UDAN gives wings to people from small towns, hinterland but execution of the scheme holds key

New Delhi: When Prime Minister Narendra Modi flagged off the first UDAN flight on Shimla-Delhi sector on 27 April, he spoke of giving wings to people living in the small towns and in India’s vast hinterland. On the same day, he also inaugurated inaugural flights under the same scheme on Kadapa – Hyderabad and Nanded-Hyderabad sectors. UDAN (Ude Desh ka Aam Naagrik) is a first-of-its-kind scheme globally to stimulate regional connectivity through a market-based mechanism. Its success will be judged by how many additional Indians take to the skies in the next few years – remember, India is one of the world’s fastest growing aviation markets but this growth is almost entirely concentrated in its bustling metro cities.

India has the dubious distinction of having close to 400 ghost airports which are un-served - they do not handle even a single flight. Many of these are on routes with little traffic till now. It is no wonder then that the current Indian aviation boom has largely left the hinterland and even tierII cities untouched. UDAN, if it is executed well, could end the isolation of the aam aadmi as far as air travel is concerned.



The fares
The most significant aspect of UDAN is affordable fares. The airfare for a one-hour journey of approximately 500 km on a fixed wing aircraft, or for a 30-minute journey on a helicopter, have been capped at Rs 2,500, with proportionate pricing for routes of different stage lengths and flight duration. This of course comes with several caveats. For example, this price is applicable to only half the number of seats on an aircraft so the quicker you book, the better chance you will have to getting this low fare. The remaining half of the seats on the aircraft will come at the commercially applicable rate. So for Delhi-Shimla, the UDAN fare was just Rs 2036 per seat though the commercial rate for remaining seats was sometimes as high as Rs 20,000. The scheme is unique since it seeks to connect remote locations at affordable fares, where flyers can compare the roadways or rail fares and the time taken buy these two modes of transport with the UDAN flight economics to decide which suits his pocket more.

The scheme
Routes were opened up for reverse bidding since the scheme involves the Centre, state governments and interested airlines in a complicated subsidy math where each stakeholder takes a hit to enable greater air connectivity across the country. In other words, for fare on half the seats to be capped at Rs 2,500 per hour of flying, everyone will have to sacrifice a little.

** The selected airline operator would have to provide 50 percent of the flight capacity (subject to a minimum of 9 and a maximum of 40) as UDAN seats for operations through fixed wing aircraft. For helicopters this becomes a minimum of 5 and a maximum of 13 seats. Each operator who wins a route, gets a three-year exclusivity of operations.

** This is how the subsidy math works: To reduce the cost of operations of airlines on flying such routes, a financial stimulus in the form of concessions from Central and State government, airport operators and the Viability Gap Funding (VGF) to the interested airlines has been promised. State governments will provide a certain share of VGF (20 percent for states other than North-East States where the ratio will be 10 percent of VGF determined). They will also waive sundry charges at designated airports, lower tax on jet fuel and offer a host of other concessions to participating airlines so that cost of operations at these thinly populated routes becomes viable.

** Under UDAN, 27 currently served airports, 12 underserved airports (where not even seven flights a week are being serviced) and 31 unserved airports (where not a single flight is operated as of now) will be connected through 27 proposals approved of participating airlines, which will require VGF of around Rs 200 crore and provide around 6.5 lakh new seats.

24 airports in the western, 17 in northern, 11 in southern, 12 in eastern and 6 in north-eastern regions are proposed to be connected under the UDAN scheme. 22 states and two Union Territories will be connected through these 27 proposals.

Of the 27 proposals cleared, 16 are for single routes (connecting two cities) and 11 are for networks (connecting three or more cities). Six proposals have been bid with zero viability gap funding (VGF), reflecting the fact that there is potential latent demand.

** So in the first phase, Delhi will get connected to Bikaner, Indore, Jaisalmer, Varanasi, Gorakhpur, Pantnagar, Pathankot, Kullu, Jalandhar and Shimla besides other tierII and tierIII towns. Mumbai to Jalgaon, Kandla, Porbandar, Sholapur, Jamnagar. Chennai to Puducherry, Neyveli, Salem, Kadapa, Vijaywada. Bhubaneshwar to Jharsaguda, Bilaspur, Jagdadlpur, Cooch Behar. Shillong to Dimapur, Sichar, Imphal, Agartala. And Kolkata to Jamshedpur, Aizawl, Rourkela.

UDAN is laudable for many reasons but one must remember that execution is the biggest challenge of this ambitious scheme. Will participating airlines find it viable in the long run, despite the subsidy to operate on unviable routes? How will airports – which earn no revenue under this scheme – continue to bear the costs? What is the sunset clause of the subsidy scheme? Will the metro flyers, who are also expected to chip in with an insignificant amount per ticket to fund UDAN, remain benevolent?

Updated Date: May 02, 2017 14:05 PM

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