The Ministry of Civil Aviation took a major step today towards making flying a reality for the small town common man by unveiling the regional connectivity scheme known as UDAN.
This article discusses the scheme at length to bring to you the different aspects of it.
UDAN – Ude Desh Ka Aam Naagrik
- UDAN (Ude Desh ka Aam Naagrik) is the scheme by the central government to connect the country’s under-served and un-served airports.
- UDAN is an innovative scheme to develop the regional aviation market. It is a market-based mechanism in which airlines bid for seat subsidies.
- 50 per cent seats on each flight will come at Rs 2,500 per seat for one-hour travel.
- The operators will also be extended viability gap funding (VGF) and a financial stimulus in the form of concessions from Central and State governments and airport operators as subsidies if they face losses for the price cap which will be operational for three years from the date of starting operations in a specific UDAN route.
- Central Government would provide concessions in the form of reduced excise duty, service tax, permission to trade ASKMs for Non-RCS (UDAN) Seats and flexibility of code sharing at the RCS (UDAN) airports.
- State governments will have to lower the VAT on ATF to 1% or less, besides providing security and fire services free of cost and electricity, water and other utilities at substantially concessional rates.
- Airport operators shall not impose Landing and Parking charge and Terminal Navigation Landing Charges in addition to discounts on Route Navigation Facility Charges.
Bidding Procedure Used
- Proposals would be offered for competitive bidding through a reverse bidding mechanism and the route would be awarded to the participant quoting the lowest VGF per Seat.
- The operator submitting the original proposal would have the Right of First Refusal on matching the lowest bid in case his original bid is within 10% of the lowest bid.
- The successful bidder would then have exclusive rights to operate the route for a period of three years.
Positives of the Policy
- A major reason for the poor regional air connectivity in India is that airlines do not find it lucrative to operate from small cities. The government has tried to address this concern by an adroit combination of subsidies and fare caps. This scheme now ensures affordability, connectivity, growth and development. It would provide a win-win situation for all stakeholders – citizens would get the benefit of affordability, connectivity and more jobs. The Centre would be able to expand the regional air connectivity and market.
- The state governments would reap the benefit of development of remote areas; enhance trade and commerce and more tourism expansion.
- For incumbent airlines there was the promise of new routes and more passengers while for and start-up airlines there is the opportunity of new, scalable business.
- Airport operators will also see their business expanding as would original equipment manufacturers.
- Through introduction of helicopters and small aircraft, it is also likely to significantly reduce travel timings in remote and hilly regions, as well as islands and other areas of the country.
Some Challenges still remain
- For example, there are fears that a flight from an UDAN location will be low priority for air traffic controllers in big cities.
- Airports in many Tier 2 and Tier 3 cities do not have big runways, so they can’t take regular aircraft. That means airlines will need to induct smaller aircraft for short take-offs and landings.
- Such aircraft needs specialised crew. India produces 200 to 300 pilots every year, and it’s safe to say that training specialised crew will take time.
- There is a risk of subsidy becoming perpetual if the scheme doesn’t take off.
- The government should give serious thought to these issues if its well-intentioned scheme of regional connectivity is to become a success.