UDAN Still Waiting To Take Off Three Months After Launch
Prime Minister Narendra Modi’s UDAN scheme to boost regional air connectivity has seen only “five to six” of the 33 airports granted routes commencing flights in the first three months, according to Civil Aviation Minister Jayant Sinha.
So far, two of the five airlines that won routes in the first phase of bidding have started operations. One of them, Alliance Air, is a subsidiary of state-owned Air India. The other one is TruJet, with Telugu actor Ram Charan as one of the promoters. There is no clarity on which routes the two airlines are flying under UDAN.
The other three carriers that won routes – SpiceJet, Air Deccan, and Air Odisha – have another three months to start operations.
The government, through UDAN, or Ude Desh ka Aam Naagrik (which translates to 'the common man of the country shall fly'), plans to add 50 new airports to India’s aviation grid by 2018. The scheme targets middle-class travellers in smaller cities and is aimed at improving regional connectivity even as the country overtook Japan as the world’s third largest aviation market in March this year.
To make flying affordable, UDAN caps fares at Rs 2,500 per hour of flight time to un-served and under-served airports for half the seats. As for the operational losses incurred by operators on those routes due to discounted prices, the government promises viability gap funding (VGF).
The government shouldn’t get into micro-managing transport revenue with its involvement in pricing of tickets, and it’s ironical as it is considering privatisation of Air India, Mark Martin, an aviation expert at Martin Consulting, told BloombergQuint. “The scheme looks gimmicky because of its multi-tier dependence and its overall sustainability has a major question mark,” Martin said.
Payments from the government would tend to always be delayed as a result of the multiple layers of subsidy share. Today’s airlines can’t operate in a system where lags in payments poses a threat to profit and loss (statements). Besides shareholders won’t let them.Mark Martin, Aviation Expert, Martin Consulting
In comparison to a ticket for Rs 2,500 under UDAN, airfares on the Delhi-Mumbai route – one of the busiest in the country – start at Rs 2,349 all-inclusive for flights as early as June-end, and Rs 2,003 for those taking off in July, according to information available on travel booking portal MakeMyTrip. Both Delhi and Mumbai airports are maintained by private operators that levy a fee for usage, adding to the fare. The flight time between Delhi and Mumbai is around 90 minutes, well over the one-hour cap under UDAN.
How are airlines able to offer tickets at such low prices on the route? “Volume,” says Martin. UDAN caps the number of flights per week at seven to any destination, not providing airlines the opportunity to add volumes to cut down costs, he said.
More than 100 flights operate between Mumbai and Delhi every week.
The number of flights under UDAN are limited to seven per week, irrespective of the number of seats in the aircraft, said Amber Dubey, partner and India head of aerospace and defence at consultancy KPMG. “The reason could be to limit the government’s VGF liability towards the RCS operator.”
The Ministry of Civil Aviation should consider limiting the number of RCS seats rather than flights per week, thus making it flexible for the operator to keep changing its aircraft based on demand profile and seasonality.Amber Dubey, Partner and Head-India, KPMG
Most airports under UDAN are regional and in close proximity of one another. Giving airlines the flexibility of flying as many flights a week as long as a seat cap is maintained would allow them to fly smaller aircraft during periods of low demand, helping cut costs and increase operational efficiency.
The Airports Authority of India, the Directorate General of Civil Aviation, and the aviation ministry did not share data on the number of flights under the scheme, and the average passenger load factor of those flights.
Aviation Minister Ashok Gajapathi Raju, while listing the achievements of his ministry in the three years of Modi government, said the data would be available in September.
It’s also not clear when the remaining three carriers will start operations on the routes they won. SpiceJet Ltd.’s Chairman and Managing Director Ajay Singh didn't respond to BloombergQuint’s emailed queries. Air Deccan also didn’t respond to emails, while Air Odisha couldn’t be reached for a comment.
Dubey, however, believes airlines have time to start regional operations. “Winning bidders have to commence flights within six months from the date of award. There could be challenges related to slot availability at the major airports, infrastructure, funding, regulatory approvals, aircraft and crew, etc... most of these may get resolved in time. The awardees may get their performance guarantees encashed if they don’t,” he said.
The ministry plans to start bidding out new routes under Phase-II of UDAN in June. Aviation Secretary RN Choubey was optimistic about bidding under round two in his interaction with BloombergQuint earlier, especially because market leader IndiGo’s order of 50 ATR 72-600 aircraft, typically used for regional operations.
Also Read: IndiGo Orders 50 Turboprops in Regional Push
An emailed query to Aditya Ghosh, president at IndiGo’s parent Interglobe Aviation Ltd., remained unanswered.
Martin said IndiGo’s ATR order isn’t really centered on UDAN. “No board, bank or financial institution’s risk group in their right senses would approve lending/debt exposure worth $1.5 billion merely because of a government ‘scheme’,” he said. “Indigo’s intent is to clearly get into a tier that will be both strategic and long term, besides, they really can’t expand with the A320 equipment anymore, at least on domestic routes.”