UDAN: Govt to spend Rs. 6.6-7.1cr on just one sector
On the first Delhi-Shimla flight under the UDAN scheme, government paid for 24 seats (50% of capacity), or Rs. 82,560 per flight. On the return journey, it paid for 15 seats (or Rs. 51,600 per flight). Flights are five times a week. Hence the Centre and state will together bear expenses of Rs.6.6cr - Rs. 7.1cr annually, just on the Delhi-Shimla route.
UDAN Flight Scheme: Low fares and regional connectivity
PM Narendra Modi launched the UDAN (Ude Desh ka Aam Naagrik) or Regional Air Connectivity Scheme (RCS) in a bid to achieve twin goals of connectivity and affordability. Through the scheme, civil aviation attempts to catch up with the road and rail connectivity at the margins. The geographical spread of the scheme seems impressive, too. But, will the UDAN scheme really take off?
About the UDAN scheme
UDAN (Ude Desh ka Aam Naagrik) Scheme, aimed at improving affordable regional connectivity, was announced last year and launched on 27 Apr'17. It is a key component of the Centre's National Civil Aviation Policy released in Jun'16. Under the scheme, five airlines -Air India's subsidiary Alliance Air, SpiceJet, Air Deccan, Air Odisha, and Turbo Megha- will operate 19-78 seater aircraft on 128 new routes.
Centre caps airfares at Rs. 2,500
The low-fare scheme may attract flyers as it has a subsidy component. The government capped the fares at Rs. 2,500 per seat per hour (for 500km journeys) on airplanes as well as 30-minute journeys on helicopters; the price varies for longer routes. 50% of the seats will be sold at subsidized rates while the remaining would be sold at regular rates or higher.
Smaller towns connected with bigger cities
Under UDAN, 27 currently served airports, 12 underserved airports, and 31 unserved airports are connected. Of the total airports, 12 are in the East, 24 in the West, 17 in the North, 11 in the South, and 6 in the Northeast. The scheme attempts to connect smaller towns like Gwalior, Shimla, Kadapa, Jaisalmer, Bhavnagar, Nanded, Durgapur, and Bhatinda with bigger cities.
UDAN financed by Viability Gap Funding
The scheme is being financed by Viability Gap Funding (VGF), involving a cess on the air fares and reduction of excise and service tax along with other incentives. But VGF is only for three years; it isn't likely that services to these airports will become self-sustainable in such a short duration. The Centre originally proposed to contribute 80% VGF and states the remaining 20%.
Established carriers choose to stay out
The UDAN scheme, however, did not find too many takers. Only state-run Air India and SpiceJet have signed among established carriers; the remaining three - Air Deccan, Air Odisha, Turbo Megha - are small carriers. The possible reason behind larger carriers choosing to stay out of the scheme could be the absence of a policy commitment to offer VGF for a longer period.
UDAN's destiny relies on response of passengers
Besides the reluctance of larger domestic airlines to operate under the scheme, another drawback is that the carriers that came forward seem to have a not-so-praiseworthy history in the industry. It is to be seen if newcomers in UDAN are able to make ends meet despite subsidies and incentives. However, the destiny of UDAN would ultimately be determined by the response of passengers.