UDAN faces turbulence as regional airlines flounder
Only half of the 71 UDAN airports that were to be linked after the first two rounds of bidding, have been connected
Mumbai: Even as the government attempts to add remote airports to the country’s aviation map through a subsidy scheme, at least eight regional airlines have ceased operations in the last two years, in a grim reminder of the challenges facing Indian carriers, particularly small operators.
Among reasons for their closure are high costs, scarcity of airport slots, maintenance woes, inadequate manpower, and inability of promoters to raise capital.
Under the Regional Connectivity Scheme (RCS), also known as UDAN or Ude Desh ka Aam Naagrik, airlines compete to win subsidies for operating flights linking small airports with bigger ones. The scheme, launched in April 2017, is now in its third phase.
Among the airlines that have stopped flying are Air Odisha, Zoom Air, Air Carnival, Supreme Airlines, Jamshedpur Air Connect, North East Shuttles and Air Costa. According to data from the Directorate General of Civil Aviation (DGCA), Air Deccan, which was relaunched last year under the RCS scheme, has not flown since October 2018. Captain G.R. Gopinath, who had relaunched the airline, did not respond to calls.
While Coimbatore-based Air Carnival has been sent to liquidation, DGCA has renewed the flying permit of Gurugram-based Zoom Air. However, it is not clear if Zoom, which had planned to raise fresh funds, will resume flying soon. The airline’s chief executive, Koustav Dhar, didn’t respond to calls.
The first two rounds of RCS bidding have covered more than 450 routes, including 160 airports, helipads and air strips, but many of the airports are yet to be operational. According to data from the Airports Authority of India (AAI), only half of the 71 RCS airports that were to be linked after the first two rounds of bidding, have actually been connected.
According to a senior official at AAI, most RCS airports are expected to be linked by the end of March 2019. “A huge scheme like the RCS is bound to face several challenges,” the official said on condition of anonymity. “While the central government is doing its bit by ensuring that smaller operators get timely disbursement of funds under VGF (viability gap funding), steps from the state governments, like reducing taxes on fuel, will further push some airlines to start their services in some of the under-connected routes,” the official added.
To be fair, AAI doesn’t own many airports connected by RCS. Many of them are owned by the armed forces; some are even owned by states and public sector units. For instance, while Awantipur airport in Jammu and Kashmir and Hindon in Uttar Pradesh are operated by the armed forces, the Nashik airport is operated by Hindustan Aeronautics Ltd.
Scheduled airlines operating from major airports have also opposed a levy to fund RCS. After their protest, the initial levy of ₹8,500 per flight was cut to ₹5,000 in September 2017. While this step mollified the large airlines, it also means less money to subsidize regional flights.
“The RCS scheme isn’t viable by itself (especially for regional airlines) unless you change the high cost structure that’s associated with airlines business, and improve infrastructure,” said aviation consultant Mark Martin, chief executive officer of Martin Consulting LLC.
“Major Indian airports like Delhi and Mumbai don’t have any more slots that can connect them to more underserved and unserved airports, further impacting the RCS scheme,” Martin added.
Congested major airports also find it difficult to allocate slots to regional airlines flying turboprop aircraft that take longer to land and take off. As a result, much of the success of RCS is still dependent on bigger firms flying larger aircraft.
These include SpiceJet, Alliance Air (Air India), Jet Airways and IndiGo, which operate a large number of flights under the scheme.
“With commitments by IndiGo, SpiceJet, Jet Airways and Alliance, RCS is finally gaining traction,” consultant CAPA India said in its report, “Indian Aviation Outlook for FY2019”. The report points out that the chances of failure of regional airlines operating older aircraft, dispersed across multiple stations without rigorous demand assessment, and in the absence of a maintenance ecosystem is significant.
“UDAN’s success is dependent upon established, incumbent operators. There is little or no business case for small, independent operators without scale,” the CAPA report said, adding, “RCS needs to be restructured to make it viable.”
Established airlines continue to expand their networks under RCS. SpiceJet, which recently added the Kolkata-Lilabari-Kolkata route, operates 25 flights under UDAN, while Air India-subsidiary Alliance Air, IndiGo and Jet Airways also continue to expand their operations under the scheme.
Editor's Picks »
- Why Tata Motors’ Project Charge at JLR is failing to recharge its shares
- Outlook on global profit growth worst since 2008 financial crisis
- Q3 results: ICICI Securities loses its retail broking crown
- High drug approvals to keep up pricing pressure for pharma firms
- Roads sector: Toll collections set to surge, but risks loom for developers