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Opinion: Has the UDAN scheme performed as expected? – Bangalore Aviation

Opinion: Has the UDAN scheme performed as expected?

The Ude Desh Ka Aaam Nagarik (UDAN) scheme launched in June 2016 has been hailed by the Government as a game changer. The intent of the scheme is to connect un-served and under-served airports across the country in an affordable manner consequently boosting connectivity. This is delivered via routes that are bid-for and awarded to airlines by the government including subsidies on seats, discounted input costs and monopoly status on routes.

The scheme has its successes and failures and to the credit of policymakers, they have taken inputs from the industry and tweaked the scheme with each successive bidding. One would expect several new or existing pure regional airlines rushing for these rounds, but a closer examination shows much of the success has come from SpiceJet and IndiGo.

Ironically both these airlines have not taken the Viability Gap Funding subsidy, instead have leveraged the scheme strategically towards gaining additional slots at congested Tier-1 airports, monopoly status on routes and lower operational costs. Air India, also flying some UDAN routes via its subsidiary Alliance Air, however, Air India’s decision making is historically driven by government prerogative rather than commercial logic, making difficult to ascertain if UDAN has had any impact on their route decisions.

If the intent of the scheme was to make for viable and sustainable regional operations, as of now it has not fructified. One has seen TruJet fly several UDAN routes but two years into operations the airline is yet to show an operational profit. Air Deccan started and then suspended all operations and re-started and break-even profits are a while away. Air Odisha and Zoom Air are having its share of challenges and again both are loss making.

While it can be argued that losses are a part of any startup, it appears the pure regional operators continue to be hampered by the challenges of infrastructure, costs and talent. Against the backdrop of rising interest rates, rising oil prices, a banking system that has gone cold due to its own challenges, increasingly constrained metro airports and a talent crunch – all of which do not bode well for any – and by extension, UDAN.

Passengers on metro routes, are forced to fork an additional ₹50 as an UDAN levy, continuing the socialist tradition of cross-subsidies and systemic distortion in the guise of “doing good”. There is no certainty on fare levels as there no transparency on the mechanism on how one accesses an UDAN seat, and there are no fare controls on airlines like IndiGo and SpiceJet which have not taken the UDAN subsidy.

In my view, the success of UDAN is a mixed bag. If performance is measured by whether the scheme enticed large players like Indigo and SpiceJet to consider regional flying then yes, the scheme is a success. On the other hand, if the performance is measured by how many new airports have been connected? how many routes awarded? how many were started? and how many are still operational? Then the answer is a resounding NO. Per AAI and media reports only 80 out of 453 (18%) of routes awarded are operational and only 16 of the 56 unserved airports (29%) are operational.

As an aam nagarik, for my travel from Bengaluru to Nasik, I still must book a flight to Mumbai or Pune, pay the UDAN levy, and then drive down.

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About Devesh Agarwal

A electronics and automotive product management, marketing and branding expert, he was awarded a silver medal at the Lockheed Martin innovation competition 2010. He is ranked 6th on Mashable's list of aviation pros on Twitter and in addition to Bangalore Aviation, he has contributed to leading publications like Aviation Week, Conde Nast Traveller India, The Economic Times, and The Mint (a Wall Street Journal content partner). He remains a frequent flier and shares the good, the bad, and the ugly about the Indian aviation industry without fear or favour.

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