Scindia: bolstering regional air connectivity
Launched in October 2016 (when the Prime Minister Modi flagged off an Alliance Air flight between Delhi and Shimla), UDAN is the present government’s endeavour to expand regional aviation in a major way. And, this is an intent, which was expressed by governments in previous decades too, though on a low base. In 1994, the then Narasimha Rao government had unveiled Route Dispersal Guidelines (RDG), making it mandatory for airlines to deploy 10 per cent of their capacity on trunk routes – connecting major cities with specified locations in far-flung and sensitive areas.
Industry insiders will tell you that the scheme did not have much of an impact as the major action was unfolding in the metro circles where passenger volume was surging at a brisk pace (for almost two decades – 1995-2015). “Airlines had devised their own mechanism to ensure that their resource deployment to connect smaller locations was at a bare minimum under RDG obligation,” points out an analyst. “Their regional focus during that phase was mainly restricted to the state capital and a couple of more centres in a state. But the business has now evolved to the stage, wherein metro sectors are adequately served and there isn’t much scope for further growth. And, therefore, there is a better environment now for the regional sector to take off.”
Driven by the twin objectives of creating a flying base in hitherto unconnected cities and towns and providing affordable air travel to even the humungous lower middle-class population, the Modi government scheme’s immediate key calling card was the provision of a Rs2,500 fare for up to 500 km or one hour of flight. In terms of internal mechanisms to draw the selected airline operators or SAOs, the government had provisioned for a Viability Gap Funding (VGF) to keep operations viable, with the concerned state governments sharing one-fifth of this critical fiscal incentive. The excise duty charged from these operators on Aviation Turbine Fuel (ATF) is as good as notional – just 2 per cent at RCS Airports for RCS Flights for a period of three years from the date of commencement. The airlines are required to commit about 50 per cent of the seats as RCS seats
To meet VGF obligation, a Regional Connectivity Fund (RCF) has been created that levies Rs5,000 on each departure on aircraft with a Maximum Takeoff Weight (MTOW) above 40 tonnes, except for the departures in the North-East Region and some other hilly states. As per MoCA statistics, an amount of Rs1,088 crore has been collected through RCS levies in Regional Air Connectivity Fund Trust (RACFT) so far, with the states and the UTs contributing Rs151 crore as their share towards VGF. And so far, more than 6.9 million passengers have taken advantage of UDAN flight facilities.
For the creation of new airports or brown-field facilities under the Udan scheme, the Cabinet Committee on Economic Affairs had earlier approved a budgetary support of Rs4,500 crore. In precise terms, this funding entails the revival of existing unserved, underserved airports, airstrips (more than 400 in the country), heliports and water aerodromes belonging to state governments, Airports Authority of India, Public Sector Undertakings and Civil Enclaves.
With the above-mentioned basic building blocks in place, UDAN undoubtedly has emerged as a major sideshow in the Indian aviation business. “Under RCS-UDAN, 40 unserved and 19 underserved airports have been operationalised with the connectivity of 361 routes covering more than 25 states and UTs across the country. Over 6.9 million passengers have benefitted from this scheme. RCS-UDAN has also immensely contributed to domestic aviation to register double-digit growth in the last five years. The contribution of UDAN passengers in total domestic operations is about 5 per cent,” emphasises Usha Padhee, joint secretary, ministry of civil aviation, who spearheads the UDAN initiative at the moment.
Padhee: spearheading the UDAN initiative
However, a recent report released by the credit rating agency ICRA on airport infrastructure underlines the policy not exactly meeting the time-bound targets. The milestone of 100 airports and 1,000 routes by 2024 may not be realistic either. “The ministry of civil aviation (MoCA) launched the UDAN scheme in 2016 as a regional connectivity scheme to enhance regional connectivity through fiscal support and infrastructure development.
However, as on 31 May 2021, only 47 per cent of total routes and 39 per cent of airports (unserved and underserved) have been operationalised under UDAN. The number of new RCS routes, which started operations increased at a healthy pace and stood at 102 routes in 2018-19 and 120 routes in 2019-20, but have declined to 77 new routes in 2020-21 due to the Covid-19 pandemic,” the report said.
According to the agency, the Covid pressure, coupled with deep financial stress in the sector, would make it difficult for the UDAN scheme to skip to a higher altitude trajectory at a brisk speed. “The original target to set up 100 airports and open 1,000 regional routes was 2019, which was later revised to 2024. But considering the present pandemic situation, it will get further delayed by at least two years,” observes Rajeshwar Burla, VP, corporate ratings, ICRA.
However, Padhee retorts that even in the most troubled year, the scheme did not lose out on steam. “The pandemic has impacted all industries and aviation is one of the most affected sectors. Despite challenges, we operationalised seven airports, two heliports and two water aerodromes since March 2020. They include Darbhanga, Rupsi, Bilaspur, Kurnool, Passighat, Hisar, Bareilly, New Tehri (heliport), Srinagar (heliport), Statue of Unity (water aerodromes) and Sabarmati River front (water aerodromes). We’ll continue to offer all possible support to stakeholders,” she says.
The government’s own data, meanwhile, make it clear (see graph: Routes awarded) that, in the first four rounds of bidding, a total of 750 routes have been awarded, out of which about 360 have seen commencement of operations. “On many of these operational routes, the operations have not really picked up well. There have been cases of some new regional carriers moving into the fray with supreme confidence and bagging flying routes contracts but have failed to deliver,” points out Sanjay Sharma, an industry insider. The government, meanwhile, has gone ahead with the UDAN 4.1 bidding process, which began in March this year to further expedite regional expansion plans (the current round is expected to put 392 routes on the block).
Scheduled carriers dominate
Those with a basic understanding of the Indian aviation sector’s size and scale may find this difficult to believe. A more mature and bigger aviation market like the US has a very strong regional component with specialists like MESA Airlines (Arizona headquartered with a fleet of 145 aircraft) and Skywest (based in Utah with a staggering 483 aircraft) providing services either on their own or by feeding into the bigger national and international carriers at strategic hubs for passenger on long routes.
And industry veterans emphasise that in a geographically big country like India, that’s the way to go and drive your regional connectivity expansion exercise. “Airlines have been supportive and at the same time they have benefitted too. In 2017, only five airlines were operating on UDAN routes; now we have 11 operators. Some airlines like Star Air, TruJet, Air Taxi have modelled their business plan on the UDAN model,” says Padhee.
Tiwana: tremendous opportunity
But there is clear evidence to suggest that some of the early movers from the regional space like Air Odisha, or Captain Gopintah’s Deccan Air, cracked too soon and failed to sustain the enthusiasm shown by them in the preliminary rounds of UDAN bidding. Heligo, Heritage, Pinnacle, SkyOne, Maritime, Turbo Aviation, TruJet, etc. were some prominent participants during the first two rounds of bidding but today not much is heard about them.
The show has readily slipped into the hands of (minus Jet Airways, which had also bagged some routes but then went out of operation) scheduled national carriers. SpiceJet has emerged as the country’s largest player with added regional strength, operating 63 daily flights under UDAN. It connects 15 domestic destinations, including Kandla, Jaisalmer, Porbandar, Pakyong, Jharsuguda, Durgapur, Kanpur, Gwalior, Belagavi, Ajmer (Kishangarh), Jalandhar (Adampur), Darbhanga, Puducherry and Nashik, with the key metros of Delhi, Mumbai, Bengaluru, Kolkata and Hyderabad.
“SpiceJet operates India’s only seaplane service under UDAN between Ahmedabad’s Sabarmati Riverfront and the Statue of Unity in Kevadia. We have been the most enthusiastic supporter of UDAN since the very beginning and were the only big private airline to participate in UDAN 1,” a company spokesperson says.
Alliance Air, a subsidiary of Air India, with traditional strength in regional clusters, is another major player in the game. “Out of 109 awarded routes till date we have successfully operationalised 73 RCS routes under the UDAN scheme of government,” says a senior official of the company. India’s aviation market leader IndiGo, which has been selectively participating since UDAN 2, is now also believed to be showing more interest in the segment.
The airline, though, did not reply to our query on its UDAN-centric strength but recent reports suggest it is making aggressive moves. In recent months, it has introduced close to 15 new flights under the UDAN scheme, expanding its reach deep within states like Odisha, Madhya Pradesh, Uttar Pradesh, and the North-Eastern regions by introducing flights on various routes including Bhubaneswar-Allahabad, Bhubaneswar-Varanasi, Bhopal-Allahabad, Dibrugarh-Dimapur, Shillong-Agartala and Shillong-Silchar. Early this month, the airline also began operating on the Imphal (Manipur)-Shilong (Meghalaya) route.
Among the handful of players from the regional space showing decisive resilience, Bengaluru-headquartered Star Air is probably the most prominent name increasing its presence in the Indian aviation space. Part of the business conglomerate Sanjay Ghodawat group of Maharastra, the airline business is an extension of the company’s earlier small helicopter charter business.
“After UDAN came, we felt there would be tremendous opportunity in the regional connectivity space. And we haven’t been proved wrong as we notice opportunities unlocking – Covid pressure notwithstanding. Starting our business in 2018, today we are covering 13 cities primarily in Karnataka, Maharashtra, Rajasthan, Gujarat and Madhya Pradesh. We are running 125 flights a week, 90 per cent of which are under the UDAN scheme,” says Simran Singh Tiwana, CEO of the airline.
The airline, which will be adding Jamnagar in Gujarat to its route map later this month, operates an Embraer 145 50-seater plane, which it purchased. The airline runs the longest flight ever conducted by a regional carrier – 2 hours 25 minutes, between Hubli and Hindon near Delhi.
Hubli: a successful UDAN airport
Barring Star Air, there aren’t any encouraging signs from other regional players. TruJet (popular Telugu film star Ramcharan has also been a partner in the venture) with 7 ATRs in operation at its peak (covering 20 destinations) is now facing tremendous financial pressure with a large part of its fleet grounded by lessors. However, in early April a new investor (New York-based Interups) picked up a 49 per cent stake, which has raised hopes for its revival.
“It is not a space where you can get in with fancy and romanticised ideas. Even with all the incentives, you need to have deep pockets and the ability to brave all kinds of odds for a long time,” says Sanat Kaul, former aviation secretary. A report on regional connectivity issued by CAPA had incidentally earmarked a host of reasons which make regional operations a turbulent act for most players. “The market has delivered a string of failed regional airlines. The reasons for the failure of these carriers are largely consistent: under-capitalisation, sub-scale operations, mixed fleet types, operation of old equipment, reliability challenges, poor governance and demand risks.”
But even as the scheme may have not exactly paved the way for emergence of a set of new regional players, on an equally important front of adding new destinations to the country’s aviation map helping them to unlock economic opportunities (cargo and tourism including), the policy seems to have delivered to a considerable extent. “There are various successful examples of UDAN airports. To name a few – Darbhanga, Jharsuguda, Kishangarh (Ajmer), Jagdalpur, Salem, Belagavi (Belgaum), Hubli, Vidyanagar, Prayagraj and Kanpur (Chakeri) Airport,” Padhee points out.
Industry insiders endorse the argument that some of these airports have promising prospects for the future, even as there are examples like that of Jaisalmer airport, which is still in struggling mode... years after it was inaugurated. Take the example of Darbhanga airport in north Bihar. “Darbhanga is a critical junction for the state, which connects a large part of North Bihar with the rest of India and we are thrilled to be the first Indian airline to land at this key airport,” Ajay Singh, CMD, SpiceJet, had commented, when the airport was unveiled last year.
During its brief journey, Darbhanga airport, which is now also served by IndiGo, has delivered the right numbers. “This airport today has air connectivity with six cities (Delhi, Hyderabad, Kolkata, Mumbai, Ahmedabad and Bengaluru) and, during the winter schedule, this could go up to 10, including Pune, Chennai, Guwahati and Lucknow. We have handled more than 3,40,000, passengers with 2,426 aircraft up to 31 July 2021,” says Manish Kumar, airport director.
The airport also facilitates the shipment of the most popular fruit offering of the area – litchi – and the total cargo movement comprising this item alone till July end was close to 36 tonnes. Kumar adds that fish, mango and makhana have been added to the expanding cargo portfolio of the airport. The total capex earmarked for this airport is close to Rs300 crore.
Litchi cargo at Darbhanga airport
Kishangarh airport, which is close to Ajmer (known for Ajmer Shariff and Pushkarji) is another example of vibrant hubs emerging out of RCS. The first flight under UDAN took off on 8 October 2018 on the Delhi-Kishangarh-Delhi route operated by SpiceJet. In 2019, two more routes started connecting Kishangarh to Hyderabad and Ahmedabad; in 2020, operations on new routes (Indore and Surat) were started by Star Air.
Today, the airport has 10 allotted routes, six of which are operational. This airport has handled 22,877, 126,558 and 95,083 passengers with 362, 2001 and 2012 aircraft movements in 2018-19, 2019-20 and 2020-21, respectively.
The list of successful airports born out of RCS is increasing – Jagdalpur (headquarters of Bastar district of Chhattisgarh) had 756 aircraft movement in 2020-21 handling over 25,000 passengers with ATR-72 operations to Raipur and Hyderabad. Hubli airport in North Karnataka had the quite impressive figure in cargo movement of 36 tonnes in 2018-19; 106 tonnes in 2019-20; and 67 tonnes in 2020-21. This airport has handled 4,60,462, 4,75,218 and 1,19,072 passengers with 6,757, 6,944 and 2,489 aircraft movements in 2018-19, 2019-20 and 2020-21, respectively.
“This airport has the potential to become a major cargo centre in auto spare parts and electrical parts and we are creating a dedicated cargo terminal here,” reports Pramod Thackeray, the local airport director. Jharsugada airport in Odisha has also grown at a steady pace with reported numbers of 2,16,084 and 2,03,601 passengers in 2019-20 and 2020-21, respectively.
Belgaum, Admapur, Vidyanagar, Jorhat and Rupsi are some other names which stand out for their ability to confirm that the stated objectives of UDAN are achievable. “The Covid crisis has affected the tourism sector badly. The policy otherwise has immense potential to give a major push to the sector by linking far-fetched and largely unexplored destinations,” says Subhas Goyal, a tourism sector veteran. During the first four rounds of UDAN, the government has offered 31 routes dedicated to the tourism sector.
Air travel democratisation drive
On a completely different pitch, industry veterans like Jitendra Bhargva point at what he believes is a serious inherent inadequacy that deals with the quintessential air travel democratisation drive, which UDAN is promising. “It’s a subsidy-driven programme. Why should a cheap ticket be offered to somebody who is going to a tourist destination and stays in a luxury hotel paying from his pocket? This goes against the basic premise of bringing a chappal wala on board,” he strongly underlines.
Star Air: increasing its prominence
With these equations in place, the moot question pertains to the future direction of UDAN. Analysts like Kapil Kaul are convinced it is going to be dominated by the scheduled carriers in the foreseeable future. “Udan at present is largely dependent on a regional fleet and to some extent narrow body fleet of scheduled airlines like IndiGo, SpiceJet and Alliance Air. And we see this dependence continuing in the near and medium term,” says Kapil Kaul, while emphasising that independent regional carriers have either closed or the existing ones are struggling and they would increasingly become more irrelevant for UDAN. “India needs two-three strong and well-capitalised regional airlines with a business case, which is less dependent on UDAN and that may happen in next few years.”
An ICRA report, meanwhile, has projected heavy losses for the domestic players will continue in the near run due to the Covid shock and that may make them defensive in aggressively acquiring the rights for new routes. Established players in the ring like SpiceJet or Star Air deny they will be slow in expanding their wings further in the space. But they do ask for certain modifications in the existing provisions.
“A small modification in the joint exclusivity clause will greatly help airlines. At present, a route can be allotted to multiple airlines. We feel an UDAN route should be exclusive for one airline and not shared by multiple airlines,” says a SpiceJet spokesperson. “Watch hours (when the runway can be used) are low at many airports, since they are part of the defence enclave. They have to be improved for better functioning of players like us,” points out Tiwana of Star Air, while adding that qualified staff shortage is a serious issue for players expanding in regional pockets.
For MoCA functionaries, however, the scheme has almost found a strong base now which will expand the regional aviation segment considerably in the coming years with the government continuing to provide all necessary support. “We are determined to operationalise 100 airports and 1,000 routes by 2024. Our focus is to move from regional connectivity to remote connectivity,” says Padhee, while explaining the possible future direction of the scheme. The confidence within government quarters on UDAN certainly seems to be soaring at a much higher altitude than before.