The civil aviation ministry decided to scrap most airport charges at tier II and tier III cities for scheduled airlines in a move aimed at boosting connectivity to remote areas.

Airlines will be exempt from landing charges, parking charges and navigation charges. The government has also decided to do away with the passenger service fee, civil aviation minister Ajit Singh said in a phone interview on Tuesday. Such charges account for 6-8% of costs at other airports.

“Technically, airlines will fly free of all charges to remote cities. And we will not mandate any airlines to fly particular airport pairs," he said.

Airlines are also given incentives to fly to tier II and tier III airports with sales tax levied at 4% for jet fuel at these facilities. They need to pay 4%-25% elsewhere.

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 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—smaller towns and cities such as Coimbatore and Hubli.

The civil aviation ministry will ask state governments to waive certain taxes to help in the latest initiative, Singh said. They will also be asked to help with external security arrangements, while the Bureau of Civil Aviation Security will be in charge of that inside the airport, Singh said.

State-run Airports Authority of India will subsidize these operations with revenue generated from profitable metro airports, Singh said.

“We will also promote seat credit mechanism to promote this regional connectivity. We will also allow airlines to code-share with non-scheduled airlines," the minister said.

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 ministry had engaged Deloitte Touche Tohmatsu India Pvt. Ltd as a consultant to identify the factors that are inhibiting the growth of domestic connectivity.

“Deloitte has identified some 85 to 100 secondary cities that are having economic prospects. Some of these cities are not having airports at present. The original idea was to create a fund to promote regional connectivity. However, we will be considering more incentives to airlines to fly these airports. We will also request the states to come up with some seat-guarantee schemes for airlines," Singh 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 Bombardier Q400 turboprop aircraft. The airline started flying to tier II and tier III cities using these smaller planes. SpiceJet has a fleet of Boeing 737, narrow body planes that can only land on about 40 runways in the country.

The civil aviation ministry launched the concept of regional carriers in August 2007 in order to connect smaller towns and cities by air.

Regional airlines are not allowed to fly crowded routes connecting large cities. Airlines with non-scheduled licences are not allowed to publicize their flight schedules.

Currently, aircraft with fewer than 80 seats are exempted from landing charges, but they have to pay navigation charges. AAI had plans to impose airport development fee and user development fee at smaller airports.

“This financial year alone, AAI will get around 3,000 crore from the airports of Delhi and Mumbai as a revenue share. So it is not difficult to subsidize these charges of 300 crore," said a senior airport consultant, requesting anonymity.