Capping regional fares will hurt airlines: Crisil

MUMBAI: Regional Connectivity Scheme (RCS), proposed in the draft aviation policy, is a big negative for the heavily indebted and loss-making airlines as it would cap fares on regional routes, according to a report by rating agency Crisil.

“We believe capping fares on regional routes, under the proposed RCS, to be effective April 2016, is a negative for airlines. Even with the 2% cess on other tickets, we expect domestic air fares to decline by 5-7% in 201617,” Crisil said in the report, after the government sought comments on the new aviation policy.

The report, however, said the proposed 2% levy on tickets for RCS and freedom to charge ancillary services would marginally add to overall ticket cost and this would slightly offset the impact of price control.

It also said the RCS needs more explanation as there is no clarity on whether a fare of `2,500 per hour would be capped even for last-minute booking, identification of specific routes and associated regional impacts, and specific modalities to be adopted in administering this scheme.

However, linking reduction in state-level tax on aviation turbine fuel (ATF) to 1% or below to avail the capped prices would help bring down the overall operational cost for airlines. As of now, almost 50% of the expenses of an airline are due to fuel costs.