BackAlliance Air first off the blocks, to start Udan operations this month
Air India subsidiary Alliance Air's maiden flight will take off from Bhatinda in Punjab to Delhi later this month
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Mumbai: Air India Ltd’s Alliance Air subsidiary will be the first airline to take wing under the government’s subsidized Udan scheme.
The airline’s maiden flight will take off from Bhatinda in Punjab to Delhi later this month. The Air India unit is in the process of inducting more turboprop planes in its fleet as it chalks out a strategy to establish itself as a formidable airline on regional routes in India and other South Asian countries, Alliance Air chief executive C.S. Subbiah said in an interview.
Udan is short for Ude Desh Ke Aam Nagrik, which loosely translates as “let the common man fly". The scheme is intended to connect major cities with small towns.
“We are looking to start operations from Bhatinda this month. It would be followed by Shimla and Indore. This should happen quickly. The rest should be operational by June," said Subbiah.
According to the Udan scheme, fares for half of the 70-seats will be capped at Rs2,500. Pricing for the rest will depend on how quickly the first 35 seats get booked. The remaining seats will be sold at small price increments. Subbiah said the airline should be able to command a premium during peak seasons. In the initial phase, he expects the passenger load factor to be around 60%, and sees it climbing to 80% by the end of 18 months of operations.
The airline is among five to have won flying rights under the regional connectivity scheme that aims to take flying to the masses. Alliance Air will operate on 15 routes, SpiceJet on 11, Turbo Megha Airways on 18, Air Deccan on 34 and Air Odisha Aviation on 50. Under Udan, the operators would be extended viability gap funding—for which money will be partly raised through a levy of up to Rs8,500 on flights operating on major routes like Delhi to Mumbai.
With Udan mitigating the initial risks with viability gap funding, and a long-term business strategy that includes leasing 10 more ATR 72600s, taking the fleet size to 20, Alliance Air hopes to turn a profit.
It’s currently profitable at the operating level. If all goes to plan, Alliance Air would start international services by the end of this year. “We have a vision of going to the Saarc countries not only from metros but tier one and two cities," said Subbiah. Saarc is short for South Asian Association for Regional Cooperation, which groups Afghanistan, Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka.
In the past, airlines were wary of starting flights on new routes because of high costs, as a result of which they would incur a loss in the first two to three years. With viability gap funding and a lower cost of operations for Udan flights, thanks to lower fuel prices and airport charges, it has become that much easier for airlines to fly new routes, said Vishwanath K.G., a partner at Augmen Consulting. “This is good not only for the regional carriers but also those operating on key trunk routes."
Not everyone is as optimistic. “Alliance Air as a subsidiary of erstwhile Indian Airlines had unlimited government support, still it didn't do well," said an analyst at a domestic brokerage who declined to be identified.
“It’s all based on the underlying assumption that aircraft utilization rates will be as high as 10 hours as it is in key trunk routes; I doubt it will be more than five to six hours," he said.
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