The Regional Connectivity Scheme (RCS), also known as UDAN (Ude desh ka aam nagrik) was proposed under the National Civil Aviation Policy (NCAP) in June 2016 and launched in October 2016.
Objectives and guiding principles
The primary objective of the scheme is to facilitate regional air connectivity by making it affordable and by incentivising airlines to fly to regional locations. Under the scheme, airlines will be supported through concessions by the central and state governments, concessions by airport operators and through viability gap funding (VGF). The RCS will be guided by the following principles:
- State government support: The RCS is to be made operational only in those states which provide the required concessions.
- Demand-driven mechanism: Airlines will develop RCS routes based on their assessment of demand and supply.
- Sustainability of operations: VGF will be offered for a limited period to stimulate air connectivity to unserved/underserved areas.
- Periodic review: The provisions will be reviewed at least once in three years to ensure that the objectives of the scheme are being met.
Support from key players
The central and state governments as well as airport operators will all have specific roles to play under the scheme.
- Central government: The government will levy 2 per cent excise duty on aviation turbine fuel (ATF) purchased at RCS airports for an initial period of three years from the date of notification of the RCS. Also, service tax will be levied at 10 per cent of the taxable value (90 per cent of taxable value will be exempt) of tickets for passengers on an RCS flight for a period of one year.
- State governments: Value added tax will be charged at 1 per cent or less on ATF at RCS airports for a period of 10 years; land will be provided free of cost and free from all encumbrances for the development of RCS airports; security and fire services will be free at these airports; electricity, water and other utilities will be provided at concessional rates; and the state will contribute 20 per cent of the VGF cost (10 per cent for North-eastern states).
- Airport operators: Airlines will be exempt from parking and landing charges as well as terminal navigation landing charges (TNLC) at RCS airports; selected airlines will be allowed to undertake ground handling for operations under the scheme at all airports.
Conditions and airfare caps
Airlines and helicopters will be allowed to avail of benefits under the RCS if they meet certain specified conditions. Some of these are that at least 50 per cent of the seats offered on an RCS flight (subject to a minimum of 9 seats and a maximum of 40 seats) will have to be sold at or below a specified airfare cap; airlines must fly a minimum three flights and maximum of seven flights per week on RCS routes. Ticket prices on these routes will be capped for affordability. An all-inclusive airfare of Rs 2,500 per RCS seat will be applicable for fixed-wing aircraft for a flight of 500 km and helicopters for a flight duration of up to 30 minutes. For journeys shorter or longer than 500 km (or 30 minutes), the fares will be capped proportionately. Airfare caps will be revised on a quarterly basis.
- Route/Network bids received till the last date of initial bid submission (January 16, 2017) have been opened for the counter-bidding process.
- 43 initial proposals have been received from 11 bidders covering 190 UDAN routes and have been opened up for counter-bidding after preliminary validation.
- 85 airports have been selected to be connected under the RCS – 30 currently served airports, 12 currently underserved airports and 43 currently unserved airports.
- Of the total 85 selected airports, 19 are under the Airports Authority of India (AAI), seven under state governments, eight under the Ministry of Defence, three are public sector airports and six are private airports.
- Of these airports, 32 are in the western region, 21 in the northern region, 16 in the southern region and 11 in the Northeast.
The counter-bids will be analysed and the final award of routes/networks will be based on the lowest VGF sought.
Based on presentation by G.K Chaukiyal, Executive Director, RCS, AAI