Air travel to cost more as govt moots 2% levy on tickets

On short routes, the fare will be cheaper as it will be capped at Rs 2,500 per passenger for a one-hour flight.

Air travel is set to become a little more expensive with the government proposing 2 per cent levy on all domestic and international tickets to raise funds for boosting regional air connectivity.

The proposal, part of the elaborate and revised National Civil Aviation Policy, is to be implemented from January 2016.

Even as there are concerns that additional levy will push airfares higher, leading carriers IndiGo and SpiceJet said the move will help develop infrastructure for regional air connectivity which, in turn, will bring down the costs.

Coming out with the much-awaited draft policy, the Civil Aviation Ministry on Friday proposed a raft of measures to bolster regional air connectivity, including by way of levying additional cess and providing viability gap funding.

For Regional Connectivity Scheme (RCS), the government plans to impose a 2 per cent levy on all tickets.

"RCF (Regional Connectivity Fund) will be funded by a levy of 2 per cent on all domestic and international tickets from January 1, 2016 onwards under the Aircraft Act 1934.

The RCF levy will be applied on all routes other than Cat IIA routes and RCS routes," as per the draft policy.

"The government expects about Rs 1,500 crore (Rs 15 billion) annually from charging 2 per cent levy " Civil Aviation Secretary R N Choubey said.

SpiceJet CMD Ajay Singh told PTI that imposition of cess would not be making a "big difference" in airfares and the two per cent levy would help in improving regional connectivity.

The proposal for RCF with money coming from a levy is a good idea, he noted.

IndiGo president Aditya Ghosh said that if the proposal to charge two per cent levy on air tickets is seen in isolation, then air fares would rise.

"At the same time, if the money collected from cess is invested back in the airport infrastructure like air traffic management and ground handling, then we will definitely see fares coming down," he noted.

Interestingly, the levy proposal comes against the backdrop of concerns expressed in various quarters about steep movement in airfares and there have been discussions to explore the possibility of capping air ticket prices.

In order to tap the potential of the domestic aviation market, the ministry has proposed the RCS, to be implemented from April 1, 2016.

The ministry would "target an all-inclusive airfare not exceeding Rs 2,500 per passenger, indexed to inflation for a one-hour flight on RCS routes".

For its implementation, efforts will be made to revive unserved or under-served aerodromes and airstrips apart from providing concessions such as Viability Gap Funding (VGF) for scheduled commuter airlines.

"RCS will be made operational only in those States which reduce VAT on ATF at these airports to one per cent or less," the policy said.

"Currently around 75 out of 476 airstrips/airports have scheduled operations. Revival of air strips, depending on demand, as no-frills Airports will be done at a cost not exceeding Rs 50 crore (Rs 500 million), mostly through Airports Authority of India (AAI)," it added.

It has suggested that Scheduled Commuter Airlines (SCAs) need not pay airport charges for operations under the regional connectivity scheme and service tax on tickets would be exempted in such instances.

For these airlines, the state government will provide police and fire services free of cost while power, water and other utilities would be provided at substantially concessional rates.

Viability Gap Funding for these carriers would be indexed to ATF prices and inflation provided for a particular route for 10 years from commencement of operations.