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Mumbai: Small is the Indian aviation ministry’s new Big Idea to boost connectivity—small towns, small airports, small planes.

As part of promoting this strategy, aviation minister Ajit Singh has several plans, one of which involves a seat-credit mechanism offering incentives to airlines for flying to remote areas.

“Apart from the development of low-frills airports, the government is in the process of the formulation of a policy for the promotion of regional and remote-area connectivity in India, incentivizing the Indian airlines to operate on these routes including a code-sharing and seat-credit mechanism," Singh said in an interview on Sunday on the sidelines of the Routes Asia seminar in Mumbai organized by the GVK group.

“The growth in the civil aviation sector needs to be equitable and inclusive, providing connectivity to tier II and tier III cities, and remote and difficult areas of the country," Singh said.

The ministry is also creating a fund—the Essential Air Services Fund (EASF)—for providing a direct subsidy to encourage domestic airlines to fly to remote areas, he said.

India has been trying to push its airlines to fly to remote areas by simply mandating that they fly to such locations. The airlines have baulked at this on the grounds that they lose money on such flights.

The number of flights taken per capita in India is, at 0.04, way behind that in countries such as the US and Australia (above 2) and even China and Brazil (around 0.3). The ministry has engaged Deloitte Touche Tohmatsu India Pvt. Ltd as a consultant to identify the factors inhibiting airlines from flying to more locations.

Under the ministry’s proposed seat-credit mechanism, small air-taxi operators can fly to a particular small city destination and earn seat credit that can be sold to a scheduled airline such as Jet Airways (India) Ltd or SpiceJet Ltd. The bigger airlines will be able to use such credits to meet their requirement of having to connect such remote areas without having to lose money on such operations.

The concept is similar to carbon-credit trading, said Amber Dubey, a partner and head of aviation at consultancy KPMG. Companies earn carbon credits by “guaranteeing reductions in emission levels" and selling them, he said.

“It is much better than a big plane flying to these remote areas with empty seats," Dubey said. “A local air-taxi operator would know his area better."

Airlines are mandated to fly to such areas according to guidelines issued in 1994 with a view to ensuring better connectivity.

According to these guidelines, all scheduled airlines (such Air India Ltd or Jet Airways) need to deploy at least 10% of their trunk-route capacity on flights to less well-served areas, or so-called category II routes, such as the North-East, Jammu and Kashmir (J&K), the Andaman and Nicobar Islands, and Lakshadweep. Trunk, or category I, routes connect the country’s biggest cities such as Mumbai and Delhi or Chennai and Bangalore.

Further, at least 10% of the capacity on category IIA routes (J&K, the Andaman and Nicobar Islands, and Lakshadweep) has to be devoted to connectivity exclusively within those regions. Apart from this, scheduled operators have to deploy at least 50% of their capacity on trunk routes on so-called category III routes —the smaller towns and cities such as Coimbatore and Hubli.

In August 2007, the ministry came up with the idea of regional airlines in order to connect smaller towns and cities by air.

Regional airlines are not allowed to fly the crowded routes connecting large cities. Air Mantra, promoted by Religare Voyages Ltd, is the only regional airline that is operational. Another regional airline, MDLR Airlines Pvt. Ltd, stopped flying on 1 October 2009.

Singh said his ministry doesn’t want to mandate routes except for J&K. “With the seat-credit mechanism and incentivization, we expect the airlines would be flying more," he said.

The minister is also considering the modification of purchase guidelines so that Indian airlines acquire the smaller planes that are needed for connecting smaller towns and cities. He added that state-run Airports Authority of India (AAI) was in the process of building low-cost and no-frills airports to facilitate this.

AAI chairman V.P. Agrawal said his organization was taking up 26 new airport modernization projects apart from 35 in non-metro locations. “We are also planning to operationalize dormant airports to enable them to handle smaller planes," he said.

India’s second largest low-fare airline, SpiceJet, controlled by media baron Kalanithi Maran of Sun TV Network Ltd, altered its business model in 2011 with the induction of 15 78-seater Bombardier Q400 turboprop aircraft to fly to smaller cities and towns. Before adding the new planes, SpiceJet only had Boeing 737s, which could land only in a little over 40 runways in the country.

“The policy of encouraging regional connectivity and incentivizing is good. But I cannot comment at this point because the devil is in the details," said SpiceJet chief executive officer Neil Mills.

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Updated: 19 Mar 2013, 12:13 AM IST
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