Sunday, October 29, 2006

Route dispersal policy and sops to regional airlines

The government is considering exempting regional carriers from paying airport and navigation charges for the first five years of operations. Initially these benefits will be given to those carriers which have aircraft of less than 80 seats.

One argument against this policy goes like this:
The goal of the policy – that of achieving increased connectivity between small cities and regional aviation hubs and improve the economics of aviation business are better achieved by market forces than administering complicated sops. Regional airlines have not had much success in India because of the government’s policy of route dispersal. This cross subsidy approach to providing a certain minimum level of countrywide air connectivity from profits made on trunk routes, forces all airlines to put a certain minimum capacity on category II and category III routes such as the Northeast and J&K. Since operating many different types of aircraft has cost issues, these airlines ply their big aircraft even on these uneconomical routes, which further magnifies their losses.

If this route dispersal policy is discontinued, the regional airlines will automatically grow because they have suitable small jets and turbo props which are more suited for such short-haul flights. The bigger airlines also, instead of plying their bigger aircraft will then start code sharing arrangements with them resulting in business viability for the smaller airlines. This has happened in the US post 9/11.