India has a unique phenomenon in having hundreds of ‘ghost’ airports, which always had the potential to service flights but have remained unused because a variety of reasons. We have 400 airports and air strips, in all, only about 75 of these were in flights till last year. Some ghost airports were constructed during two World Wars and fell into disuse later, some have basic infrastructure but need incremental investment become operational and some others were simply built due to political considerations without having any commercial viability – flights from and to such airports never took off or stopped shortly after take-off because such routes were not viable.

Details:

• Six airports – handle two-thirds of the country’s air traffic in terms of passengers and almost 60 per cent of the total aircraft movements, according to data from the Airports Authority of India. Needless to say, these airports are already saturated.
• Giving wings to small towns means launching flights to tier II and tier III cities and ensuring that fares remain affordable. This not only allows redundant airport infrastructure to become useful but also provides air connectivity to businesses and individuals residing in India’s hinterland.

‘UDAN’ scheme:

• Small towns, unaccessible hilly regions and the North-East of the country-all these virgin air territories are being slowly brought onto the aviation map under the UDAN Scheme.
• ‘UDAN’ is an acronym for ‘Ude Desh Kaa Aam Naagrik’.
• The UDAN scheme has had two rounds of bidding by interested airlines; in the first round, the target was to make 31 ghost airports come alive while in the second, another 29 ghost airports were to see flight movement.

Route Economics:

• Under the new UDAN scheme, state government and the centre are committed to providing subsidy as per a pre-decided formula as Viability Gap Funding (VGF).
• The subsidy amount for this flight was a little over Rs 3,300 per seat.
• Under the VGF formula worked out for UDAN flights, there is subsidy for 50 per cent of the seats on each flight, exclusive route monopoly for the airline for three years and a host of other concessions at the landing airports (cheaper fuel, airport charges etc).
• In turn, the airline operator is bound to cap fares for the UDAN seats at Rs 2500 per seat per hour or for about 500 kms of flying.

And how is the VGF being funded?

The aircraft taking off from the busy metro airports are expected to pay Rs 5000 to the government per departure so that UDAN fares are cross-subsidized. This levy is applicable only on “profitable” routes, according to government officials.

Success Factors:

• India is the world’s fastest growing domestic aviation market and regional connectivity is critical if this high growth is to be sustained.
• Adding airport capacity at metros is important, but for high growth, developing regional connectivity is the way forward.

Challenges:

• Not all the underserved unserved (ghost) airports which were envisaged to become operational have been revived.
• Some of the airlines which came alive under UDAN have little previous experience, are short on funding and seem to be struggling with the economics and logistics of offering connectivity from remote locations.
• Then, even the quality of under UDAN is not quite upto mark.
• The new airlines are struggling with infrastructure issues and perhaps need wait a bit more to generate adequate demand.
• Another dampener for UDAN has been the non-starter helicopter services. No bids came in during the initial round because of insufficient VGF (potential bidders gave this feedback) and now, in the second round, regulations for scheduled helicopter operations are still being devised by the regulator.
• Till now, there have been no scheduled helicopter services anywhere in the country so norms have to be laid down from scratch.

The operators, who have bagged UDAN routes of their choice, may find it tough to sustain these after the VGF period of three years ends, especially since oil prices are already heading north. To make UDAN flights more attractive the government has already begun allowing waiver of the three-year exclusivity clause, if the operator working the route does not object, but still concerns on long term viability remain.