Draft Regional Connectivity Scheme (RCS) Overview

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The Draft Regional Connectivity Scheme (RCS) introduced by the Ministry of Civil Aviation aims to enhance regional air connectivity by reviving un-served and under-served airports. The scheme focuses on making air travel affordable for the masses, promoting tourism, increasing employment opportunities, and encouraging balanced regional growth. Key principles include operators assessing demand on routes, capping passenger fares, and seeking viability gap funding where necessary. The scheme also defines key terms such as unserved airports, underserved airports, and the Regional Connectivity Fund. Central government support includes excise duty on aviation turbine fuel and concessions on service tax for RCS flights.

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Draft Regional Connectivity Scheme (RCS)

Introduction Ministry of Civil Aviation July 01, 2016 2

National Civil Aviation Policy 2016 - RCS Vision / Objectives To make flying affordable for the masses To promote tourism, increase employment and encourage balanced regional growth Ministry of Civil Aviation July 01, 2016 3

Regional Air Connectivity Scheme (RCS) Guiding Principles Reviving un-served / under-served airports / heliports or routes Operators to assess demand on routes (both aircraft and heli) Submit proposals for operating / providing connectivity on such routes Earmarking a certain number of seats in each flight as RCS seats Passenger fares on RCS seats to be capped based on flight distance / time Operator to seek VGF in case there is gap in costs of operations and revenues Market based discovery of lowest VGF sought on a route and allocation of a route to such operator on such lowest VGF payment Ministry of Civil Aviation July 01, 2016 4

Key definitions Implementing Agency Designated entity responsible for implementation of the Scheme. Unserved Airport - Any airport with no scheduled commercial flights during the last two (2) flight schedules Underserved Airport - Any airport with no more than 7 scheduled commercial flights per week as per the latest schedule RCS route pair of origin / destination points (atleast one RCS airport or heliport / no scheduled flights for last 2 schedules (heli -1) / stage length between 200 to 800 km except hilly / island /NE regions or for heli operations (60 min)) Regional Connectivity Fund - Fund/Corpus created through application of a levy on domestic flights ( other than CAT- II/ CAT IIA, RCS routes and small aircrafts below 80 seats) Ministry of Civil Aviation July 01, 2016 5

Support from the Central Government Excise Duty @ 2% on Aviation Turbine Fuel (ATF) purchased at RCS Airports for an initial period of three (3) years from the date of notification of this Scheme. Concession on Service Tax To be levied on 10% of the taxable value (abatement of 90%) of tickets for passengers on an RCS Flight for a period of 1 year Freedom to enter into code sharing arrangements with both domestic as well as international airlines. Permission to set-off / trade ASKMs for non-RCS seats as per existing RDG guidelines Ministry of Civil Aviation July 01, 2016 6

Support from the State Governments VAT to 1% or less on ATF at RCS Airports located within the state for a period of 10 years; Minimum land, if required, free of cost and free from all encumbrances for development of RCS Airports Security and fire services free of cost at RCS Airports; Electricity, water and other utility services at concessional rates at RCS Airports; and Contribution (20% for States other than for North-Eastern States where the ratio will be 10%) to RCF Ministry of Civil Aviation July 01, 2016 7

Support from the Airport Operators Exemption to RCS Flights from Landing Charges and Parking Charges. Exemption to RCS Flights from Terminal Navigation Landing Charges (TNLC) Discounts to RCS Flights on levy of Route Navigation and Facilitation Charges (RNFC) (@ 42.50% of Normal Rates) No levies by the Airport Operators for PSF, DF and UDF. Allowing selected airline operators to do self ground handling for operations under the scheme at all airports Ministry of Civil Aviation July 01, 2016 8

Features of the Scheme Ministry of Civil Aviation July 01, 2016 9

RCS Coverage & Applicability 1. Routes or a Network of Routes satisfying RCS requirements 2. RCS Operations through fixed-wing aircrafts. 3. RCS Operations through helicopters, permitted only for remote / specified areas Ministry of Civil Aviation July 01, 2016 10

Regional Connectivity Fund (RCF) and its allocation Inflows to RCF Levy or fee per departure on domestic routes as provided under NCAP 2016 Premium realized, if any, from the allotment of additional capacity entitlements on international routes Allocation of RCF To Regions Capped up to 25% of the estimated inflows in 1st year (5 regions) To Underserved Airports Capped up to 30% of the estimated inflows in 1st year To Airline operators 50% for a region and 25% of the total fund Ministry of Civil Aviation July 01, 2016 11

Period of Support under the Scheme (RCS) Tenure of the Scheme 10 years Tenure of VGF Support 3 years Proposals for provision of VGF under the Scheme will be considered until the end of 7th year from the date of notification of the Scheme Ministry of Civil Aviation July 01, 2016 12

Minimum commitments from Selected Airlines 1. Fixed-wing aircraft: 50% of seats offered on an RCS Flight (subject to a minimum and maximum of 9 seats and 40 seats respectively) to be sold at or below specified Airfare Cap 2. Helicopters: 5 Seats to be sold at or below specified Airfare Cap 3. Frequency: Minimum 3 Flights per week and Maximum 7 Flights per week Ministry of Civil Aviation July 01, 2016 13

Airfare Caps under the Scheme 1. All-inclusive airfare of 2,500 per RCS Seat will be applicable for: RCS Flights operated by fixed wing aircraft for stage length of 500 km; and RCS Flights operated by helicopters for flight duration up to 30 minutes 2. Airfare Caps will be indexed to inflation as per NCAP 2016 and will be revised quarterly. 3. Airfare Caps have been specified for various stage lengths Ministry of Civil Aviation July 01, 2016 14

VGF to be capped 1. VGF Caps calculated on normative basis Caps with reference to a broad representative data set / potential cost and revenue for operations on a typical RCS Route for a particular stage length 2. VGF Caps to be specified upfront to ensure transparency under this Scheme 3. VGF Caps as well as VGF support for respective routes indexed to inflation & ATF prices; such indexation to be reviewed on a periodic basis Ministry of Civil Aviation July 01, 2016 15

Airfare Caps Fixed Wing Aircrafts (1/2) Stage Length (in km) RCS Airfare Cap (in ) VGF Cap (in ) 201 225 226 250 251 275 276 300 301 325 426 450 451 475 476 500 501 525 526 550 676 700 701 725 726 750 751 775 776 800 1,770 1,830 1,890 1,950 2,010 1,810 2,190 2,560 2,940 3,090 2,330 2,370 2,500 2,500 2,760 3,610 3,720 3,750 3,790 3,820 3,540 3,670 3,810 3,940 4,070 4,040 4,070 4,100 4,130 4,170 Ministry of Civil Aviation July 01, 2016 16

Airfare Caps Helicopters (2/2) Flight Duration (in minutes) RCS Airfare Cap (in ) VGF Cap (in ) 00 10 2,500 0 11 15 2,500 1,200 16 20 2,500 2,400 21 25 2,500 3,600 26 - 30 2,500 4,800 31 35 2,900 5,600 36 40 3,350 6,400 41 45 3,750 7,200 46 50 4,150 7.200 51 55 4,600 7,200 56 60 5,000 7,200 Ministry of Civil Aviation July 01, 2016 17

PLF Based Tapering of VGF support For annual average PLF exceeding 90%, VGF for the next year will be 50% of the applicable VGF for the next year. If annual average PLF for the subsequent year of operations continues to exceed 90%, VGF for the third year will be 25% of the applicable VGF. However, if it falls below 90%, VGF for the third year will be restored to 100% of the applicable VGF. Such VGF tapering will not be applicable for Category 1 aircraft and helicopter operations under the Scheme Ministry of Civil Aviation July 01, 2016 18

Exclusivity to Selected Airlines on awarded routes 1. During the exclusivity period, no other airline operators would be allowed to operate flights on the specific RCS Route 2. Suggestions to be invited from stakeholders on the length of Exclusivity Period One Year (1 year); Two Years (2 years); Three Years (3 years) Ministry of Civil Aviation July 01, 2016 19

Procedure for selecting an airline operator Reverse bidding mechanism will be followed for the selection of airline operator Two half-yearly cycles for inviting & evaluating proposals and identifying the Selected Airline Evaluation of Proposal(s) and Selection of Preferred Applicant Invitation of Counter Proposal(s) Scrutiny of Initial Proposal(s) Submission of Initial Proposal(s) Ministry of Civil Aviation July 01, 2016 20

Evaluation of Financial Proposals Suggestions to be invited from stakeholders on the following bidding parameters 1. VGF per RCS Seat 2. Total VGF per week 3. Combination of VGF per RCS Seat and Total VGF per week Ministry of Civil Aviation July 01, 2016 21

Ease of Exit Mechanism for Selected Airline If a Selected Airline Operator ceases RCS Flight operations After completion of one year of operations: Performance Guarantee (PG) and Additional Performance Guarantee (APG) will be returned, provided there are no defaults by the Selected Airline Operator under the contract. Before completion of first year of operations: Both PG and APG to be encashed and retained by the Implementing Agency. Ministry of Civil Aviation July 01, 2016 22