In August this year, the Indian Government added seventy-eight (78) new routes under the Regional Connectivity Scheme (RCS) or UDAN, as it is locally known as.
The Regional Connectivity Scheme (RCS)
The Regional Connectivity Scheme (RCS) or UDAN (the acronym translates to English as – ‘Enable Everyone to Fly’). The primary objective of the RCS program is to facilitate air connectivity to smaller towns by making it affordable. This flagship program was announced in October 2016 under the National Civil Aviation Policy. It was then envisaged that domestic passenger traffic would reach 300 million by 2022 and 500 million by 2027. These estimates were not far off from the actual figures.
According to India Brand Equity Foundation, the Indian aviation industry, India’s passenger traffic stood at 341.05 million in FY20. It grew at a compound annual growth rate (CAGR) of 11.13 per cent during FY16-FY20. Domestic passenger traffic stood at 274.50 million in FY20, growing at a CAGR of 12.91 per cent over FY16.
A few noteworthy points are –
- Each state had to become a stakeholder in this scheme if they would wish to enjoy the benefits. Each participating state then signed a Memorandum with the Ministry of Civil Aviation.
- On every route, the airlines had to allocate fifty per cent (50%) of the seats as RCS seats. The fares for such seats are capped by the Government. For example, flights up to 500 km could charge a maximum fare of $34 (INR 2500), and up to 800 km the fare is capped at $47 (INR 3500)
- A mechanism of financial support was set up to provide cash subsidy to airline operators. This support is called the viability gap funding (VGF), which is available for a period of ten years from the start of operations. (The VGF comes as a levy of Rs 50 on each ticket sold on a non-RCS route.) Besides, the airlines enjoy concessional tax rates and zero landings and parking fee.
Reality Check – Is the Regional Connectivity Scheme Flying?
We took a look at a summary of milestones and events that affected the scheme.
Airlines, over the past few years, have learnt the hard way. Many airlines closed down operations due to small fleets:
- a) Regional connectivity cannot be a standalone business. It has to be an integral part of a larger network. Therefore, large fleet operators will always have the edge over small airlines in terms of providing connectivity.
- b) Viability Gap Funding (VGF) has not taken off as envisaged. Funding backlogs his has affected small operators adversely as demand on these routes is usually low.
- c) Though 766 routes may have been awarded, only 268 were operational before April 2020. As traffic limps back to normal, airlines have restarted flights on 136 routes so far while ten routes have been dropped citing extremely low traffic.
The Government remains optimistic and is pushing ahead with its flagship scheme. The Ministry is also looking at alternative ways to fund the viability gap.
Hardeep Puri, the Minister of Civil Aviation, said –
“UDAN 4.0 is ready to go. Seventy-eight additional routes have now been approved, taking the total number of sanctioned routes to 766.”
Then there are many happy travellers who will vouch for the benefits under this scheme. Small towns and cities can now be reached within an hour, replacing the long tiring train or bus journeys.
In an interview with Economic Times, Deep Kalra, Founder and Group CEO, MakeMyTrip says –
“With the planned phased rollout and a more robust execution roadmap for the scheme, we are set to see more and more Indians take the aerial route to travel and save time. Well begun is half done”
While Ajay Singh, CMD, Spicejet says –
“UDAN has been a successful scheme. We are committed to taking air services to every corner of India.”
Probably, the best is yet to come.
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