of the NCAP was on the growth of Re­gional Avi­a­tion in the coun­try, a seg­ment that had re­mained ne­glected and un­der de­vel­oped so far. How­ever, as per an­a­lysts, Re­gional Avi­a­tion had the po­ten­tial to pro­vide the next phase of growth for the In­dia air­line in­dus­try as the non-re­gional seg­ment was reach­ing sat­u­ra­tion point. Real growth in the In­dian air­line in­dus­try was en­vis­aged through what is dubbed as the Re­gional Con­nec­tiv­ity Scheme (RCS). This scheme was based on the con­cept of Ude Desh ka Aam Na­grik or UDAN for short, con­ceived and ini­ti­ated by Prime Min­is­ter Naren­dra Modi him­self. The ob­jec­tive of the UDAN scheme was to pro­vide the fa­cil­ity of air travel to the masses at af­ford­able cost through pro­vid­ing con­nec­tiv­ity to Tier-II, -III and -IV cities and cap­ping air­fare to 2500 for a flight of a du­ra­tion of one hour. As op­er­a­tions on re­gional routes by the re­gional air­lines were not ex­pected to be prof­itable, es­pe­cially in the ini­tial stages

and hence would not be very at­trac­tive to op­er­a­tors, a scheme to sub­sidise losses suf­fered by the op­er­a­tors was also in­cluded in the plan. This was called Vi­a­bil­ity Gap Fund­ing (VGF) for which funds were to be built up through levy on non re­gional flights as also con­tri­bu­tion by the cen­tral and state gov­ern­ments.

The first round of bid­ding saw 128 routes be­ing awarded to five op­er­a­tors namely Al­liance Air, Air Dec­can, Air Odisha, TruJet and Spice­Jet. New air­ports were added in the net­work af­ter the first round of al­lo­ca­tion of routes and the ul­ti­mate goal is to bring 200 new re­gional air­ports into the net­work be­gin­ning with 100 new air­ports by the end of fi­nan­cial year 2018-2019. The maiden flight post first round of bid­ding that got air­borne on April 27, 2017, was by the state-owned Al­liance Air op­er­at­ing a flight from Shimla to Delhi, flagged off by the Prime Min­is­ter. On the same day, he also flagged off flights on the Kadapa-Hy­der­abad and the Nanded-Hy­der­abad sec­tors through video con­fer­ence. Bid­ding for the sec­ond round was launched by the MoCA on Au­gust 24, 2017, the process hav­ing ended on Novem­ber 30, 2017. PROGRESS OF THE SCHEME OF THE LACK OF IT. Whether the scheme will ul­ti­mately be suc­cess­ful or not, will, in the fi­nal anal­y­sis, de­pend to a large ex­tent on its fi­nan­cial vi­a­bil­ity and the re­turn on in­vest­ment by the re­gional car­ri­ers. How­ever, there have been a num­ber of im­ped­i­ments plagu­ing the scheme to start with. At the end of Au­gust this year, as against the 128 routes al­lo­cated, only 16 were op­er­a­tional, reg­is­ter­ing a very low suc­cess rate. Be­sides, all the 16 routes on which re­gional car­ri­ers have com­menced op­er­a­tions, are pro­vid­ing con­nec­tiv­ity to the air­ports in metro cities and not to other re­gional air­ports. Thus the true ob­jec­tive of en­hanc­ing con­nec­tiv­ity amongst re­gional air­ports which is a ma­jor part of the scheme, has not yet been re­alised.

Of the five re­gional car­ries al­lot­ted routes in the first round of bid­ding, only three namely Spice­Jet, Al­liance Air and Trujet have been able to launch op­er­a­tions. Of the three car­ri­ers, Spice­Jet was al­ready in the re­gional mar­ket in a big way with its fleet of Bom­bardier Q400 tur­bo­prop air­craft. Thus only one in the pri­vate­ly­owned cat­e­gory namely Trujet, has been able launch re­gional op­er­a­tions. Al­liance Air is wholly owned sub­sidiary of the sta­te­owned na­tional car­rier Air In­dia. Air Odisha is yet to com­mence op­er­a­tions and Air Dec­can is yet to ac­quire re­gional air­craft. VI­A­BIL­ITY GAP FUND­ING (VGF). An im­por­tant con­sid­er­a­tion for the suc­cess or even mere sur­viv­abil­ity of RCS is VGF. This is a way of hand-hold­ing by the gov­ern­ment es­pe­cially to help new­com­ers in this seg­ment of the In­dian Air­line In­dus­try. Funds for VGF were to be built up through a levy on air tick­ets for pas­sen­gers fly­ing on ex­ist­ing non-re­gional air­lines op­er­at­ing on ma­jor routes. This levy was to be lim­ited to a max­i­mum of Rs 5,000 per flight. The ma­jor pri­vate air­lines were al­ways op­posed not only to the levy; but to the RCS as well. It is un­der­stood that there has thus been a prob­lem as the levy has nei­ther been col­lected nor demit­ted to the Min­istry. Af­ter some dither­ing and de­lay, a fresh no­ti­fi­ca­tion has been is­sued by the MoCA to the non-re­gional air­lines ask­ing them to re­mit to the Min­istry, the funds col­lected by way of levy on air tick­ets with ef­fect from Septem­ber 1, 2017. The air­lines in turn are pass­ing on this cost to the con­sumer by charg­ing 50 per ticket. The col­lec­tion and dis­burse­ment of this fund is to be ad­min­is­tered by the Air­ports Author­ity of In­dia (AAI) and whether this method of build­ing up funds for VGF is suc­cess­ful or not, is yet to be seen. CON­GES­TION AT METRO HUBS. A part of re­gional op­er­a­tions would re­quire re­gional car­ri­ers to op­er­ate to ma­jor hub air­ports to pro­vide feeder ser­vice to main­line car­ri­ers. Un­for­tu­nately, in In­dia, the six ma­jor hub air­ports at Delhi, Mumbai, Kolkata, Chen­nai, Ben­galuru and Hy­der­abad are al­ready heav­ily con­gested and are lit­er­ally burst­ing at the seams. The au­thor­i­ties at Chha­tra­p­ati Shivaji In­ter­na­tional Air­port, Mumbai have re­port­edly de­clined to al­lo­cate op­er­at­ing slots to re­gional car­ri­ers. The man­age­ment of Delhi In­ter­na­tional Air­port is alo re­luc­tant and has sug­gested use of the In­dian Air Force air­field at Hin­don, East of Delhi to ac­com­mo­date re­gional flights. Kem­pe­gowda In­ter­na­tional Air­port (KIA) at Ben­galuru is over­loaded with traf­fic and is not in a po­si­tion to ac­com­mo­date re­gional flights eas­ily. The irony is that KIA is not will­ing to per­mit reopen­ing of the air­port un­der the con­trol of Hin­dus­tan Aero­nau­tics Lim­ited (HAL) for re­gional flights, cit­ing terms of the Con­ces­sion Agree­ment un­der which no air­port within 150 km of the ex­ist­ing one can be per­mit­ted to op­er­ate com­mer­cial flights. Ef­forts are on to re­solve this dead­lock through le­gal and other means. THE FI­NAL WORD. It ap­pears that it has not been smooth sail­ing for RCS so far. There is cer­tainly a long way to go for the scheme and there are clearly a host of chal­lenges that lie ahead for this seg­ment of the In­dian Air­line In­dus­try. What is im­por­tant is that the gov­ern­ment must not ex­pect RCS to sur­vive or pros­per through sub­sidy alone. There is clearly the need to gen­er­ate de­mand for RCS to re­ally take­off. This is a fun­da­men­tal prin­ci­ple for any busi­ness to grow and pros­per. Poli­cies and pro­ce­dures re­lated to RCS do need a thor­ough re­view and re­struc­tur­ing sooner than later.

THERE IS CLEARLY THE NEED TO GEN­ER­ATE DE­MAND FOR RCS TO RE­ALLY TAKE­OFF. THIS IS A FUN­DA­MEN­TAL PRIN­CI­PLE FOR ANY BUSI­NESS TO GROW AND PROS­PER.

Min­is­ter of Civil Avi­a­tion Ashok Ga­jap­athi Raju at the in­au­gua­tion of Be­la­gavi Air­port up­graded ter­mi­nal

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