In this section, we analyse what the Route Dispersal Guidelines will do to the industry.
- Will immediately increase the number of CAT I routes by 166%.
- Will in effect force airlines to deploy more capacity on CAT II and CAT IIA routes.
- Airlines will contribute 2% of their ticket fares even on CAT II routes.
- Regular airlines will however not be eligible for any viability gap funding.
- Ministry thus needs to downward revise CAT II and IIA capacity.
Presently, India has 12 CAT I routes between between Delhi, Mumbai, Bengaluru, Chennai, Kolkata, Hyderabad, and Trivandrum. The ministry proposes to rationalise the CAT I routes, proposing a Cat I route as one with: a flying distance of 700 km, average seat factor of 70% and annual traffic of 500,000 passengers.
City pairs which meet such requirements are graphed, below:
Based on this definition, the following will occur:
- Existing CAT 1 routes (shown in maroon in the graph above) will remain, except:
- Mumbai-Trivandrum (due to low traffic) and Mumbai-Hyderabad (due to less than 700km distance) will be dropped from the CAT 1 route list.
- 13 new CAT 1 routes will emerge, as shown in blue in the graph above.
- Borderline city pairs of Mumbai-Mangalore, Delhi-Cochin and Bengaluru-Jaipur (all three shown in yellow in the graph above) may become CAT 1 routes.
- Bengaluru-Vizag may also become a CAT 1 route (not shown).
From the present 12 CAT 1 routes, of which 11 are heavy traffic, the number of CAT 1 routes will increase to 26 (borderline routes included). Airlines will suddenly have a lot more CAT 1 capacity, and will have to deploy CAT II, CAT IIA and CAT III route capacities equivalent to 10%, 1% and 50% of the CAT 1 capacity, respectively.
CAT II and IIA routes are routes which promote regional / remote connectivity. All regular scheduled airlines will now be obliged to deploy higher CAT II, IIA capacities. Looking at the graph above, the one to be impacted the most is Jet Airways, which is just above the requirements. Regular scheduled airlines, despite deploying higher CAT II and IIA capacities, will not be eligible for the viability gap funding (VGF) which scheduled commuter airlines are entitled to. SCAs must have aircraft of 100 seats or less.
Despite airlines being forced to increase connectivity to CAT II, IIA regions, they will be obliged to pay 2% of the ticket fare to the ministry towards the VGF fund, even for tickets sold on CAT II routes.
In short, airlines will be ‘double taxed’ by forcing greater CAT II / IIA capacity, and pay 2% of ticket fares towards the VGF, and yet not be eligible for viability gap funding.
Airlines must be exempt from contributing 2% to the Viability Gap Fund when flying on CAT II routes. Since the VG fund will promote regional connectivity, the required capacity percentages to be deployed on CAT II and CAT IIA must be reduced. Airlines, with very low profit margins, and yet contributing to today’s economy, cannot be the source of subsidy for SCAs and be taxed with higher CAT II/ IIA flying. The percentages must reduce, or the 2% must not be effected.