Phase 2 Of UDAN: New Routes To Be Announced On August 9

The civil aviation ministry plans to roll out the second phase of its regional connectivity scheme UDAN in June, with bids closing on July 9, Aviation Secretary RN Choubey said on Wednesday.

“We will be in a position to award flights under Phase-II of UDAN scheme by August 9,” he told reporters in New Delhi at an event to announce achievements of aviation ministry in the three years of the Narendra Modi government.

Incidentally, only two out of the five airlines that won bids in the first phase of the scheme have started operations thus far, with one of them being national carrier Air India’s subsidiary Alliance Air.

The UDAN (Ude Desh Ka Aam Nagrik) scheme guarantees tickets capped at Rs 2,500 per hour of flight time to and from the mentioned un-served or under-served airports.

The first phase of the regional connectivity scheme added a total of 72 airports, of which 27 were served, 12 under-served and 33 completely un-served have been given out, through which the government expects to add 13 lakh seats per year to those cities and towns.

The government, which had planned to add 50 unserved airports to the aviation grid by the end of 2018, is now confident of surpassing the target, with 33 airports already being announced in the first phase of the scheme.

Speaking on the Goods and Services Tax (GST) council levying 5 percent rate on import of aircraft and aircraft parts which was earlier exempted, Choubey said the industry would have liked better rates.

We are happy with the rates on economy and business class tickets... However, would have liked better rates on imports of aircraft and aircraft parts... There will be a a marginal increase in cost of leasing.
RN Choubey, Aviation Secretary

Meanwhile, ratings agency ICRA told wire agency PTI that disallowance of input tax credit on inputs (excluding services) for economy class air tickets, finalised in the goods and services tax (GST), is likely to put pressure on airlines.

“With airlines generating a major portion of their revenues from economy class, disallowance of input tax credit on inputs (excluding services) for economy class will result in an additional cost to them,” ICRA Assistant Vice-President and co-head (Corporate Sector Ratings) Kinjal Shah said.

In terms of operations, only Alliance Air and TruJet have begun flights under the UDAN scheme, with the other three, including SpiceJet Ltd., yet to even announce dates of commencement. Under the scheme, the airlines have till September, a period of six months, to start flight operations, or lose the route.

In an attempt to get more participation from private airlines, the government plans to reduce entry barriers, including waiving off the condition where at least one of the airports of an UDAN route must be either un-served or under-served. The aviation ministry has prepared a draft of the proposed changes to the regional connectivity scheme and sought comments from stakeholders.

The period of exclusive rights to a particular destination won by an airline may also be reduced to one year from three years presently, Choubey said, adding that the variable gap funding (VGF) provided to carriers operating flights on those routes would still be offered for three years.

There was no way of knowing the corpus needed for VGF under Phase-II of UDAN, as 380 airports were up for grabs, and it was only up to airlines to bid for routes, he said. Choubey did add though that there was no shortage of funds with the government to fund the airlines for operating losses incurred as a result of offering discounted tickets.

Market leader IndiGo is also expected to join the race to bid under UDAN from Phase-II, Choubey had earlier told BloombergQuint, pointing at the order of 50 ATR 72/600 aircraft that the carrier has placed. The ATR 72/600 is a smaller aircraft and is typically used for regional operations. IndiGo thus far operates only Airbus’ narrow body aircraft fleet- A320-200 and A320 Neo.