India is the world’s third largest domestic aviation market, but the government’s efforts to improve regional connectivity to smaller cities by providing affordable air travel through its Ude Desh ka Aam Nagrik scheme (Udan) still remain a work-in-progress.
Several operational challenges and structural viability concerns cast a long shadow over this scheme, which has undergone modifications since it kicked off nine years ago with the inaugural flight between Delhi and Shimla. To make it work better, the government recently approved an outlay of Rs 28,840 crore over the next decade, extending viability gap funding from three to five years and targeting 100 new airports and 200 helipads.
Viability gap funding incentivises private airlines to provide affordable air travel to previously unconnected airports in smaller cities.
To be sure, the higher outlay marks a significant shift in the government’s approach from the existing regional connectivity scheme with route-based subsidies and fare caps to a broader aviation infrastructure programme with allocations for airport development, operations and maintenance, including indigenous aircraft acquisition according to an FE report.
The big question
The big question is whether the outlay addresses the uneven operational continuities of the scheme, although regional connectivity has undoubtedly expanded over the last nine years. The numbers make for dismal reading. Around 16.3 million passengers have so far availed of Udan, but their number has been declining for four years in a row from the peak level of 3.3 million in FY22.
Perhaps this reflects the noticeable improvement in road and rail networks that may have adversely impacted the passenger count, especially on short haul routés. Of the 663 routes that became operational since 2017—connecting 95 unserved and underserved airports, including 15 heliports and two water aerodromes—half have been discontinued because established airlines do not fly on them.
This does not bode well for the scheme’s success as it depends on participation by the established airlines. Of the 95 airports, 15 are currently non-operational for various reasons, including temporary discontinuation by airlines and low passenger load factor.
Pakyong airport in Sikkim, which has now been renamed after freedom fighter Trilochan Pokhrel, has been shut since June 2024 due to terrain and visibility challenges. The Udan scheme, which was intended to democratise aviation, clearly needs focused policy interventions to work better.
It can take off only if it makes business sense for the players rather than depending only on extending viability gap financing for five years, tapering off from the third year onwards, which may help some underserved routes to mature. But there are serious structural viability issues if only 7-10% of the routes remain viable once this financing ends.
Operating in a high cost environment—a problem that afflicts the entire domestic civil aviation industry—is the basic problem that also bedevils Udan. While it is shifting to an aviation infrastructure programme, the modified Udan does not resolve demand-side and cost challenges.
Smaller aircraft deployed on Udan routes have higher per-seat costs and limited tolerance for low load factors with no binding obligation on airlines to continue services on unviable routes. Unless there is better alignment between regional connectivity and the economics of the aviation business, the existing trend will continue, focusing only on routes that make business sense while the weaker ones are exited once the extended viability gap financing tapers off.