The Ministry of Civil Aviation (MoCA), has released the National Civil Aviation Policy 2016 (NCAP 2016). One of the objectives of NCAP 2016 is to “enhance regional connectivity through fiscal support and infrastructure development”.
The tune with it, Centre has unveiled a regional connectivity scheme, known as UDAN (Ude Desh ka Aam Nagrik), with flights priced at Rs.2,500 for one hour of flying time to and from regional airports, but raised the subsidy amount to be paid to regional airlines from the level proposed in a draft scheme.
The government facilitated that the first flight from smaller cities under the scheme should take off by January. The government will also provide subsidies to regional airlines to offer half the seats on a discounted rate. The subsidy amount given to airlines that operate between two unserved or underserved airports will be 10% higher than sum offered to airlines that connect only one regional airport.
Objectives of the scheme:
• The primary objective of RCS is to facilitate / stimulate regional air connectivity by making it cheap and affordable.
• Promoting affordability of regional air connectivity is envisioned under RCS by supporting airline operators through:
Concessions by Central Government, State Governments (reference deemed to include Union Territories as well, unless explicitly specified otherwise) and airport operators to reduce the cost of airline operations on regional routes / other support measures and
Financial (viability gap funding or VGF) support to meet the gap, if any, between the cost of airline operations and expected revenues on such routes.
Highlights of the scheme:
• The subsidy will be provided under the UDAN (Ude Desh ka Aam naagrik) scheme for three-years so that the route would become viable.
• It will be provided to airlines to fund their losses to enable them to offer airfares at Rs. 2,500 for an hour’s flight on half the seats under the Regional Connectivity Scheme.
• The subsidy amount for airlines connecting to one regional airport will vary between Rs. 2,350 and Rs. 5,100 per seat depending upon distance covered between two destinations.
• Besides, airlines can also transfer their rights or contract to get subsidy from government and fly on regional routes to another airline operating a similar type of aircraft.
• The scheme seeks to connect unconnected towns with the help of Viability gap funding (VGF). The scheme proposes to offer concessions to the airlines to encourage them to fly on regional routes.
• Airports Authority of India (AAI) is the implementing agency of the scheme.
• The bids for the routes will be on “reverse auction” basis. Accordingly the airlines quoting the lowest amount of subsidy would be given the right to fly on a particular RCS route.
• The government also proposes to exempt airlines from all landing, parking and other charges on the RCS airports.
• The airlines are required to commit around 50% of the seats as RCS seats on RCS flights.
Significance of the scheme:
• Un-served and underserved airports will have better connectivity.
• Promotes cheap, convenient and affordable flying.
• It will boost tourism, employment opportunities and balanced regional growth.
• It will give impetus to India’s ambition of becoming third largest aviation market by 2020
Other decisions taken by Government to boost Regional Connectivity:
• The Union Civil Aviation Ministry has scrapped its earlier proposal to reduce the subsidy amount based on improved passenger load factor.
• Earlier, the draft scheme had proposed that if an airline manages to fill 90% of its seats by operating regional flights during its first year of operations, the subsidy amount in subsequent year would be reduced by half as the route would become viable.
• Besides, Union Government has also reduced the bank guarantee to be provided by airlines to fly on each regional route.
• Now, Airlines will be required to submit a bank guarantee equivalent to 5% of the total subsidy amount.
• The success of the scheme requires Centre-State cooperation. States are required to provide free land and operational infrastructure. Similarly, the centre has to forego excise on aviation fuel and service tax on tickets. So, the success of this scheme ultimately rests upon the commitments of governments both at the Union and the state levels.
• Private airlines have not showed much interest in this scheme. So, ultimately the burden of operation in the regional routes may fall on the state owned Air India. This may undermine the success of this scheme. Given the magnitude of the scheme, the issue of providing air traffic control services and air safety has to be taken into consideration as there can be no room for compromise.
• There are 476 airstrips in the country out of which 90 are in usable state, among which 76 are operational currently. It can be challenging to develop so many ports in the span of 10 years.