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UDAN: How the Modi government is making India’s aviation sector soar

When UDAN was planned, there was quite a lot of usual criticism around the lines of why the government should intervene. But unless there was a backstop, in this case, the central government, it would have been near impossible to develop new airports and attract airlines

Earlier this week, an interesting aviation sector headline flashed on Indian media. In November 2018, the growth of the aviation sector slowed down to a 51-month low of 11%. In normal circumstances, a mature business will take 11% growth happily. For Indian aviation, it was a negative statistic – the growth had slowed down significantly.

Indian civil aviation market is slated to become the third largest market in the world behind that of the United States of America and China in another five years or so. Despite the individual airlines facing the heat of increased competition and high fuel prices, the market has been growing on the back of competitive airfares and increased demand.

In this backdrop, one of the demand drivers over the coming years in the civil aviation sector could be the Ude Desh Ka Aam Nagarik or UDAN program. Prime Minister (PM) Narendra Modi had spoken about the possibility of people wearing hawai chappals boarding hawai jahaj– how to make air travel affordable and possible for common citizens. For a country of India’s size, the air access has also been significantly limited. Many large towns do not even have an operational airport. Some which do aren’t served by regularly rostered flights.

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This regional connectivity scheme was launched in 2016 where the government took the role of a market maker to broaden and deepen the aviation market. The idea was to bring on board some of the 425 odd Indian airports, which were unserved or underserved, with no regular scheduled flights. The government also planned to create a viability gap funding structure to promote flights from already connected cities and airports to the new regional locations.

When UDAN was planned, there was quite a lot of usual criticism around the lines of why the government should intervene. But unless there was a backstop, in this case, the central government, it would have been near impossible to develop new airports and attract airlines -after all, it was possible via a market mechanism, it would have already happened in all these years.

The government created the viability gap funding structure using a universal service type cross-subsidy model. A surcharge was levied on tickets on existing routes, which was then used to refund part of the ticket costs for the airlines flying on UDAN route. The participating airline would reserve a certain number of tickets on each flight at a low price – INR 2,500 for routes with flying time under one hour. The government would pay the airline a certain differential from the viability fund.

So far two rounds of UDAN route bidding has happened. The first was in April 2017. In this round, 128 new routes were awarded bringing aviation options to 43 regional airports of which 31 were unserved. Five airlines won the rights to fly on these routes. In the second round of bidding, 15 airlines, including those with helicopter operations, were awarded 325 routes. Bids for the third round were called in December 2018. The government now also plans to invite bids for international routes. This is being planned with an eye for connecting airports like Guwahati, which can be developed as India’ gateway to South East Asia.

The progress so far has been mixed. All the objectives of UDAN, as laid out before the first round of bidding, have not yet been met. Some airlines like Air Odisha and Air Deccan, which won the rights to fly in the first round, haven’t started operations in many cases. Some airports are still struggling to create the right infrastructure – clear flight paths and funnel approaches, perimeter security, and clear runways.

Yet, some cities have tasted success. Hubbali saw more than 45,000 flyers using the airport in July 2018. Nanded has seen connectivity increase, with an Amritsar flight which serves the Sikh pilgrims moving between the cities. Shirdi saw the upgrade of its existing airport and new flights were launched to several large cities, serving the pilgrimage destination. Adampur and Pathankot in Punjab and Nashik in Maharashtra have also benefited.

The Pakyong airport in Sikkim was constructed anew and opened to commercial flights earlier this year. Sikkim was so far only accessible via road, and the road closed many times a year due to bad weather. This airport, an engineering marvel, created a completely new commuting option for the hill state.

Several airports like Bhavnagar, Diu, Jalgaon, Jamnagar, and Mundra await the regularization of earlier flights awarded. Prayagraj has also been awarded several UDAN routes, which may get operationalized as the Kumbh Melanears.

Ultimately, even if a small fraction of all planned connectivity under UDAN thrives, it would have still served the purpose of expanding the Indian civil aviation landscape. The program was designed when Ashok Gajapathi Raju helmed the civil aviation ministry with Jayant Sinha as his deputy. Sinha has done most of the heavy-lifting in terms of planning, communication, and presenting the government point of view. Suresh Prabhu now leads the ministry, but Sinha continues to play an important role in the evolution of the program.

Since UDAN went live, India has added 25 new airports on the scheduled aviation map. Most airports existed earlier, but have been significantly upgraded to meet customer safety, security, and comfort standards. This infrastructure update is in line with the Modi government efforts, where public investment is leading the private industry participation.

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