An aircraft operated by IndiGo, a unit of Interglobe Enterprises Ltd., is seen from a control tower as it takes off at Indira Gandhi International Airport, Delhi (Photographer: Prashanth Vishwanathan/Bloomberg)

Government Unveils UDAN, Fares Capped At Rs 2,500 For 1-Hour Flights

Subscribe to Bloomberg | Quint
The Daily Newsletter
News & Stock Alerts

Air passengers on major routes will soon have to shell out more for flights to fund the regional connectivity scheme under which fares will be capped at Rs 2,500 for one-hour flights.

The government expects the first flight under this scheme to take off in January.

A "first of its kind" in the world, UDAN (Ude Desh Ka Aam Naagrik) will be based on market mechanism as well as bidding for a minimum of 9 seats and a maximum of 40 seats in a fixed wing aircraft.

For 50 percent of the seats of flights under UDAN, the fare cap will be Rs 2,500, and the rest will be market-based pricing.

"We are cautiously optimistic about it (UDAN)," Civil Aviation Minister Ashok Gajapathi Raju said today, adding that the first flight under the scheme is expected to take off in January 2017.

The comments come against the backdrop of some airlines being unhappy with the proposal to charge a levy for funding the scheme. The draft scheme was unveiled in July.

Civil Aviation Secretary R N Choubey said the rules related to the levy will be "printed in the gazette in two days" while the executive order in this regard will be ready by month-end.

The levy will be "very small", he added.

Charging a levy on profitable routes is likely to push the air fare for fliers.

"This is first of its kind globally... We are doing something not done anywhere else," Minister of State Jayant Sinha said.

The fares will be capped at Rs 2,500 for one-hour flights on unserved and under-served routes. Airlines operating under the scheme will be provided viability gap funding (VGF), which will be shared by the Centre and the states concerned, for a limited period.

Towards VGF, the civil aviation ministry will create a Regional Connectivity Fund (RCF), which will be funded by a "levy or fee per departure on all domestic flights other than the ones on Category II / Category IIA routes under Route Dispersal Guidelines (RDG), RCS routes and flights using small aircraft below 80 passenger seats".

Apart from VGF, the select airlines participating in the scheme will be extended various concessions, including two per cent excise duty on jet fuel drawn at RCS airports as well as lower VAT on the fuel.

According to the ministry, state governments are encouraged to also consider "extending any additional incentives like underwriting of passenger seats to encourage operators / additionally support select airline operators in undertaking operations under the scheme".

The Airports Authority of India (AAI) will be the implementing agency for the scheme which will be in place for 10 years and the provisions will be reviewed at least once in three years.

Airfare for all passengers seats on an RCS flight will not be subject to any levies or charges imposed by the airport operators... Service tax will be levied on 10 percent of the taxable value (abatement of 90 percent) of tickets for all passengers seats on RCS flight, without any input credit, for an initial period of one year from the date of notification of the scheme.
Civil Aviation Ministry Statement

Interested entities can submit their proposals to be part of the scheme from today, Choubey said.

Stay Updated With Business News News On BloombergQuint
Subscribe to Bloomberg | Quint
The Daily Newsletter
News & Stock Alerts