Is RCS Doomed to Fail?

When the government unveiled the aviation policy last October, you may have wanted to buy beer for the chaps at the ministry. For starters, there was an aviation policy finally. The Narendra Modi government was finally paying attention to the industry. The centerpiece of the policy was the regional connectivity scheme (RCS).

Plenty of incentives... 

Through RCS, the government wants to connect small towns and cities and link them to metros. To get more people to fly, fares of half the seats in an aircraft are to be capped at Rs 2500 (around $35) a passenger for 1-hour flights. The government will cover the costs of those seats and airlines can sell the rest as they please. Several other incentives such as reduced taxes and exemption from airport charges were introduced to coax investors.

No surprise then that the government got a raft of proposals. It approved 27 proposals from five airlines to connect 43 airports on 128 routes.

So far so good.

But all these incentives may amount to nothing because India's aviation infrastructure sucks. India has scores of ghost airports. The running ones are under strain. Mumbai and Delhi have hardly any slots available.

Ideally, there should have been more functioning airports and a second airport at the metros for the regional flights to fly to. But those will take years to build.

Captain GR Gopinath, the founder of Air Deccan, which is one of the successful RCS bidders, told Rede that hundreds of crores are spent on fancy terminals even in regional towns but investments on navigation aids and night landing are not undertaken, resulting in airlines aborting flights because of visibility problems in poor weather. That makes it unviable for regional airlines because they would want to fly the maximum number of hours as possible. Gopinath says the government has also neglected investments in trained manpower to man airports, which means smaller airports operate in limited hours.

It is safe to say the government realised rather late that even RCS stations want to be connected to the metros, and not really to each other. So as a stop-gap arrangement, the government has forced metro airports to give up the few remaining scarce slots for regional airlines. Airports like Mumbai and Delhi are vehemently protesting because it is inefficient use of scarce slots to make space for smaller aircraft. It has also worsened the capacity problem at big airports.

Oh, the costs!

The infrastructure challenge apart, operating smaller aircraft in regional airports will be tough for regional airlines. They cannot spread the costs such as salary, insurance and leasing charges like their bigger counterparts because of the fewer seats. Planes cost a bomb. An 18-seater is around $6-7 million. Lessors aren't enthused about smaller aircraft either and given India's record of failed airlines insist on advance rentals of a year or more compared with the usual practice of three months. Smaller aircraft become uneconomical and unviable for these reasons.

It remains to be seen how reliable these planes will be during the monsoons, especially to the North-East. Consistency of schedule and credibility are as crucial in aviation as any other business.

All in all, it doesn’t look so good for the regional connectivity scheme.