None of the airports in metros has matched the recovery seen in their smaller peers.
Growing up in Karnataka, Usha Padhee had heard grown-ups talk about Kalaburagi, a nondescript town in north Karnataka. Any posting in Kalaburagi was considered a “punishment posting” as the town was not well connected to the state capital Bengaluru, then Bangalore, or any other part of the country.
But recently when Padhee heard someone saying, “Flight services beginning between Hindon (in NCR) and Kalaburagi, connecting the town with the country’s capital, is something I never expected to happen in the next seven generations, let alone in my generation! It is not a punishment posting anymore,” the Joint Secretary in the Ministry of Civil Aviation, couldn’t help but be amused. And also pleased.
After all, the 1996-batch IAS officer has been pushing the cause of UDAN, the government’s scheme to promote regional connectivity, ever since it was launched in 2017. The Joint Secretary is in-charge of UDAN, or Ude Desh Ka Aaam Naaarik, which incentivises airlines to operate on regional routes.
As this Moneycontrol story had earlier said, ever since it opened in November 2019, the airport in Kalaburagi has reported the highest growth in passenger traffic despite the impact of COVID-19 on the overall aviation industry. Adding to its new found tag as an emerging aviation hub, Kalaburagi is now also a satellite centre of Indira Gandhi Rashtriya Uran Akademi, the pilot training institute.
Kalaburagi, which comes under UDAN, is not alone. Airports in Jharsguda, Hubli, Belgavi, and Kishangarh are among the handful few who have seen passenger traffic soaring above pre-COVID-19 levels. A recent report by Kotak Institutional Equities listed 12 such airports that have “become relevant over the past few years through the regional connectivity scheme”.
None of the airports in metros has matched the recovery seen in their smaller peers.
“Every crisis in an opportunity,” says Padhee in a conversation with Moneycontrol, of the havoc created by the pandemic on the aviation sector.
“We had started UDAN operations when flights resumed in May 2020. Even as most of the metro airports had restrictions of various kinds owing to COVID-19, there was huge demand for air service in smaller airports. The routes under RCS (regional connectivity scheme) picked up as customers understood air travel was safer and also saved time,” she adds. Flights on these routes, adds the senior government official, now have a load factor of 80 percent.
Since 2017, the government has awarded 700 routes to airline under UDAN. The initiative has also seen 55 airports, including heliports and waterports, opening up. Earlier this month, Bareilly became the 56th airport to come under the regional connectivity scheme.
“While other countries also have similar schemes, none has a scale or scope similar to UDAN. Our hope is that by the 2023 financial year, we will be able to develop 100 airports and have about 1,000 routes under the RCS,” says Padhee.
Usha Padhee, centre, with industry executives at the launch of flights on Delhi-Bareilly route
The challenges
Despite the progress, UDAN has had its share of setbacks too.
Just about half of the awarded routes are operational. Many regional airlines, who started operations banking on the scheme, have struggled to have a sustainable model. Some even closed down.
Padhee admits to the challenges. “I have no hesitation in talking about the challenges…in India, smaller aircraft business is fragmented and we don’t have a single model that has worked, or has the benefit of economies of scale,” says Padhee. Many of the airline struggled despite the government incentive.
This is how the scheme works. The government had set up the Regional Air Connectivity Trust Fund. Its funds come from the Rs 5,000 that airlines pay for each flight on trunk – or metro – routes. These are flights that have at least 80 seats. Most airlines recover the money from fliers, who pay a RCS levy in their ticket fare.
Money collected from the Fund is then given as incentives, or viability gap funding, to airlines operating on UDAN routes. Each UDAN flight has a specific number of seats that are incentivised.
Post COVID-19, with capacity utilisation still low, contribution from airlines has dried up, forcing the government to make a tweak so that the outgo from the Fund doesn’t eat up the corpus. The airlines have been asked to reduce frequency of flights or the number of UDAN seats, so that the need for funding reduces.
“This will be normalised as soon as circumstances go back to pre-COVID levels,” Padhee said.
The funding is critical for airlines. Talking to Moneycontrol earlier, regional airline Star Air’s CEO Simran Singh Tiwana said, “The paying power is low right now for customers. Without government support it becomes difficult,” says Tiwana.
But sometimes, even the government support is not enough for airlines to begin services from a new airport. This leads to many routes, half of the 700 awarded, lying unused.
Padhee agrees to the problem. At the same time, she adds, there was no other way for the government to ensure that the whole ecosystem developed. Otherwise “it would have been a chicken-egg situation,” says the Joint Secretary.
“Only when a route is awarded, an ecosystem around a new airport gets developed. This includes airlines, airport infrastructure and regulatory approvals. We had one option to wait till all routes awarded in one round become operational before starting the second phase,” says Padhee. But that option would have handicapped the scheme from achieving its potential, and was thus dropped.
There is something that the government is about to embark on that may help airlines, especially those with smaller aircraft, make a business out of UDAN.
UDAN 4.1
The Ministry of Civil Aviation is expected to start a “special round of bidding” within a week. This 4.1 round of UDAN will include routes that were otherwise cancelled in the earlier rounds.
“We will give airlines a lot of operational flexibility. So if you have a 3-seater, 4-seater, 20 seater aircraft, or if you want to to operate as a non-scheduled operator, this will be allowed. We will explore if this model will help airlines with small aircraft. If it works out, it will mark a new chapter for UDAN,” says Padhee.
The new round will also have routes that will be operated by helicopters or involve water aerodromes. Special focus will be on routes served by helicopters, says Padhee, as these are places, mostly in the North-East that take a lot of time to reach by road.
Even as the preparations are on for the bidding, Padhee also has her eyes on the next airport that will open up on March 28. And that is Kurnool in Andhra Pradesh. This will be the second new airport, after Bareilly, that will start services in March.
That is an addition that is faster than the pace seen before COVID-19, when the government was opening a new airport and eight new routes under UDAN every month.