Saturday, March 23, 2013

seat credit mechansim

                  The Civil Aviation Ministry has mooted a carbon credit like system, which will allow airlines to trade seat capacity as a part of its plan to promote regional routes.

              At present airlines are required to fly to tier II-III towns and also to sensitive areas like Jammu & Kashmir and the North East states under the route dispersal guidelines. However, airlines find it unprofitable to fly on those routes as they lack the right size of planes to operate on those routes.Under the mechanism, small air-taxi operators can fly to a particular small city destination and earn seat credit that can be sold to scheduled airlines. Bigger airlines will be able to use such credits to meet their requirement of having to connect remote areas without losing money on such operations.

                The ministry plans to replace the existing guidelines with a new policy to incentivise airlines to fly to regional airports. Plans include code sharing and seat credit mechansim amongst airlines.The Ministry is also creating the Essential Air Services Fund (EASF) for providing a direct subsidy to encourage domestic airlines to fly to remote areas

                 Instead of scheduled carriers flying half empty A-320 and B-737 aircrafts to small airports to comply with their obligations under existing guidelines, the same can be done by smaller aircraft operated by regional air taxi operators. The regional operators would operate at high seat factors and provide greater frequency of service to smaller locations. Each available seat-km (ASKM) (seat capacity) operated by the regional operators can be given one ‘credit’.  The credits can then be auctioned off to national carriers that is ready to pay the highest. This value of the seat credit would be market determined and the DGCA can play an observer’s role. This may create a win-win situation for all.
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