UDAN: What are the chances of it taking off?

The UDAN or Regional Air Connectivity Scheme (RCS) launched by Prime Minister Narendra Modi on Thursday attempts to meet the twin goals of connectivity and affordability. It attempts to connect smaller towns like Shimla, Kadappa, Nanded, Bhavnagar, Bhatinda, Gwalior, Durgapur and Jaisalmer with bigger cities. The scheme also has a subsidy component by capping the airfare for a one hour journey of 500 km on a fixed wing aircraft at Rs 2,500. It connects 27 currently served airports, 12 underserved airports, and 31 unserved airports, of which 24 airports are in the West, 17 in the North, 11 in South, 12 in East and six in the North-East. This is an impressive geographical spread. If the scheme succeeds, civil aviation will finally succeed in catching up with rail and road connectivity at the margins.

However, the scheme has not found too many takers. Apart from Air India, which is the government’s favourite workhorse in plying uneconomical routes, only SpiceJet has signed on among the established private carriers. The three other carriers, Air Deccan, Air Odisha, and Turbo Megha are small players. While flyers may be enthused by the low rates, the scheme is being financed by viability gap funding (VGF), which involves a cess on air fares, reduction of excise and service tax and other incentives. The Centre had originally proposed to contribute 80 per cent VGF, and states the remaining 20 per cent. But the VGF is only for three years and it is unlikely that services to these smaller airports will become self-sustainable in such a short period. Without a policy commitment to offer VGF for a longer period, it is understandable why the larger private airlines have chosen to stay out of UDAN.

Nevertheless, the response of flyers will determine the scheme’s destiny. With higher passenger loads, both airlines and government may be persuaded to stay the course on the scheme.