The civil aviation ministry on Friday unveiled the operational modalities of its regional connectivity scheme UDAN (Udey Desh ka Aam Nagrik) to connect the country’s 394 unserved and 16 under-served airports, capping airfare at R2,500 for half of the seats in one-hour flights. However, incumbent airlines were not enthused as they felt the move could push up the airfares for existing customers and suggested that the government should instead fund the scheme wholly through its budget.
Brushing aside such apprehension, civil aviation minister Ashok Gajapathi Raju said, “We are cautiously optimistic about it (UDAN),” adding that the first flight under the scheme is expected to take off in January 2017.
Though the government will be providing for viability gap funding to finance airlines plying on the RCS routes, what has irked the incumbent carriers is one component of it — levying a cess on tickets for the non-RCS routes. Though the aviation ministry did not disclose the cess amount on Friday stating that it will be announced by the month-end, it tried to assuage ruffled feathers by saying that the amount will be “very small”.
Opposing the levy, low-cost carrier SpiceJet’s chairman and managing director Ajay Singh said that perhaps the government should tap its own funds. “When you build a railway station it is not that you start penalising passengers for that railway station. So when you launch a scheme of this sort, perhaps the government needs to fund it from its budget instead of imposing more of a tax on consumers. So we oppose it from the perspective that surely there could be other ways to fund the scheme which is nationally so important,” Singh said.
The Federation of Indian Airlines, which apart from SpiceJet comprises Indigo, GoAir and Jet Airways, had recently written to the aviation ministry calling the proposal to levy a cess illegal.
The airfare for UDAN routes would be capped corresponding to the distance between origin and destination (see chart). For instance, for a flight of 476-500 km, the fare would be capped at R2,500 per seat while the maximum fare would be capped at R3,500 per seat for a distance of 800 km and above. The caps would be reviewed periodically based on consumer price index for industrial workers.
To minimise operational cost on these routes, the state and central governments will implement a host of concessions. While the central government will restrict excise duty on aviation turbine fuel to 2% and fund 80% of the VGF, the state-owned airport operator AAI will waive landing and parking charges, among other fees. The state government will share the rest of the VGF and will also reduce the value-added tax on ATF to 1%. Further, the states that agree to join the scheme will also have to provide fire and security services at the airport free of charge.
An airline can choose to operate on one of the available routes and apply for the same with the ministry. A participating carrier — which would be extended VGF — has to bid for at least nine seats and a maximum of 40 seats. In the case of a helicopter, the operator has to bid for a minimum of five seats and a maximum of 13 seats. The pricing for balance seats will be based on market mechanism.
The limit of RCS airfare would vary from Rs 1,420 to Rs 3,500 for fixed-wing aircraft. For helicopters, a half-an-hour ride under the scheme would cost Rs 2,500 and for over one hour, the cap would be Rs 5,000.On each RCS route, the minimum frequency of flights would be three and the maximum seven in a week.
After the initial proposals are received, the government will ask for counter-proposals, which will then be followed by reverse bidding, which means the one asking for lower VGF will be awarded the route for a period of three years.
So far only five state governments have signed MoUs with the civil aviation ministry committing to the scheme. The government said that it would continue to convince more states to participate in the scheme.
While the carriers having scheduled operators permit will be eligible to register for the scheme from Friday, civil aviation regulator DGCA is making changes in the regulations to ensure that the interested non-scheduled operators can participate in the scheme after obtaining scheduled commuter operator permit.
The government claimed that the scheme provides for low entry and exit barrier to promote participation. An operator can exit an UDAN route and the scheme altogether after a year of operation. However, it will have to forfeit a performance guarantee if the operator discontinues services before completing a year.