Government puts regional air connectivity policy on hold

New Delhi: The civil aviation ministry has put on hold a plan requiring domestic airlines to operate more flights to small, remote cities, providing relief to both start-ups and existing carriers that had been worried about running up losses on such typically unprofitable routes.

Civil aviation secretary V. Somasundaram has approved the deferment of the policy on “regional and remote area air connectivity” until further orders, a person with knowledge of the development said on condition of anonymity.

The ministry communicated its decision to state-run Air India Ltd, Jet Airways (India) Ltd, InterGlobe Aviation Ltd’s IndiGo, SpiceJet Ltd, AirAsia India Pvt. Ltd, Air Costa Aviation Pvt. Ltd’s Air Costa and Go Airlines (India) Pvt. Ltd’s GoAir on 6 October, the person said.

India’s airlines, which have lost $10.6 billion in the last seven years and sit on combined debt of $15.83 billion, have been concerned about the aviation ministry’s plan to increase air connectivity to small cities. In the year ended 31 March, they lost $1.77 billion on revenue of $10 billion, according to consulting firm Capa Centre for Aviation.

In August, the ministry put up the plan for feedback from airlines, which are already required to deploy a certain proportion of their fleet for connecting remote locations.

“It’s been deferred. It’s unclear if it has been done after opposition from one big corporate group. Overall it’s a good idea,” said a top executive with one of the airlines, who declined to be named.

In September, Vistara, a joint venture between the Tata group and Singapore Airlines Ltd that is yet to launch operations, urged the government to delay the implementation of the plan, saying it would affect the viability of new airlines.

Vistara sought at least a one-year grace period after it starts operations before the regional connectivity rule is implemented.

“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,” Vistara wrote in a letter to the aviation ministry, which was reviewed by Mint (mintne.ws/1vhWnDJ).

“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,” the letter said.

The government required airlines to meet targets set for them in phases—70% beginning in the summer schedule of 2015 that starts in April, 80% by winter the same year and fully by the winter of 2016.

The decision to delay the plan came after a meeting between the ministry and top management of airlines on 23 September.

The meeting was attended by Air India chairman Rohit Nandan, SpiceJet’s chief operating officer Sanjiv Kapoor, Vistara chief executive officer (CEO) Phee Teik Yeoh, Jet Airways senior vice-president (commercial) Gaurang Shetty, IndiGo’s promoter Rahul Bhatia, GoAir promoter Jeh Wadia and AirAsia India’s chief financial officer Vijay Gopalan, among others.

Air Asia India, Tata Sons Ltd’s no-frills airline joint venture with Malaysia’s AirAsia Bhd, was among the few airlines that supported the new regional connectivity policy in the meeting with aviation minister P. Ashok Gajapathi Raju. Its CEO Mittu Chandilya said he still backs the policy.

“We believe in India in its entirety. Network- and route- wise there is a potential and opportunity in the underserved areas of our countries for both domestic and international connectivity. We are far from what you would call traditional in our network and route selections and believe in making unserved destinations work,” Chandilya said.

Under the present policy, airlines have to fly on non-metro routes at least to the extent of half the flights they operate on metro routes. Ten percent of metro flights are required to connect areas like the Northeast and Jammu and Kashmir.

“When I was in Jet, we had to fly to remote destinations as part of a diktat,” said Steve Forte, former CEO of Jet Airways. “While it is commendable for the government to make efforts to provide service to ‘under-served’ destinations, it is unreasonable and unfair to place such a burden on airlines, whether they are established or start-ups.”

Forte said this is unheard of in a free market and only “in a regulated market, a government-owned airline operates where they want even at a loss (as is often the case).”

Forte said forcing airlines to serve small destinations may benefit a few passengers but it will also prevent local entrepreneurs from investing in the start of small commuter services in the belief that there was no way such ventures could succeed in competition with established airlines.

“So who benefits ultimately?,” he asked.