In Flight: UDAN scheme gains momentum

UDAN scheme gains momentum

Over three years ago, the Ministry of Civil Aviation (MoCA) launched the Regional Connectivity Scheme (RCS), also known as UDAN (Ude Desh ka Aam Naagrik), as part of the National Civil Aviation Policy, 2016, with the aim of providing air connectivity as a more convenient and faster mode of transportation to underserved and unserved cities across the country. As a result, today there are more than 100 operational airports as compared to just 70 in 2016. That said, there have been a number of challenges in the implementation of the scheme, pertaining to lack of funds, infrastructural bottlenecks and inability to generate demand in remote regions. The future success of the RCS hinges on cooperation between the central and state governments to address these issues. Further, the government’s vision has now moved beyond regional air connectivity towards remote air connectivity.

The story so far         

An increasing middle-class base in the country, along with the need to ensure inclusive and balanced growth formed the genesis of the RCS. A total of 30 states and union territories have signed MoUs with the central government to make flying accessible and affordable for all. For 2019-20, the government has approved a budget of Rs 45 billion for the development of regional airports under the scheme, about one-ninth of which has been earmarked for the provision of viability gap funding (VGF) for air connectivity in the Northeast. Apart from this, non-financial incentives such as tax benefits and waiving of landing and parking charges have also been offered by state governments. These incentives have attracted the interest of many small and large private players in the sector.

In July 2017, Phase I of the scheme was flagged off when the first RCS flight took off from Shimla for New Delhi. The first round of bidding saw the award of 128 routes connecting over 31 new and 12 underserved airports to Alliance Air, SpiceJet, TruJet, Air Deccan and Air Odisha. The government announced the second round of bidding in August 2017. UDAN II came with a number of revisions such as inclusion of routes of length less than 150 km, non-applicability of minimum performance specifications on non-RCS routes, increase in the cap for region-wise Regional Connectivity Fund allocation, enhanced flexibility for airline operators to change deployed capacity, revised caps for VGF, and funds being earmarked for helicopters. The second RCS bidding round saw significant improvement over the first one, including doubling of the number of RCS flights for priority routes – the Northeast, Jammu & Kashmir, and the Andaman and Lakshadweep islands – and participation by market leaders such as IndiGo and helicopter companies. Under this round of bidding, the MoCA awarded 325 routes to 15 airlines and helicopter operators. These routes included 25 new airports and 31 new helipads.

The third round and beyond

The government made further amendments to the scheme and launched UDAN III in January 2019. The MoCA decided to announce a separate category for tourism routes which will not get airport concessions and exclusivity of operations. However, VGF support will be accorded to this category by the Ministry of Tourism. Besides, several routes in the north-eastern region, being operated by Air Alliance in association with the Ministry of Development of North Eastern Region (DoNER), were brought under the ambit of UDAN III.

Further, after SpiceJet’s move to conduct trial runs on seaplanes in 2017, the government recognised the potential of seaplanes to bring the remotest parts of the country into the mainstream aviation network without incurring heavy expenditure on building airports and runways. Following this, the Directorate General of Civil Aviation permitted flight operations via seaplanes from water aerodromes in 2018 and, eventually, seaplane operations from the published list of water aerodromes were allowed under UDAN III. The first set of proposals included the Statue of Unity, Guwahati river dam, Sabarmati river front, Nagarjuna Sagar, Shatrunjay dam and Umrangso reservoir seaports. Further, it was decided to leave out helicopter operations from UDAN III, owing to the delays in their scheduled operations in UDAN II. The third round of bidding attracted over 100 initial proposals and 17 counter proposals from 15 bidders, covering more than 350 routes across the country.

Besides, it was decided to consider an additional bidding round under UDAN 3.1 to include priority/cancelled/crucial routes which were not covered under the scheme so far. Consequently, a bidding window for UDAN 3.1 (special round) was opened on February 8, 2019. Under this special round of bidding, letters of intent were issued to six airlines, namely, Alliance Air, Aviation Connectivity, Turbo Aviation, SpiceJet, Heritage Aviation and Zexus Air. A number of routes, including two DoNER routes, have been operationalised under UDAN 3.1, increasing the count of operational routes under UDAN to 194 as of July 2019. Many more routes, including those connecting Jharsuguda to Bengaluru and Kolkata, Kolkata to Shillong, and Mysuru to Hyderabad, Goa and Cochin are proposed to be operationalised soon.

Operational issues

Although the RCS has witnessed tremendous improvement in air connectivity across the country, there is still a long way to go. The scheme, now in its third year, seems to have lost momentum with only about one-fourth of the routes awarded so far having regular flights. Further, there have been variations in terms of delivery of the awarded routes between the big and small airline operators. Established players such as Alliance Air, SpiceJet and TruJet have been able to deliver on most or all the routes awarded to them. On the other hand, a few smaller players have not been able to service even 25 per cent of the total routes awarded under UDAN I.

Route cancellation has been another challenge. According to sources, at least 44 per cent of the routes allocated under UDAN had been cancelled since most airlines found it difficult to generate sufficient demand. These included routes assigned to Air Odisha and Air Deccan. With load factors lower than 60 per cent and fare caps in place, the routes were loss-making for most airlines. However, it was more difficult for smaller airlines to sustain operations as they failed to raise sufficient capital. Another reason for the slow pace of implementation of the scheme is the inability of small operators to hire trained manpower and lease planes. Besides, many airports that were included under UDAN II are underserved and require huge capital investments, making it difficult to commence operations at these airports. Apart from the difficulties faced due to underserved airports, bigger airports such as Delhi and Mumbai have been unable to allocate sufficient slots for RCS flights. Infrastructural bottlenecks in remote regions of the country further contribute to the lack of interest from private players in operating in them.

Future strategies and next steps

The future potential of the RCS now lies in the transition from regional connectivity to remote connectivity. To achieve this, the government aims to develop another 100 airports in the next five years. Till now, airlines have been inclined towards profitable routes, with those in the hinterland and remote areas struggling to generate interest. Seeking to tap these routes, the government plans to provide financial support to operationalise such routes within three to four years. Further, in a first-of-its-kind initiative, 10 water aerodromes and 31 helipads are envisaged for development. The government has also announced its long-term plan for the RCS under the Vision 2040 document. As a part of the RCS, 40 airports have been operationalised and another 66 have been awarded for upgradation. However, seeking to operationalise airports in unserved areas, the government aims to develop a mechanism where airport losses can be shared between the central and state governments. Apart from this, the government will focus on addressing challenges related to non-performance by some smaller operators, limited slots for UDAN flights in congested airports and restricted leasing options for small fleet owners.

At present, the penetration of the aviation market in India stands at 7 per cent. However, there is potential for it to be among the top three countries in terms of domestic and international passenger traffic. For this, states need to create a conducive business environment to make air travel affordable for the Indian middle class. Although, the government has taken numerous initiatives under the RCS to ensure regional air connectivity, a lot more still needs to be done to resolve the aforementioned issues.