The central government launched the Regional Connectivity Scheme (RCS) about three years ago with the aim of providing air connectivity to underserved and unserved cities in the country. The move is reflective of the government’s intent to bring these smaller cities on the aviation map.
So far, two rounds of bidding have been completed and a total of 453 routes awarded. However, operations have commenced on only about 15 per cent of these routes.
Indian Infrastructure takes a look at the progress so far…
Update on the first round of bidding
The RCS, also known as UDAN (Ude Desh ka Aam Nagrik), was proposed under the National Civil Aviation Policy (NCAP) in June 2016. In October 2016, the first set of routes to be awarded under the scheme was put on the block. The Ministry of Civil Aviation (MoCA) received 45 proposals from 11 bidders, covering more than 200 routes. Of these, 128 routes were awarded to Alliance Air, SpiceJet, TruJet, Air Deccan and Air Odisha to connect 31 unserved and 12 underserved airports, and 27 served airports.
In April 2017, the first flight under UDAN was flagged off from Shimla to Delhi. Following this, flights from the Nanded and Kadapa airports were also flagged off. So far, flight operations have commenced from 16 RCS airports – Bhatinda, Gwalior, Kadapa, Kandla, Ludhiana, Mysore, Nanded, Puducherry, Porbandar, Shimla, Vidyanagar, Bikaner, Jalgaon, Nashik, Agra and Jaisalmer – while flights are yet to commence from 11 operational RCS airports – Pathankot, Shillong, Durgapur, Salem, Jamshedpur, Cooch Behar, Kullu, Bhavnagar, Jamnagar, Pantnagar and Diu.
Besides, as of July 2018, there are 10 RCS airports under upgradation, slot allocation, etc – Ambikapur, Burnpur, Bilaspur, Jeypore, Mithapur, Neyveli, Raigarh, Rourkela, Solapur and Utkela.
On September 22, 2018, the government inaugurated Jharsuguda airport and flagged off a Jharsuguda-Raipur flight. The airport has been built by the Airports Authority of India (AAI) in collaboration with the Odisha government at a cost of Rs 2.1 billion.
Update on the second round of bidding
After the success of the first round of bidding, the MoCA launched the second round of bidding on August 24, 2017. The key revisions made under this round include routes with stage length less than 150 km being permitted under the RCS, no minimum performance specifications applicable on non-RCS routes, region-wise Regional Connectivity Fund (RCF) allocation caps increased from 25 per cent to 30 per cent, the RCF allocation cap for airline operators increased from 25 per cent to 30 per cent, flexibility enhanced for airline operators to change deployed capacity, revised viability gap funding (VGF) caps, and earmarking funds for helicopters (10 per cent of annual inflow into the RCF).
In order to provide air connectivity to the northeast and hilly areas, special emphasis was laid on connectivity to priority areas which included Jammu & Kashmir, Himachal Pradesh, Uttarakhand, the Northeast, Andaman & Nicobar Islands, and the Lakshadweep Islands. In addition, greater impetus was given to helicopter operations. VGF caps for helicopter operations were revised under the scheme and all seats (up to 13 passenger seats) for helicopters are to be considered as RCS seats.
The MoCA received 141 proposals (for both planes and choppers) for 502 routes in the second round. Of these, letters of award were given to 90 proposals for 325 routes. Of the total routes, 129 have been awarded in the priority area category.
The contracts for the 325 routes were awarded to 15 airlines and helicopter operators. For fixed-wing aircraft operations, the maximum have been bagged by Interglobe Aviation, the parent company of IndiGo Airlines, followed by SpiceJet. While helicopter operators did not show any interest in the first round of the RCS, four of them have been granted rights to fly on selected routes this time. Pawan Hans has the maximum routes in the helicopter proposals category.
With regard to VGF, proposals under the second round of bidding require a VGF of Rs 4.9 billion for plane operations and Rs 1.3 billion for helicopter operations, taking the total VGF under both the rounds to Rs 8.33 billion. To meet this requirement, the government will levy a regional cess of Rs 5,000 per non-regional flight to create an RCS fund to provide the VGF.
Experience and issues
The NCAP, 2016, was released with a view to make air travel more accessible and the related infrastructure more efficient. However, despite all the concerted efforts, the implementation of the RCS has not been without turbulence. Of the total routes awarded to various airlines and helicopter operators, a mere 15 per cent have become operational. Also, there have been variations in terms of operationalisation of the awarded routes between the big and small airline operators. On the one hand, established players such as Alliance Air, SpiceJet and TruJet have been able to operationalise most or all the routes awarded to them. On the other hand, a few smaller players such as Air Odisha and Air Deccan have not been able to service even 25 per cent of the total routes awarded in Round I. One of the reasons for slow delivery by smaller operators is that they have been unable to raise sufficient capital for their operations. The inability to hire trained manpower and lease planes has also been one of the reasons for slow delivery by the small operators.
Infrastructural constraints too have crippled the pace of execution of the scheme. Many airports which were included under Round II are underserved and it has been difficult to commence operations at these airports. The country has a total of 450 unused airstrips and airports and, so far, only 65 locations are connected by the routes that were put in the second bidding round. Besides, the government’s move to bid out the unused airstrips and airports has also been questioned by the new regional carriers. These airstrips and airports require a huge amount of capital investment for commencing operations.
Apart from the difficulties faced due to underserved airports, the bigger airports like Delhi and Mumbai have been unable to allocate sufficient slots for RCS flights.
Despite all the issues faced in implementation, the scheme gained traction with the commitment of players such as IndiGo, SpiceJet, Jet Airways and Alliance Air. There has also been a steady rise in the number of passengers. Passenger traffic at Shimla and Nanded airports increased from 172 and 269 passengers, respectively, in April 2017, to 467 and 8,756 passengers in July 2018. The maximum increase was recorded at Kadapa airport with traffic increasing from 41 passengers to 9,175 during the same period. The airfare cap under the scheme has also been able to protect small operators from competition.
In view of the success of the first and second rounds of bidding, AAI is planning to initiate a third round to further enhance regional connectivity in the country. As of now, no deadlines have been set for the same. In addition, AAI is likely to introduce the concept of seaplanes in the subsequent rounds of bidding. Talks are under way with the regulatory mechanism being worked out.
Besides enhancing regional connectivity, there are also plans for extending the scope of the scheme to international flights (International UDAN). In particular, the Assam government has requested AAI to include international flights under the purview of the scheme.
Going forward, the outlook for the sector seems promising with the government taking the necessary steps to enhance regional connectivity in the country. The launch of the RCS has injected the much-needed optimism into the sector and has given a new direction to it. However, effective implementation and timely execution of the RCS is critical.