Govt should stay away from capping fares: SpiceJet Chairman

The government, in the revised draft civil aviation policy today, proposed 2 percent levy on all domestic and international tickets for the regional connectivity scheme alongwith setting up of no-frills airports and providing viability gap funding for airlines. It also proposed capping fare at Rs 2,500 for one-hour flight under the regional connectivity scheme. SpiceJet Chairman Ajay Singh while lauding the government’s efforts for regional connectivity says that it is the high point of the proposed draft. However, Singh told CNBC-TV18’s Shereen Bhan that capping fares at Rs 2,500 will be an impediment to growth of airlines. “Government should stay away from capping fares,” he says. Singh says the other positives of the proposed draft are the Maintenance, Repair and Overhaul (MRO) policy that will allow Indian airlines to service their planes within the country itself. Besides these, government must consider reducing aviation turbine fuel (ATF) taxation. “Steps need to be taken to ensure India doesn’t have the most expensive aviation fuel policy,” he says. On the open sky policy, Singh says that the policy must be reciprocal. Singh says that Spicejet will vote against abolition of the 5/20 rule under which the local airlines can fly overseas only when they have five years operational experience and at least a fleet of 20 aircraft. Below is the transcript of Ajay Singh's interview with CNBC-TV18's Shereen Bhan.Q: Let me start by asking you for first your comment as far as the civil aviation draft policy is concerned because the major thrust seems to be on regional connectivity whether it is through the regional connectivity scheme, it is through no frill airports, would you say that, that in a sense is the high point as far as this policy is concerned?A: I think several high points, one of which of course is regional connectivity. We have always been great supporters of regional connectivity. I think it is a shame that of the 475 airports we have today only 75 are operational. There is great growth happening in the economies in small towns, the tier-II and tier-III and other smaller towns. If we can provide them air connectivity you would see multiplication of that growth both in terms of their economy and in terms of tourism. So, I think the focus on regional connectivity is a good one. There are several other highlights like what they have done in terms of trying to reduce the costs and make MROs more viable and enable airlines in India to use those MROs, the ease of doing business, air cargo and several initiatives I think which are pretty good.Q: If I may continue our conversation as far as regional connectivity is concerned and I wanted to ask you what you make of the regional connectivity scheme and that viability gap fund that the government is proposing to setup and also this business of capping fares at Rs 2500 per hour because is understand that the cost is actually Rs 4000. Is it a sensible way to actually approach this idea by way of a cap or let the market decide and let competitive forces decide?A: I think this idea of putting in place a regional connectivity fund is a good one. A similar scheme was used when they wanted to build the highway development project way back in Vajpayee's time and a cess was put on petrol and that money was used to fund the construction of National Highways. So, the idea of a regional connectivity fund is a good one.I don't  necessarily agree with this capping of fares at Rs 2500 because when you set a cap, you also need to start setting floors. When you set floors then fares don't remain dynamic and all the stimulation that we do by offering fares at Rs 500 or Rs 1000 and the ability that, that  gives to people to start flying, people who have never flown before and the expansion of the market that happens as a consequence, I think that stops to happen. So, government should stay away from capping fares. I think they can setup this fund, they can provide viability gap funding wherever required and they can use the money to develop airports but they should let airlines determine fares by themselves. This dynamic fare model has worked pretty well so far. The market is growing at 20 percent, it can grow faster as well but capping of fares would act as a impediment to the growth. Q: So, they have invited public comments and you would clearly in your public comments state to the regulator as well as the government that capping of fares is a bad idea. If this does indeed go through, will it deter your regional connectivity plans?

A: I think overall, it is a good policy and it should help encourage regional connectivity. Perhaps, if they can clarify that instead of a cap, this would be an average fare, which in addition to the viability gap funding, the airlines are able to charge perhaps, in some sectors, where there are no flights available, it could become viable for airlines to offer flights.

But all-in-all, the policy is actually a good one as far as regional connectivity is concerned and as you said, it is a draft policy, they have invited comments. And we will address comments to them. And given the fact that SpiceJet is the largest regional player in the market today, we have 15 aircraft, by far the largest number of flights into small destinations. I think that we should be able to persuade the government to look at what we are saying seriously.

Q: What else would you like to see change, if I could ask you for broad comments in terms of what you have heard whether it is with the regional connectivity, you have already given us your point of view, but there are several parameters. Of course, as far as the maintenance, repair and operations (MRO) are concerned, that is where the big benefit has come in, that is where the sweeteners have been, in that sense, have been proposed to be given out. But what other comments would you like to offer in terms of what you have heard so far in the draft policy?

A: Firstly, of course, the MRO policy is a very good one and this is something that we have been saying for several years now that it makes very little sense for airlines in India to be taking their planes overseas for servicing and overhaul when this really should be done in India. In India we have, obviously, the facilities available, the skills available and a low cost base and potential anchor customers and airlines like SpiceJet and others.