Plane fares to go up as govt plans levy of up to Rs8,500 per flight to fund regional connectivity
12 November 2016
Plane fares among popular destinations such as Delhi, Mumbai, Chennai, Hyderabad, Bengaluru and Kolkata, will go up slightly after the government on Friday announced a new levy of up to Rs8,500 per flight on airlines to fund its regional air connectivity scheme, UDAN (Ude Desh Ka Aam Naagrik).
The UDAN scheme is likely to be introduced in January and seeks to connect small cities by air as well as make flying more affordable for the masses.
Civil aviation secretary R N Choubey said the levy would be fixed on the basis of distance of each flight. For flights of up to 1,000 km the levy will be Rs7,000 while for flights of 1,000 to 1,500 km the levy will be Rs8,000 and for flights beyond 1,500 km, it will be Rs8,500, he said.
Choubey said the government would be creating the Regional Connectivity Fund (RCF) for UDAN, adding that the levy is expected to contribute around Rs400 crore per year towards the new fund.
''In addition to this, another 20 per cent (funding) will come from state governments (as of date, 19 states have either signed or given their consent). We are roughly looking at around Rs500 crore per year available in the kitty,'' he added. Airfares are expected to rise slightly as airlines are most likely to pass on the burden of the new levy to fliers.
UDAN aims at enhancing air passenger traffic in the country by stimulating demand on regional routes. Amount collected as Regional Connectivity Fund will be used to provide financial support to airlines in the form of Viability Gap Funding (VGF) for operations under the scheme. As per the directions of MoCA, RCF will be funded by a small levy per departure on all domestic flights other than the ones on Category II / Category IIA routes under RDG, RCS routes and aircraft having maximum certified takeoff mass not exceeding 40,000 kg.
The national scheduled airlines providing services on domestic routes where such fee per departure is levied would also be eligible under the scheme to avail benefits of RCS. Similarly, even the passengers would be benefited through additional connectivity on regional routes at prices which are at or below the airfare caps. Thus, the funds collected from national scheduled airlines will benefit the same airlines and passengers from whom it is collected and is further expected to lead to creation of regional air connectivity / services that would have spin-off benefits within the sector in terms of passengers taking other flights (not under RCS) and using airports / airport services that are not at concessional rates under RCS. The amount collected under the levy will be ploughed back into the sector.
The Ministry believes that this proposed levy is a small amount but which can go a long distance in bringing more travelers and cities to the Indian aviation network. Given the high growth in the sector we expect that the airlines could be in a position to absorb a part of the levy and not adversely impact the passengers significantly.
As per an ICAO study, the output multipliers of aviation is 3.25 which means that every Rupees 100 spent on air transport contributes to Rupees 325 worth of indirect benefits. More important, the employment multiplier is 6.10 which means that every 100 direct jobs in air transport sector results in 610 jobs in the economy as a whole. Therefore, the funds which are collected from national scheduled airlines for RCF can provide a further boost to the development of regional and national economies.