Scaling New Heights

UDAN progresses with new rounds on the anvil

The Regional Connectivity Scheme (RCS) – Ude Desh Ka Aam Nagrik (UDAN) – was launched on April 27, 2017, as part of the National Civil Aviation Policy, 2016, to make air travel a more affordable and convenient mode of transportation for a wider net of regions across the country. Since its launch, the scheme has drawn much interest from all stakeholders, thanks to its simple bidding norms and supportive funding structure. In the past three years, over 688 routes connecting 106 served, underserved and unserved airports under three rounds of bidding have been awarded to airline operators. Of these, about 30 per cent of the routes have been operationalised so far and several new/unserved airports such as Kannur, Orvakal, Hindon, Sindhudurg, Jharsuguda and Kalaburagi saw the light of day.

With the commencement of new routes and airports, there has been a marked uptick of 242 per cent in air passenger traffic on RCS routes during the period April 2018 to April 2019. On account of this noteworthy improvement, the government decided to expand the scheme and in November 2019, the fourth round of the RCS was announced and, further, an international connectivity scheme from the north-eastern states has also been introduced.

That said, operational issues like cancellation of routes by airlines, low passenger load factor on flights, and inability of smaller airlines to provide regular flights undermine the actual potential of the scheme. Therefore, adequate financial support needs to be ensured by the state and central governments besides incentivising less profitable routes. With the government planning to operationalise another 100 underserved airports by 2026-27, the scheme will undoubtedly improve not only regional connectivity but link remote areas as well.

Overall progress

Since the launch of the first round of the RCS in April 2017, the scheme has witnessed a lot of developments. Under the three rounds (1, 2 and 3 [including 3.1]), a total of 688 routes servicing 106 airports (served, underserved and unserved), 31 helipads and 10 water aerodromes have been awarded to airlines. Of these, 232 routes and 43 airports have been operationalised so far.

For the successful roll-out of the scheme, fiscal incentives in the form of viability gap funding (VGF) have been offered by the central government. Besides, non-financial incentives like tax benefits and waiving of landing and parking charges are offered by the state governments. These incentives have attracted the interest of both small and large private players and airlines. In addition to this, concessions in the form of levy of excise duty at the rate of 2 per cent on aviation turbine fuel for a period of three years, freedom to enter into code-sharing arrangements with domestic as well as international airlines, and concessions on service tax on tickets, among others, have been offered.

Round by round

Round 1 of bidding saw the award of 21 proposals involving 128 routes connecting 31 unserved, 12 underserved and 27 served airports to five airlines – Alliance Air, SpiceJet, TruJet, Air Deccan and Air Odisha – in April 2017. Of the routes awarded, only 56 routes were considered valid. Thereafter, in July 2017, the first RCS flight was flagged off from Shimla bound for New Delhi. As of November 2019, operations on 54 routes have commenced.

The second round of bidding was launched on August 24, 2017 with a few revisions with respect to stage length (which was reduced from 800 km to less than 150 km), a cap on regional connectivity fund allocation and earmarking of 10 per cent VGF for helicopters, among others. Special emphasis was laid on providing air connectivity to the northeast and hilly areas of Jammu & Kashmir, Himachal Pradesh, Uttarakhand, Andaman & Nicobar Islands, and Lakshadweep that were deemed priority areas. This round saw marked improvement over the first round as letters of award were issued for 90 proposals comprising 325 routes for 25 unserved and 5 underserved airports and 31 helipads to 15 airlines in January 2018. However, only 297 routes were validated, of which 104 routes have been operationalised so far. In October 2019, Hindon airport in Delhi was inaugurated for operations and a flight from Hindon to Pithoragarh was flagged off.

Backed by the success of the first and second rounds, the Ministry of Civil Aviation (MoCA) launched the third round of bidding in November 2018. A separate category for tourism routes was introduced with VGF support by the Ministry of Tourism. Moreover, a provision for connecting water aerodromes was also brought in, the first such initiative in the country. An additional bidding round, 3.1, was conducted to include routes that are considered priority/crucial routes or were cancelled and not covered under any rounds so far. Consequently, a bidding window for this special round was opened in February 2019.

A total of 335 routes were awarded under both the rounds connecting 20 unserved airports, 3 underserved airports, and 10 water aerodromes to 11 airline operators under Round 3 and to six operators under Round 3.1.

As of November 2019, 74 routes have been operationalised under these rounds. Kalaburagi airport was inaugurated on November 22, 2019 under this round making it the 43rd airport to be operationalised under the RCS. Simultaneously, the first flight, operated by Star Air, was flagged off from the airport to the Kempegowda international airport in Bengaluru. On November 16, 2019, two routes connecting Dharamshala to Chandigarh under Round 3.1 were operationalised by Alliance Air.

Beyond Round 3.0

To further enhance connectivity to remote areas of the country, the MoCA announced Round 4 of the scheme with provisions such as revised cap on VGF and provision of VGF for stage length of up to 500 km, flexibility for changing frequency of flights and inclusion of helicopters and seaplane operations. The focus of this round was also on areas that had been identified for connectivity under the third round. On December 3, 2019, bids were invited for submission of initial proposals for routes/networks, and these are due by January 9, 2020.

In addition, the international connectivity scheme has also been introduced to promote connectivity from non-metro cities covered under India’s open skies policy to other Asian countries. Routes connecting Guwahati to Dhaka, Kathmandu, Yangon, Kuala Lumpur, Singapore and Bangkok, and two other routes from Vijayawada to Dubai and Singapore were identified. Later, in November 2018, bids for first round comprising two routes – Guwahati-Bangkok and Guwahati-Dhaka – were invited, following which these routes were awarded.

On July 1, 2019, the first international flight from Guwahati to Dhaka, operated by SpiceJet, was flagged off. Soon after, the government revealed plans to commence Round 2 of the scheme for covering the remaining international routes in addition to an additional route from Guwahati to Hanoi. Proposals for these routes have already been invited from airlines and are yet to be finalised.

Operational glitches

Although cities have witnessed tremendous improvement in connectivity with the RCS, 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 offering 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, while 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 have been cancelled since most airlines have found it difficult to generate sufficient demand. These included routes assigned to Zoom Air, 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.

Moreover, players like Air Odisha and Air Deccan are unlikely to be allowed to bid in the upcoming round owing to their inability to start operations on most of the routes awarded to them in the earlier phases of UDAN.

The way forward

So far, significant improvement in connectivity has been made and over 10 million RCS seats will be added to the system annually once all the routes are operationalised. Going forward, the potential of the scheme will lie in the transition from regional connectivity to remote connectivity. To achieve this, the MoCA aims to operationalise 1,000 routes and develop another 100 airports in the next five years. This will be achieved by focusing on operationalising routes in priority areas as, till now, airlines have been inclined towards profitable routes only. Routes in the hinterland and remote areas have not generated much interest. In this regard, the Airports Authority of India is focused on developing no-frills airports in the future and routes connecting such airports would be prioritised for award of VGF. Lastly, the market needs to be incentivised to develop short-haul routes only that will provide connectivity to nearby airports.

 

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