Govt mulling changes in RDG for Indian carriers

Moves are afoot to amend a system that makes it mandatory for Indian airlines to fly to the Northeast, Jammu and Kashmir and island territories, irrespective of the commercial viability of such operations.

PTI| Updated: Feb 23, 2014, 14:20 PM IST

New Delhi: Moves are afoot to amend a system that makes it mandatory for Indian airlines to fly to the Northeast, Jammu and Kashmir and island territories, irrespective of the commercial viability of such operations.

Under the Route Dispersal Guideline (RDG) which has been in place since 1994, all Indian carriers have to deploy at least 10 percent of their capacity to connect remote destinations, termed Category II routes, which may be commercially unviable but socially important.

With the imminent entry of no-frills airline AirAsia India in the regional aviation market and some airlines planning to target Tier-II and Tier-III cities, the government is carrying out consultations on amending the RDG, although no final decision has been taken yet in the matter, official sources said.

Following deregulation of domestic operations, flights are being operated by the airlines on the basis of commercial viability, subject to their adherence to RDG, they said.

The Rohit Nandan Committee had suggested that Guwahati, Bagdogra, Jammu, Port Blair and Lakshadweep should be clubbed in Category-II routes as that would generate additional capacity for the airlines, most of which are bleeding.

Changes in the RDG were being formulated by officials and the airlines have not been kept in the loop, industry sources said, adding that it would be appropriate to take the airlines' views before finalising the changes.

Among the options, Civil Aviation Ministry is evaluating a seat credit system to replace the RDG, along the lines of the emissions trading system of European Union.

It would be partly funded through subsidies paid from an Essential Services Fund of USD 50-60 million for which a fee would be levied on all domestic passengers.

Earlier, there was a provision to allow airlines to sell excess seats on RDG routes, which they were not operating, to other carriers. Most of the private carriers then landed up paying Air India to operate to these destinations on their behalf. The scheme was subsequently abolished.

This had also prompted parliamentary panels to point out that Air India was being placed at a disadvantage vis-a-vis the private players.

The Committee on Public Undertakings (COPU), in fact, asked the government to make rules to penalise those airlines which were not operating 10 percent of their capacity to such routes like the northeast, Jammu and Kashmir, Andamans and Lakshadweep.

COPU suggested that airlines like Air India be compensated for operating flights to these far-flung regions in excess of the mandatory requirement.

It also suggested that a mechanism be put in place to make RDG "mandatory for all private airlines (while providing for) punitive action against the violators".

Another factor was the absence of scheduled flights to non -metro destinations like Bhatinda, Gondia, Jaisalmer, Jalgaon and Puducherry, developed at a considerable cost to the public exchequer by the Airports Authority of India (AAI).

Government acknowledges that airlines plan their flight schedules as per market demand. So, the problems of attracting airlines to fly from such cities remain, the sources said.

In a bid to promote air connectivity to remote or Tier-II and Tier-III cities, the Ministry had announced a new regional airline licence category in 2007.

Under it, operators of regional aircraft, with less than 80 seats, were exempted from paying landing charges and sales tax on fuel.

However, no successful, standalone regional airline came up. Carriers like Paramount, MDLR and Capt GR Gopinath's Deccan Shuttles and, most recently, Air Mantra, failed and suspended their operations, aviation analysts said, adding that a few more carriers were struggling as operations had turned non-viable.

Following this, the Ministry appointed consultancy firm Deloitte Touche Tohmatsu to study and recommend measures to boost regional connectivity.

One of its key recommendations was implementation of a seat credit mechanism, which would allow larger airlines to buy seat credits from air-taxi operators flying to smaller cities and meet the requirement of flying to remote areas without risking losing money on such operations.

The other measure it suggested was to abolish the RDG and use a direct subsidy method to be funded by a regional air connectivity fund that would receive both budgetary support and money collected via a cess on domestic air passengers.

Deloitte pointed out that there were 86 cities having high economic and tourism activity, but barely one-tenth of them had any flights.

It had also stated that 93 percent of the total seats deployed in winter 2012-13 was between metros and smaller towns, while it was only seven per cent for routes connecting Tier-II and Tier-III cities.