The scheme aims to make short-haul regional flights possible at fares of around ₹ 2,500 through a cross-subsidy levied mostly on airlines flying metro routes.
“This is an attempt to convert policy into operation," said civil aviation secretary Rajiv Nayan Choubey at a press conference, weeks after the scheme was announced as part of the civil aviation policy on 15 June.
While the policy provided an overarching mandate to boost regional flights, Friday’s announcement spells out how the scheme will be rolled out.
The ministry has sought comments, in the next three weeks, on this blueprint, which it expects to implement from 1 August. That’s also when major airlines such as Air India, Jet Airways, IndiGo, SpiceJet and GoAir will have to start paying the new levy. Details on the size of the levy and the routes it will apply to will be announced shortly.
Under the scheme, which will be in operation for 10 years, airlines will be asked to bid for various city pairs that are either currently not connected by any flights or have seven or fewer flights a week.
The decision on the routes to be opened up for bids will be taken based on the requirements of state governments, which have to provide about 20% of the subsidy on a given regional route.
The total subsidy corpus will be about ₹ 500 crore annually, and will include levies collected from airlines and contributions from states.
The ministry has set floor prices for routes based on distances—from 200km to 800km.
The floor rate for a 200km flight is ₹ 1,770, for 500km it is ₹ 2,500 and for an 800km flight it is ₹ 4,070. A Delhi-Bathinda flight, for instance, will cost ₹ 2,010 for a 324km distance.
On any flight, only some seats will be subsidized. An operator will have to provide a minimum of nine seats and a maximum of 40 seats per flight with capped fares. The operator will be able to sell the rest at commercial rates.
The increase in the price of jet fuel will be factored in when it rises, said the ministry.
The government will also be lowering entry barriers—such as lower paid-up capital—for new airlines that plan to start regional operations.
Airlines will have to provide a ₹ 50 lakh guarantee for every route that they win. They can vacate a route after a year if they do not want to continue services.
“We have tried to reduce both entry and exit barriers for entrepreneurs," said aviation secretary Choubey.
Mahesh Sharma, minister of state for civil aviation, said the ministry was moving forward on Prime Minister Narendra Modi’s promise to make flying possible for more people. Nearly 350 million middle-class families will stand to benefit from this move, he estimated.
The scheme will also address the challenge of ghost airports, on which over ₹ 600 crore has been spent but are lying unused.
“There are 31 inactive airports," civil aviation minister Ashok Gajapathi Raju said at the press conference. “These inactive airports will become low-hanging fruits."
To be sure, India has had several failures in the regional airlines space despite dangling sops such as free landing and parking at airports, and cheaper jet fuel.
In 2007, then civil aviation minister Praful Patel announced a regional airline policy that allowed airlines to connect metros with smaller towns.
Operators such as MDLR Airlines and Paramount Airways, which had regional operations, folded up in a few years.
An aviation analyst who did not want to be named said subsidies cannot be the reason to start a business.
“In a way, it’s a good step forward, but it does not address the current cost and infrastructure issues airlines face. Until you address the cost and infrastructure issues and make it financially viable to operate, you cannot run a business on the back of subsidy provided either by the exchequer or through other models," the person added.