Move Over LPG, Soon Subsidised Air Tickets

Move over subsidised LPG cylinders. Soon there will be subsidised regional flights all over the country. The Cabinet is all set to approve the National Civil Aviation Policy that will give a big boost to regional connectivity where a regional air ticket will be sold on a subsidy just like LPG cylinder. The policy has proposed that airfares for all regional routes will be capped at Rs 2,500 an hour.

The loss that the airlines make by selling these subsidised tickets will be compensated with the Centre pooling in 80 per cent and the states offsetting 20 per cent of the loss.

This is how it will work. Suppose the airline's cost for Bathinda-Bhagalpur ticket is Rs 3,500. It will sell the ticket to the customer at rupees 2,500 and will the airline will be compensated for its Rs 1,000 loss by both the Centre and the State - Rs 800 will be dished out by the Centre and Rs 200 by the state government.

The regular air travelers will take a hit with a 2 per cent cess on all major domestic and international tickets which will help fund this regional connectivity scheme.

This is part of the government's larger game plan to give a big boost to regional connectivity and the Centre expects the States to dish out a number of incentives to make the plan work, including setting up of a number of no-frills airports.

There will be no service tax on regional flights and states will be expected to reduce VAT to 1 per cent or less. The state governments will also have to provide essential services like fire brigade, water, security at their own cost.

Some airlines have objected to government meddling with pricing. Aviation experts say the logic is simple, if the airlines are being compensated, the government can dictate the price.

"The rule of the game is very simple. Don't take subsidy and price it (the ticket) the way you like. "...If you take subsidy, you have to go by price the government fixes," Amber Dubey, Head, Aviation KPMG, told NDTV. "Its almost been political harikiri to be subsidising private sector, from that perspective this is very bold and revolutionary as it will help bring tier2, tier 3 and tier 4 cities into air grid. Its very similar to the way oil companies work where the cost of LPG cylinder or kerosene is quite high but it made affordable by filling up a viability gap between cost and landed cost to end consumer," Mr Dubey said.

The government's plan however will succeed only if the states agree to convert hundreds of unused airstriups into no-frills airports where these flights can operate.