Narendra Modi flags off Delhi-Shimla UDAN flight: With fares at Rs 2,036, here is why it makes sense

The first flight under the government’s UDAN scheme from Shimla to Delhi was launched by Prime Minister Narendra Modi this morning. With this, the stated aim of the NDA government to enable anyone wearing a hawai chappal to be able to board a hawai jahaj is being realized as fares are capped at Rs 2,500 per hour of flying on these select routes. Simultaneously, Modi will also flag off the inaugural UDAN flights on Kadapa–Hyderabad and Nanded-Hyderabad sectors.

The UDAN scheme is important from the air connectivity point of view – its stated aim is to get the aam aadmi to fly and in doing this, to get unserved and underserved airports to become better utilized. Take the case of the Shimla flight, which will be operated five days a week by Air India subsidiary Allaince Air. It will offer 35 seats on the Delhi-Shimla leg and only 15 on the return journey due to restrictions at Shimla airport though the aircraft is a 48-seater ATR, an Air India spokesperson told Firstpost.

Of the 25 seats on the Delhi-Shimla leg, 24 will be priced at a flat price of Rs 2,036. Which means, if you buy the ticket early enough, flying to and from Shimla will cut the travel time significantly besides costing you a little more than a train journey. It anyway cuts the travel time and the hassle of alighting at Kalka station and then looking for an alternate mode of transport to Shimla. Remember, the train facility is only till Kalka from Delhi and from there one has to either book a seat on the toy train or go by road. This morning, a one-way executive class fare on Kalka-Shatabdi for 1 May from New Delhi on the IRCTC website was available at Rs 1,265. From Kalka, the Shivalik Delux to Shimla showed up at Rs 415.

Narendra Modi. PTI

Narendra Modi. PTI

The Delhi-Shimla flight also marks the restarting of operations at the Shimla airport, which has been an unserved airport since 2012 when operating airlines withdrew citing non-viability. So why is Air India now re-launching operations to Shimla, knowing the skewed route economics? Under the new UDAN scheme, the state government and the centre are committed to providing subsidy as per a pre-decided formula which will perhaps help Air India not book interminable losses on this sector.

The economics of this flight makes for interesting reading. The Air India spokesperson said that the subsidy amount for this flight is Rs 3,340 per seat. He also explained that only 35 of the 48 seats on this ATR aircraft can be filled on the Delhi-Shimla leg due to airport restrictions whereas on the return journey, only 15 seats can be filled. What is evident from this is that 11 seats on the Delhi-Shimla leg will be priced much higher than the flat Rs 2,036 fare for the first 24 seats. Some news reports have suggested that the price for these 11 seats could go up to Rs 20,000 since they will not be covered under the subsidy math, but the spokesperson did not confirm this. On the Shimla-Delhi leg, he said each seat will be priced at Rs 2,036.

UDAN is a first-of-its-kind scheme globally to stimulate regional connectivity through a market-based mechanism. Under this scheme, routes and networks were awarded to bidders who submitted valid proposals and quoted the lowest viability gap funding (VGF) from the government for such routes and network. The Airports Authority of India (AAI), the implementing agency, issued Letter of Awards for 27 such earlier this year. The UDAN scheme will connect 27 currently served airports, 12 underserved airports (which do not service a flight a day presently) and 31 unserved airports (which do not handle a single flight).

Under UDAN, the largest number of airports served at 24 will be in the western region; 17 in north, 11 in south, 12 in east and 6 in north-eastern regions. As of now, the government has awarded 16 proposals for single routes (connecting two cities) and 11 for networks (connecting three or more cities). Six proposals have been bid with zero viability gap funding (VGF), which means on these routes no subsidy amount would be given. So, on a net outflow of 200 crore as VGF, 6.5 lakh subsidized seats would be offered by participating airlines on routes which were otherwise lying unused or were rarely connected.

After the first round of bidding for routes under the UDAN scheme was concluded last month, Air Odisha Aviation emerged as the airline connecting the maximum number of unserved airports in India - it proposes to connect 14 such airports which do not service even a single flight as of now. Some of the unserved airports which could again see flights under UDAN include Jaisalmer, Bikaner, Jamshedpur, Jalgaon, Akola, Kandla, Puducherry, Bhatinda, Cooch Behar and Bilaspur, besides Shimla.

The UDAN scheme offers subsidy for 50 percent of the seats on these routes, exclusive route monopoly for three years and a host of other concessions at the landing airports. In turn, it expects the airlines to cap fares at Rs 2,500 per seat per hour rate on regional flights. Alliance Air CEO C S Subbiah had said earlier. He expected break even on each such ATR-72 flight in a month as 60-70 per cent load factor (which denotes percentage of occupied seats) should be enough for the airline to recover costs. Air Odisha CEO Sanjay Arya had said it would take about three months for his 18-20 seater aircraft to break even on the regional routes.

After the first round of bidding – airlines had to bid for the viability gap funding or subsidy they need for each route – five airlines qualified. These include Air India subsidiary Alliance Air, Air Odisha, Turbo Megha Airways, Air Deccan and SpiceJet.

So the big boys of aviation not only stayed away from the first round of bidding, they are also waging a battle against a levy on metro flights which is being used to fund such regional connectivity. IndiGo, SpiceJet, GoAir and Jet Airways have gone to court against the levy imposed by the government on each flight taking off from a metro airport, and some of these airlines have yet not paid the sum accrued from this levy. Civil Aviation Secretary R N Choubey had said earlier the levy actually works out to just Rs 50 per metro passenger and should not be hard to bear.

Besides the reluctance of the big domestic airlines to mount flights on these routes, among those airlines that have come forward, some have a previous history in the industry which is not all praiseworthy. It remains to be seen if other than Air India and its subsidiaries, many newcomers in the UDAN scheme are able to make ends meet despite the subsidy and a host of concessions at landing airports.

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Updated Date: Apr 27, 2017 14:40:49 IST

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