National Civil Aviation Policy 2015: Route Dispersal Guidelines

In this section we looked at what the proposed Route Dispersal Guidelines would do to the industry. In short:

• The number of CAT I routes would rise at once by 166%.
• Airlines would in effect be forced to fly more capacity on CAT II and CAT IIA routes.
• Airlines would pay 2% of ticket fares even on CAT II routes.
• Regular airlines would not qualify for any viability gap funding.
• The Ministry therefore needed to lower the CAT II and IIA capacity requirements.

The new CAT I definition

India then had 12 CAT I routes, linking Delhi, Mumbai, Bengaluru, Chennai, Kolkata, Hyderabad and Trivandrum. The Ministry wanted to rationalise them. A CAT I route would be one with a flying distance of 700 km, an average seat factor of 70% and annual traffic of 500,000 passengers.

Under this definition:

• Existing CAT I routes would remain, except two.
• Mumbai to Trivandrum (low traffic) and Mumbai to Hyderabad (under 700 km) would drop off the list.
• 13 new CAT I routes would appear.
• Three borderline pairs, Mumbai to Mangalore, Delhi to Cochin and Bengaluru to Jaipur, might become CAT I.
• Bengaluru to Vizag might also become CAT I.

From 12 CAT I routes, of which 11 carried heavy traffic, the count would rise to 26 including the borderline pairs. Airlines would suddenly have far more CAT I capacity, and would have to deploy CAT II, CAT IIA and CAT III capacity equal to 10%, 1% and 50% of that CAT I capacity.

Double taxed

CAT II and IIA routes exist to promote regional and remote connectivity. Every regular scheduled airline would now have to deploy more capacity there. Jet Airways, which sat just above the requirement, would be hit hardest. Even so, regular scheduled airlines would not be eligible for the viability gap funding (VGF) that scheduled commuter airlines could claim. Scheduled commuter airlines had to use aircraft of 100 seats or fewer.

On top of being pushed to fly more CAT II and IIA capacity, airlines would pay 2% of each ticket fare to the Ministry for the VGF fund, even on tickets sold on CAT II routes.

In effect, airlines would be taxed twice: forced to fly more regional capacity, and charged 2% of fares, while getting nothing back from the fund.

Our view

Airlines should have been exempt from the 2% VGF contribution on CAT II routes. Since the fund itself would promote regional connectivity, the required CAT II and CAT IIA capacity percentages should have been lowered. Airlines ran on thin margins yet contributed to the economy; they could not be both the source of subsidy for commuter airlines and be burdened with extra CAT II and IIA flying. Either the percentages had to fall, or the 2% had to go.