GS-3, Indian Economy, Uncategorized

Carriers can choose regional route

The Hindu

Issue

  • Reforms in the aviation sector to boost regional connectivity.

What is the plan?

  • The civil aviation ministry has planned to give domestic carriers the choice of regional airports that they may find viable to fly to.
  • Taking a cue from the ‘Swiss Challenge’ model, the airlines will submit their proposals for operating on any regional route they wish to fly, along with the proposed viability gap funding they would seek from the government.
  • The airline’s proposal would be put in the public domain and other airlines will be allowed to reverse bid on the subsidy proposal.
  • The airline seeking the least financial support to fly on the regional route will get the subsidy amount.
  • On routes where a proposal comes from only one airline, the government will give the subsidy based on normative pricing, meaning it will calculate the subsidy amount based on various parameters.
  • In the draft civil aviation policy, the government has proposed a cap of airfares at Rs.2,500 for an hour’s flight as part of its regional connectivity scheme.
  • The airlines will recover the possible losses incurred on such routes by way of viability gap funding from the government.

What is Swiss challenge model?

  • A Swiss challenge is a form of public procurement in some (usually lesser developed) jurisdictions which requires a public authority (usually an agency of government) which has received an unsolicited bid for a public project (such as a port, road or railway) or services to be provided to government, to publish the bid and invite third parties to match or exceed it.
  • Under the Swiss challenge model, any bidder can offer to improve upon a project proposal submitted by another player.
  • However, the project developer, who had originally submitted the plan, is given an opportunity to match the bid amount.
  • To keep the ticket prices affordable, the Viability Gap Funding is also being looked at. It will be a variant of the Swiss challenge model.
  • Here, airlines will not develop the airport infrastructure but only bid for subsidy to recover operational losses.

Demand-driven

  • Airports should be demand driven.
  • Regional airports need to be developed based on techno-commercial feasibility analysis considering the local economy, per capita incomes, growth projections, distance from nearby airports and the feedback from airlines.

Central subsidy

  • The Centre will provide 80 per cent of the subsidy to airlines by setting up a regional connectivity fund (RCF).

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