UDAN is an innovative scheme of Ministry of Civil Aviation which aims to develop the regional aviation market. It is a market-based mechanism in which airlines bid for seat subsidies. This first-of-its-kind scheme globally will create affordable yet economically viable and profitable flights on regional routes so that flying becomes affordable to the common man even in small towns. It also lends a fillip to India’s aim of emerging as the third largest aviation market by 2020.

Ensuring affordability and connectivity

• The passengers would be benefited through additional connectivity on regional routes at prices which are at or below the airfare caps making flying affordable for common man.
The operators could seek a Viability Gap Funding (VGF) apart from getting various concessions like free of cost fire, water, electricity etc. to start operations on hitherto unserved routes.

• For reducing operating costs for regional operators the scheme brings down the operating cost for an airline by reducing taxes on aviation turbine fuel (ATF) and airport and other charges to maintain balance between commercial and consumer interests

• Improving liquidity in the small plane leasing market will make it easy for entrepreneurs and airlines to start these unserved or underserved routes. Fo example – spicejet recently unveiled its plan to lease as many as 10 planes for this scheme.

• The government also plans to upgrade 50 unserved and underserved airports in the country which would further boost air connectivity pan India.

Development of domestic aviation market 

• To stimulate further growth and development of the sector, amount collected as Regional Connectivity Fund (RCF) will be used to provide financial support to airlines in the form of Viability Gap Funding (VGF) for operations under the Scheme. The RCF levy per departure will be applied to certain domestic flights. The partner State Governments (other than North Eastern States and Union Territories where contribution will be 10 %) would contribute a 20% share to this fund which will be used for the development of aviation market

• Creation of regional air connectivity / services that would have spin-off benefits within the sector in terms of passengers taking other flights (not under RCS) and using airports / airport services that are not at concessional rates under RCS. The amount collected under the levy will be ploughed back into the sector.

• Amount expected to be collected under this levy in context of other businesses which create connectivity and benefit from the network effect, for example, telecom and railways

• Step to use civil aviation to boost tourism, jobs and balanced regional growth across the country.

• Exclusive rights will be given to the regional airlines on a route for the 1st three years to ensure commercial viability of these regional routes and aiding the growth of aviation market.

Challenges

• Technical infrastructure like equipments, technical manpower etc. Mostly, these are day airports without night training facility. If this is included, the costs would be very high and runways have to be improved as well. Air traffic control services and air safety also need to be ramped up.

• Participation of mainstream airlines is unlikely as they are already dealing with heavy traffic flow. Also, the overhead cost for a small aircraft is almost same as that of bigger aircrafts. Therefore, low cost operations might not ensure much profit for big airlines. Investments have to be attracted here from new and local investors.

• Increased fiscal burden – because viability-gap funding, subsidized ATF and concessions have to be ensured. States need to provide free land and operational infra to bring down costs.

• Overburdening of Air India - Lack of interest of private players, may overburden Air India.