The Ministry of Civil Aviation (MoCA), with the Airports Authority of India (AAI) as its implementing agency, is aiming at improving regional connectivity in India. With the underlying Regional Connectivity Scheme (RCS), project UDAN is set to speed-up processes in Indian aviation industry and take flying to masses by improving air connectivity
The year 2015 had seen a growth of 21 pc in the domestic air passenger traffic and the year 2016 saw an increase of 23.18 pc. With a build-up in the number of citizens now choosing to fly and thus, joining the ascendance of the aviation industry in India, the sector is becoming one of the fastest growing markets in the world. The concerned authorities and ministries too are working towards galvanising this growth, which statistically has been on a rise. They are also committed towards the development of the industry, particularly in sectors and areas that house an untapped potential.
Working towards uncorking this potential and developing what seems like an opportunity to boost growth, the MoCA has initiated the project UDAN (Ude Desh Ka Aam Nagrik) under the Regional Connectivity Scheme (RCS). A project designed to make air travel accessible to citizens in the regionally important cities, UDAN aims at providing air connectivity to currently under-served and unserved airports in India. And, with the AAI as its implementing authority, UDAN already seems to be soaring high.
The AAI and the MoCA have been receiving a positive response from operators with 43 initial proposals from 11 bidders covering 190 UDAN routes already in the kitty. After the final bidding, 30 currently served airports, 12 currently underserved airports, 43 currently unserved airports and seven helipads are expected to be connected. Also, giving a smart geographical coverage, the new operations will connect 32 airports in the West, 21 in the North, 16 in the South, 12 in the East and 11 in the North-East regions, covering 25 states and three union territories. The routes for these operations have also been well planned with 26 flights plying on single routes and connecting two cities and 17 flights for networks connecting three or more cities. Of these 17 routes, 12 have been designated for hub and spoke routes, four are allotted for to-and-fro ways and one is a circuitous route. Also, six RCS routes have been bid with zero Viability Gap Funding (VGF), reflecting the fact that there is potential latent demand.
Reaching out to the market
UDAN was developed through extensive consideration of various issues and consultations with its stakeholders. A one-of its-kind scheme globally, UDAN is to stimulate regional connectivity through a market-based mechanism and is indicative of the fact that a variety of business models may thrive in India’s aviation sector, thus, taking it to new heights.
“Indian aviation is growing rapidly. The interest shown by bidders to participate in the first phase of UDAN establishes this fact clearly. The proposed connectivity between currently underserved and un-served airports with the country’s fast-growing aviation network will enable people to move from one place to another in shorter time and will spur further economic development,” says Ashok Gajapati Raju, Union Minister for Civil Aviation.
The MoCA and the AAI have been paying particular attention towards the development of RCS and taking various initiatives to help UDAN hit the right targets and taking its initial flights.
“The initial response of UDAN has been very encouraging. This demonstrates that if right incentives are provided to the airline industry, as has been done under UDAN, our Tier 2 and Tier 3 cities can become vital growth centres for the country. Participation of 11 bidders highlights the widespread interest in this scheme,” says Jayant Sinha, Minister of State for Civil Aviation.
“We are confident that operations under UDAN will help link regional locations with each other, and thereby, accelerating economic growth. Over the next few iterations, the market will evolve and many new players are likely to emerge,” he adds, talking about UDANS’s future endeavours.
What UDAN has in store for operators?
By capping the fares to an amount that would suit the pockets of its target flyers, the AAI has made sure that UDAN harnesses a desirable response. The airfare for a one hour journey of approximately 500 km on a fixed wing aircraft or for a 30 minute journey on a helicopter has been capped at Rs. 2,500 with proportionate pricing for routes of different stage lengths or flight durations. The selected airline operator would have to provide 50 pc of the flight capacity, subject to a minimum of nine and a maximum of 40, as RCS seats for operations through fixed wing aircraft.
If you are helicopter operator, a minimum of five and a maximum of 13 RCS seats will be given to you and your flights would be given three years exclusivity of operations.
Furthermore, to reduce the cost of operations of airlines on flying such routes, central government will provide concessions in the form of reduced excise on Aviation Turbine Fuel (ATF), Service Tax, flexibility of code sharing etc. State governments will also lend their hand and lower the Value Added Tax (VAT) on ATF to 1 pc or less. Free of cost security and fire services and electricity, water and other utilities will be provided at substantially concessional rates.
Additionally, landing and parking charge and Terminal Navigation Landing charges will not be imposed by the airport operator on UDAN routes and discounts will be given on Route Navigation Facility Charges.
Looking at the benefits that can be fetched, 15 states have already signed the Memorandum of Understanding and three have given their consent to the MoCA/AAI.
Who pitched and when?
UDAN is a key component of the National Civil Aviation Policy (NCAP). The AAI invited interested bidders and airline operators to submit their initial proposals under the provisions of RCS. The deadline for submitting the initial proposals was January 16, 2017.
The AAI also invited bidders to submit counter proposals against the initial proposals; the last date for submission of counter proposals being February 1, 2017. This step is followed by the opening and scrutiny of technical bids, and subsequently financial bids, for initial proposals as well as counter proposals.
The routes or networks will be awarded to bidders who submitted valid proposals and quoted the lowest Viability Gap Funding (VGF) from the government for such routes/networks. The MoCA and the AAI are committed towards the development of the scheme and are ensuring UDAN takes off hassle free. For this, they have also collaborated with the Directorate General of Civil Aviation (DGCA), Bureau of Civil Aviation Security of India (BCAS) and the state governments which will be working in liaison with them and facilitating actions.