Union Government on 21 October 2016 unveiled the regional air connectivity scheme UDAN (Ude Desh ka Aam naagrik), which seeks to get more people to fly in the smaller towns. The Civil Aviation Minister Ashok Gajapathi Raju who launched the scheme in New Delhi said the scheme is expected to be rolled out by January 2017.
The scheme UDAN envisages providing connectivity to un-served and under-served airports of the country through revival of existing air-strips and airports. The scheme would be in operation for a period of 10 years.
The Ministry of Civil Aviation took a major step today towards making flying a reality for the small town common man.
• It is a unique market-based mechanism to develop regional connectivity, under which Airlines will bid for seat subsidies.
• Airline operators will bid for up to 40 subsidised seats and minimum seats will be 9. There will be 50 percent seats on market based pricing.
• The scheme ensures affordability, connectivity, growth and development.
• This first-of-its-kind scheme globally will create affordable yet economically viable and profitable flights on regional routes so that flying becomes affordable to the common man even in small towns.
• UDAN aims to increase ticketing volume from 80 million to 300 million by 2022.
• Under the scheme, airlines will have complete freedom to enter into code sharing with larger airlines for connectivity and they will be exempted from various airport charges.
• Airlines will get exclusive rights for three years to fly on a particular regional route.
• Airfares will be capped at 2500 rupees for an hour's flight for regional flights.
• On each such route, the minimum frequency would be three and maximum of seven departures per week. Route networks would also be encouraged under the scheme to achieve economies of scale and optimal usage of aircraft.
This would be achieved through
(1) A financial stimulus in the form of concessions from Central and State governments and airport operators.
(2) Viability Gap Funding to the interested airlines to kick-off operations from such airports so that the passenger fares are kept affordable.
What it carries for Airline and helicopter operators?
• Under UDAN interested airline and helicopter operators can start operations on hitherto un-connected routes by submitting proposals to the Implementing Agency.
• They could seek a Viability Gap Funding (VGF) apart from getting various concessions.
• All such route proposals would then 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. Such support would be withdrawn after a three year period, as by that time, the route is expected to become self-sustainable.
• The selected airline operator would have to provide a minimum of 9 and a maximum of 40 UDAN Seats (subsidized rates) on the UDAN Flights for operations through fixed wing aircraft and a minimum of 5 and a maximum of 13 Seats on the Flights for operations through helicopters.
• Airport operators shall not impose Landing and Parking charge and Terminal Navigation Landing Charges in addition to discounts on Route Navigation Facility Charges.
• A Regional Connectivity Fund (RCF) would be created to meet the viability gap funding requirements under the scheme. The RCF levy per departure will be applied to certain domestic flights.
Role of States and Results
The States have a key role under the scheme. The selection of airports where UDAN operations would start would be done in consultation with State Government and after confirmation of their concessions. The scheme would also help in revival of the dysfunctional airports and starting operations on un-served airports, this has been a long standing demand of most States.
Apart from this, the Union 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.
The partner State Governments (other than North Eastern States and Union Territories where contribution will be 10 %) would contribute a 20% share to this fund. For balanced regional growth, the allocations under the scheme would be equitably spread across the five geographical regions of the country viz. North, West, South, East and North-east.
• The UDAN is likely to a give a major fillip to tourism and employment generation in the hinterland.
• 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.
• The state governments would reap the benefit of development of remote areas; enhance trade and commerce and more tourism expansion.
MoS for civil aviation Jayant Sinha said the scheme is inspired by Prime Minister Narendra Modi's vision to make air travel accessible to common people. The ministry wants to add 50 more airports and connect them to bigger cities and towns in next four years.