The ministry of civil aviation (MoCA) unveiled its civil aviation policy, with an ambitious plan to increase domestic air traffic by 4X to 300 million passengers by CY2022. The ministry plans to achieve this by encouraging airlines (through various incentives and financial assistance) to launch affordable flights to multiple unserved/underserved routes in smaller cities.
Even partial success of this initiative will go a long way in accelerating air-travel demand in the domestic market, in our view.
The MoCA, under its Regional Connectivity Scheme (RCS) unveiled yesterday, plans for multifold growth in air traffic on multiple regional routes which currently account for less than 10% of air traffic in India.
RCS aims to- identify multiple tier 2 and tier 3 towns with high potential for air-traffic demand, develop no-frills airports at capex of `0.5-1 billion, encourage operators to launch/increase services to these cities by offering various incentives and stimulate air-travel demand on these routes by capping air fares at Rs 2,500
per hour of flight.
The RCS scheme, if attractive enough for airlines to fly on regional routes, can provide multiple growth opportunities to domestic air-travel demand in India, a major long-term positive for the sector in our view.
The new policy has also quashed the 5/20 rule, enabling new airlines to start international operations after reaching 20 aircraft in fleet size. We see this as a small positive for IndiGo.