Leveraging Regional Connectivity Scheme

Ude Desh ka Aam Nagrik (UDAN) Scheme introduced by the government to encourage masses to travel by air. There are skeptics who questioned the introduction of the scheme on the ground that it would cater to only certain class of the traveling public on the plea that even at Rs 2500 per flight of an hour, fixed as the freeze zone for the selected RCS routes, it is much beyond the means of the common man. The inclusive element in the RCS concept is clear. It gradually plans to throw open the air travel to masses and take it off the as the exclusive domain of a few who till date could afford it. The objective of the RCS-primarily to pave the way for a strong hub and spoke network-to open up new vistas for domestic traveling, keeping tourism as the main focus- will have a snowball effect opening up several avenues of employment and income generation.A few searching questions might trigger. How the scheme is going to be viable? What would be the mode of creation of the corpus for cross –subsidizing the RCS routes ? How is it going to be collected and expended ? What will be the impact on the passenger fares on the trunk routes given that the government proposes to levy a fee on every aircraft taking off in the trunk routes ? Obviously, there are many imponderables that sill remain to be clarified in precise terms.Let us look first at the viability issue. Of course, there is the subsidy element to help the regional airlines to make good of the losses they would have incurred with the cap announced. According to some of the data revealed by the civil aviation ministry, if an airline company operates with a leased ATR 72, the airline would require to sell tickets at Rs 3500 to Rs 4000, with an 80% passenger capacity, to break even and to make some profit. By capping the fare at Rs 2500, the government will have to subsidize to the extent of Rs 1,500 per seat. That money is going to come from an escrow account of sort, jointly created by the central, states governments and the fee levied from the airlines. The new business model will presume that that the RCS routes will be catered to by small airlines and they feed to the trunk routes operated by the large airline companies under a hub and spoke scheme.  The next question posed is how the small operators are going to find resources to buy aircrafts to cater to the RCS routes? The government proposal is to encourage smaller airlines to lease out aircrafts. As a sequel to this, the government is contemplating allowing foreign registered aircrafts to operate in India. In case of a default in the lease contract, they (lessors) can take back the aircrafts leased to fly in India. Schemes like first loss guarantee, under which the a lessor will be given some type of support or guarantee by the government in case it is not in a position to repossess the aircraft, say within 90 days, are being debated primarily to give a cushion against risks.Theoretically, all these are good schemes and may get a nod from the board rooms to go ahead. It is instructive to see how it plays out in a market, where the airline industry is confounded with huge bottlenecks like choked up metro airports, inadequately developed regional airports, air strips with small runways etc. These well thought out schemes will pale into insignificance if huge investments are not made to make the airports- large, medium and small –world class and passenger amenities top of the drawer. We will end up drawing only budget tourists and not the high-spenders, who can really make a difference in our tourism landscape. Also, we have to see that the history should not repeat itself. Back in 1990’, thanks to the policy followed by the government of that time, there were a lot of activities in the aircraft sector. Many new airlines were pressed into operation. Many foreign airlines have started their operations into India. Everyone thought that was a sustainable model. But that business model had fallen apart as house of cards. That should not happen now. Happily, we have regulators now and what we need is empowering them to take timely decisions.About the government assurance that the levy on passengers flying in the trunk routes will be minimal has to be seen from two perspectives. One, there should be greater transparency while charging that fee, its collection and its utilization. Many still feel that price fixing of passenger tickets are still steeped in the myriad of opaqueness. Against this backdrop, there should be a strong oversight body to monitor the regional connectivity fund and how from such funds allocations are made for viability gap funding (VGF). Two, such levies should be time bound and not in perpetuity.In conclusion, I would say that the bottom line of the of the RCS should be to empower the common man to fly and the least should be how the airlines and middlemen rake up undue profit.