Despite challenges, UDAN continues to soar to new heights

The ambitious UDAN scheme has made a significant contribution in helping India’s domestic aviation sector grow, but the bottlenecks need to be cleared, writes Younis Dar

In October 2016, Prime Minister Narendra Modi announced his flagship scheme, UDAN, to make air travel affordable for the common man. Called the RCS (regional connectivity scheme)- UDAN (Ude Desh ka Aam Naagrik), the citizens are provided air connectivity to the second tier and three-tier cities. Under UDAN, the passengers get subsidised flights at 2,500 per hour of flight. The government announced a subsidy outlay 214 crore per annum in the first phase, the amount was enhanced to 500 crore for the second phase.

The third phase of the ambitious UDAN scheme was announced this year in January 2019, which according to the government had received enthusiastic response from the bidders. Being the biggest bidding under the scheme so far, UDAN 3 included new tourist routes, seaplanes for connecting water aerodromes and bringing a number of air routes in the North East under the scheme. UDAN 3 set an ambitious target of adding 69.30 lakh seats on annual basis on 235 routes, UDAN 1 had set a target of 13 lakh seats, while UDAN 2 set it at 29 lakh. The third round of UDAN envisaged connecting 89 airports across the country, which included 16 unserved and 17 underserved airports, besides 6 water aerodromes and 50 served airports across the country. The UDAN flights have grown to more than 160 routes across the country.

The government introduced opening of new routes to select destinations for tourism purposes this year. Additionally, connectivity of north east regions was high on the agenda in the third phase of bidding and multiple routes had been sanctioned. Already, the scheme has helped create more than a crore seats in the aviation industry, significantly boosting the domestic aviation sector. The opening of International routes in the third phase has the potential to further increase the gains for the common man as well as the economy.

The government received a total of 111 proposals from 15 airlines, that included existing bidders like Air India-subsidiary Alliance Air, IndiGo, Spice Jet, Jet Airways, Turbo Megha Airways. The other airlines offered routes under third phase were Andaman Airways Pvt Ltd, Aviation Connectivity and Infrastructure Developers Pvt Ltd, Ghodawat Enterprises Pvt Ltd, Heritage Aviation, Turbo Megha Airways Pvt Ltd and Zexus Air Services Pvt Ltd.

Challenges

Although the scheme had been phenomenal in its conception of connecting India’s unserved population, there were many bottlenecks that jeopardised its stated aims. Some routes had to be shut down by airlines due to low passenger footfall, while some other routes found no takers from the host of airlines selected. The burden of subsidy also became a bone of contention between some state governments and the centre. The Viability Gap Funding (VGF) places a certain onus on the states as well as the central government to offer the subsidies to compensate reduces fares.

While UDAN has been successful in areas such as the South, it has run into rough waters particularly in the Northeastern Region. Under the scheme, 18 flights had been started in 2018 to connect the interior areas of northeast with prominent destinations such as Guwahati and Kolkata, however, only two are operational now. The Guwahati-Dhaka flight has reportedly been put on hold because of the lack of passengers on this route. The private airlines in the Northeast region have mostly pulled out citing a lack of demand on the assigned routes, which has created a headache for the government. Areas like Tezpur, Pakyong, Lilabari, etc. have been hit hard because of this stalemate.

The Airports Authority of India, which is responsible for the scheme, has repeatedly pointed out that the scheme will not be successful unless the concerned governments support the initiative by providing financial support to the airlines for them to cover their losses. AAI also laments the business interests of the airlines saying they should look at long-term growth rather than current financial challenges in these areas. Obviously, the routes should only be allocated to airlines which can sustain these financial challenges and not see it only as a commercial venture. The airlines are being blamed for eyeing excessive profits and not caring for development of the regions along these routes.

In last two years, more than ten regional airlines have suspended operations under UDAN for similar reasons. Zoom Air, which had also bid for the Northeast routes, also had to suspend operations in July 2018. These operators have cited the reasons such as operational challenges, exorbitant costs, lack of airport slots, maintenance issues and a variety of other issues as a hindrance to smooth operations. AAI itself had to cancel the licences of a number of airlines citing poor performance. Adding to the troubles are the high fuel prices and a tough competition from the established domestic airlines in the market such as the Spicejet, Indigo, etc.

Another setback for the UDAN has been the lack of adequate infrastructure to allow additional airlines to start operations. The airports in the major cities are already extremely congested and the addition of more routes only results in hour-long delays in flights. The government has not operationalised a number of RCS airports, which it had envisaged while formulating UDAN. The upgradation work on the existing airports was sluggish and did not meet deadlines, which further constrained the airlines in extending operations. 

The future

The UDAN scheme is ambitious and has the potential of transforming the economy as well as the transportation in the remote and inaccessible areas. Notwithstanding the challenges, India will grow exponentially in income and prosperity, which will create more demand in civil aviation. Boeing estimates India to be the fastest growing civil aviation market in the coming decades, with rising middle-class and the standard of life.

The growing population will need more infrastructure and more planes to ferry them to destinations, as more and more Indians travel and explore. India’s airline fleet is expected to quadruple in size by 2038, increasing to about 2500 planes. While there are challenges in the rural sector, it has tremendous potential in the future. The growth in India’s unserved sector might be slow, but it’s expected to rise exponentially and be perpetual for a foreseeable future. The global aerospace companies are lining up to expand operations in India as they see great potential in the future.

Notwithstanding the bottlenecks, India’s domestic market continues to grow at an exponential pace, registering the highest domestic load factor of 87.7 per cent across top seven aviation markets in the world. And the data shows there has been significant boost in the air traffic in RCS roots after UDAN was made operational. The airlines may not get much profit by flying into RCS roots, but the sector does hold a promise of a prosperous future if the current growth holds. The government from its end needs to ease the regulations in taxes and other charges for the airlines to establish their presence in inaccessible areas and start operations. India has a vast untapped aviation market if the right policies are put in place. However, there is still time before the last man at the bottom of the pyramid is able to fly, and that time may not be far.

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