The maximum, all-inclusive airfare of Rs 2,500 proposed in the new aviation policy for travel up to one hour or around 600 km is welcome for promoting regional connectivity. But it isn’t really low, going by existing tariff of carriers, say analysts.
For a person who intends to travel, for example, on 15 July from New Delhi to Lucknow, which is around 550 km away and appears within the coverage, the cheapest all-inclusive fare that shows up is Rs 1,653. And this, not for a budget carrier, but for a full–service one like Air India.
In comparison, an all-inclusive executive class fare in Lucknow Swarna Shatabdi Express train is Rs 1,850, while an air conditioned II-Class fare on New Delhi-Lucknow Airconditioned Superfast Express is Rs 1,140.
If the civil aviation policy calls for the bulk of the levies and surcharges to be waived, not to talk of other promotional concessions proposed, the Rs 2,500 cap does not really appear to be on the lower side.
By subsidising the shorter domestic routes for the airlines, the government has given a strong push to regional connectivity by capping fares and thereby, expanding the market. But a cap of Rs 1,200 for a 30-minute flights and Rs 2,500 for an one-hour flights should drive growth in a hugely under-penetrated domestic air market and catalyse economic growth in Tier II and Tier II markets.Sharat Dhall, President, Yatra.com
But what experts said should be welcome is that even the peak fare can’t exceed Rs 2,500.
Using the same New Delhi-Lucknow route on the same travel date of 15 July, one also sees that the fare of Jet Airways, with one stop is as high as Rs 9,832, even though it also has a lower, all-inclusive fare of Rs 2,070.
A look at fares for similar distances throws up some interesting results, especially when there is a monopoly.
What more will the airline gain? The regional connectivity scheme will only apply in states that levy a maximum of one percent value added tax on aviation fuel at such airports for a period of ten years. Aviation fuel now accounts for around 40 percent of an airline’s operational cost.
A cut in value added tax to one percent from a range of 4 percent and 29 per cent that states currently charge, will have a major impact on airlines’ bottomline and provide additional cushion to keep the fares low.
The agency, however, said further clarity was awaited in terms of whether a fare of Rs 2,500 per hour will be capped even for last-minute bookings under regional service scheme, as regarding the identification of specific routes and associated regional impact.
(At The Quint, we are answerable only to our audience. Play an active role in shaping our journalism by becoming a member. Because the truth is worth it.)