Route Dispersal Guidelines

Ever since Indian civil aviation witnessed the second wave of liberalisation unveiled in 2003, air connectivity to regional and remote areas has straggled in contrast to inter-metro networking. New players embarked on new paradigms and the playing field itself was dissimilar to the one which ushered in the first liberalisation groundswell that imploded so meekly in the 1990s. However, one hangover of the first wave survives till today albeit somewhat transformed from its original avatar, in the form of Route Dispersal Guidelines (RDG) that were stipulated to promote air connectivity for smaller cities, especially in remote areas which suffered from poor road and rail connectivity. Stakeholders and aviation experts have occasionally questioned their relevance but their pleas to jettison the RDG have not been complied with so far.

The RDG Framework

First introduced in 1994, the RDG classified routes into three categories. Category-I had the traditionally surplus generating routes; Category-II included loss-making routes and Category-III comprised the remaining routes. The profitable Category-I inter-metro routes subsidised losses on Category-II routes that served destinations in regions of difficult terrain, the North Eastern region, Jammu and Kashmir, Andaman and Nicobar and Lakshadweep. The RDG mandated that on Category-II routes, every operator deploy at least ten per cent of capacity deployed on Category-I routes.

Capacity deployed is reckoned in Available Seat Kilometres (ASK). Of the capacity thus required to be deployed on Category-II routes, at least ten per cent needed to be deployed exclusively within the North Eastern region, Jammu and Kashmir, Andaman and Nicobar and Lakshadweep Islands. The guidelines also mandated a sub-category within Category-II, referred to as Category-IIA region which included Jammu and Kashmir, Andaman and Nicobar and Lakshadweep. It was obligatory for scheduled carriers to deploy on Category-IIA routes, at least ten per cent of the capacity deployed on Category-II routes.

Also, every operator needed to deploy on Category-III routes at least 50 per cent of the capacity deployed on Category-I routes. However, for obvious reasons, the metro airports dominate passenger traffic figures with more than 90 per cent of the total. Through a normal process of growth, at least ten airports originally placed under Category-III now meet the requirements to be re-categorised as Category-I. Were that to be done, the quantum of ASK deployed on the regional and remote airports would increase significantly. However, this increase in regional connectivity would impinge on revenues of airlines, already reeling under heavy losses.

New Proposed Policy

The 1994 policy has been tweaked minimally since then but the airline industry and the Ministry of Civil Aviation (MoCA) have realised the need to make significant changes to the RDG. In March 2014, the MoCA issued a new “Policy on Regional and Remote Area Air Connectivity”. Regional Air Connectivity, as per the new policy, is the provision of air transport services to under-served and un-served cities with potential while Remote Air Connectivity relates to the provision of air transport services to areas not adequately connected through surface transportation including parts of the country with difficult terrain and areas of strategic importance.

The new policy provides for incentives to operate to airports identified for enhanced air connectivity. Incentives include exemption from landing and parking charges, RNFC charges, PSF, fuel throughput charges and own ground handling. A list of airports identified for this purpose includes 29 regional airports under the Airports Authority of India (AAI), six regional airports operated by state governments/other agencies, eight civil enclaves and remote/strategic area airports in the North East states except Guwahati and Bagdogra, all the airports in Jammu and Kashmir except Jammu and all airports in Lakshadweep and Andaman and Nicobar Islands.

All scheduled airlines would be required to operate at least six per cent of their total domestic operating capacity to airports in remote/strategic areas listed above. It would also be mandatory for airlines to operate at least one per cent of their total operating capacity on sectors/routes within the remote/strategic areas.

In August, the government circulated a new “Draft for Discussion on Revised Policy on Regional and Remote Area Air Connectivity” to all stakeholders seeking their comments by September 4. The new draft was largely on the lines of the policy unveiled in March, but mandated that airlines meet the set objectives in a graduated manner, 70 per cent beginning with the summer schedule of 2015, 80 per cent by the 2015 winter schedule, 90 per cent by 2016 summer schedule and 100 per cent by the 2016 winter schedule.

Under the new policy, airlines operating under the Regional Scheduled Operating Permit would have the option to convert to National Scheduled Airlines or Scheduled Commuter Airlines. A period of three years would be allowed for conversion into National Scheduled Airline. The policy also permitted operators under Non-Scheduled Operator Permit to convert to Scheduled Commuter Airline or Air Charter Operators. It also defined Trunk Routes (between large cities), Regional Routes and listed 30 Trunk Routes (see box). A total of 48 Incentive Destinations were also listed where Scheduled Operators would get financial incentives. Soon thereafter, Tata-SIA Vistara, that is to launch operations shortly, appealed to the government to delay activation of the policy by a year as it would affect the viability of new carriers. Vistara wrote to the MoCA, “We would like to submit that this proposal will only accelerate the immediate demise of new start-ups before they are given the opportunity and time to bolster their performance, financially and operationally. Being a Tata company, we understand the responsibilities we must undertake to address the needs of the nation to the fullest extent possible. The proposed guidelines on regional connectivity may be made applicable only when an airline has been given international flying rights, in order to allow sufficient bandwidth for such diversified operations and also for a new airline to establish itself firmly.”

After a meeting between the Minister of Civil Aviation and top managers of all airlines, the plan was formally put on hold on October 6. Interestingly, while Vistara opposed the new policy, AirAsia India, the low-cost joint venture in which Tata Sons is involved, was among those that supported the new regional connectivity policy. It is expected that a new policy will be implemented in December this year.

RDG and Regional Airlines

RDGs are applicable only to national airlines and not to regional carriers. A Scheduled Regional Air Transport Service (Regional Airline) is defined by DGCA as an airline which operates primarily in a designated region and which, on grounds of operational and commercial exigencies, is allowed to operate from its designated region to airports in other regions, except the metro airports of other regions. Regional airlines are not permitted to operate on Category-I routes except in the Southern region which has three metros wherein a regional airline is allowed to operate between the metros namely Bengaluru, Chennai and Hyderabad. Thus, as can be seen, RDG applies only to national airlines and not to regional ones. By an extension of that logic, regional airlines are not permitted to trade-off their ASK on Category II, IIA and III routes with national carriers. They are thus constrained to fly routes within their region. Moreover, they are denied the benefit that could have accrued from a reciprocal arrangement with a national airline which did not have an aircraft suitable for short trips typical of regional aviation.

This policy has effectively kept regional aviation stifled. Several applicants have, in the past, obtained no objection certificates, the first step towards launching a regional airline but only two actually started operations. MDLR Airlines was launched in 2007 in the Northern region but, after operating at a subsistence level for two years, terminated its operations. Religare’s Air Mantra has been the only other regional airline to actually start flying but it suspended operations after a few weeks of insipid experience flying regional.

Air Costa is the only regional airline currently operational. Thus, despite RDGs and the underlying rationale, regional aviation in the form of regional airlines has been negligible. So a basic question stares us in the face: if not RDGs, then what is required to nurture regional and remote connectivity? Are the constraints of RDGs, often described by airlines as unreasonable and unfair burdens, to be removed altogether? Will market forces drive such connectivity on their own steam? Or will air connectivity to Tier-II and Tier-III cities remain a distant dream?

Role of State Governments

The new policy amplifies the role of state governments, calling them important stakeholders in enhancing air connectivity within their area. State governments would be asked, as per the policy, to provide for security and fire fighting services, infrastructure for proper access to airports, waiver of duty on electricity charges, waiver of municipal charges for five years, underwriting of seats and reduced VAT/sales tax on aviation fuel. That brings us to another important aspect: the role of state governments in bolstering infrastructure to support air connectivity. Were they to take concrete steps to ensure that airports are operationalised and incentives provided to airlines for operating from those airports, the natural consequence would be a boost to regional and remote air connectivity, the underlying motivation behind RDGs.

Conclusion

The intent behind RDGs was laudable but did not achieve the desired objective. This was because the RDGs served as a “stick” to new and existing airlines, regulating them to fly a minimum proportion of their metro-to-metro ASK on regional connectivity without any tangible returns. Perhaps a “carrot” in the form of financial relief through lower aviation fuel sales tax/VAT, airport and navigation charges at smaller airports may have proved more useful. The new policy being considered appears to be a step in the right direction to make regional aviation more attractive to operators. Meanwhile, airlines’ fixation towards the metros has led to an overstretch at a handful of airports and their finite support systems have reached their limits of distension, pushing fresh ASKs inexorably towards Tier-II and Tier-III airports. This trend of expanding regionally is yet a fledgling one; what is really required is a thorough and professional review of the RDGs, supported by a healthy debate amongst the stakeholders leading to a mutually acceptable policy framework for regional and remote area air connectivity.