India's Regional Air Connectivity Scheme Headed for Major Overhaul
India's ambitious regional connectivity initiative, the UDAN (Ude Desh ka Aam Nagrik) scheme, is poised for a substantial revamp as the government prepares to introduce a new financial support mechanism for airlines operating on remote routes. The proposed changes, which are currently awaiting Cabinet approval, aim to address the persistent challenge of commercial viability that has plagued many regional air routes since the scheme's inception in 2016.
Current Challenges and Proposed Solutions
Launched with the noble objective of making air travel affordable for the common citizen, the UDAN scheme mandates fare caps on half of the seats on designated regional flights. However, this very mechanism has created financial hurdles for airlines, particularly when operating to hinterland destinations with low passenger traffic. The combination of fare restrictions and limited demand has rendered many routes commercially unviable despite existing government incentives.
"According to our calculations, the existing mechanism of funding will not be enough to make those viable. We have proposed this alternative mechanism. Inter-ministerial consultations have been completed, and it is now awaiting cabinet's approval," revealed a senior government official familiar with the matter.
Existing Support Structure and Its Limitations
Currently, the government provides multiple forms of assistance to carriers operating under UDAN, including:
- Waivers on landing and navigation charges
- Direct subsidies to cover operational losses
- Lower aviation turbine fuel taxes at remote airports
- Exemption from airport fees at regional locations
The subsidy pool is primarily financed through a levy of Rs 6,500 per commercial flight, which contributes approximately 80% of the required funds. The remaining 20% is shouldered by state governments where the airports are situated. Since its launch, the scheme has disbursed over Rs 4,352 crore in subsidies and invested an additional Rs 4,638 crore in developing and upgrading regional airports.
Performance Assessment and Operational Hurdles
Despite these substantial investments, the UDAN scheme has delivered mixed results. Of the original 649 routes identified under the initiative, only about 60% remain operational today. The civil aviation ministry has spent nearly Rs 900 crore on 15 regional airports that have yet to become operational, highlighting implementation challenges.
"For smaller airlines, who are substantial players in remote connectivity, they can't start flights despite getting permission due to non-availability of aircraft or readiness of the airport. It becomes a big financial burden for them," explained a second government official, emphasizing the practical difficulties faced by regional carriers.
Proposed Enhancements and Industry Perspectives
The revamp proposal includes several key modifications:
- Extended Subsidy Period: Scrutiny of the scheme suggests a possible need to extend the subsidy period beyond the current three years, which may require increasing the overall fund size.
- Revised Funding Mechanism: A new financial support structure is being considered to ensure adequate coverage of potential losses on remote routes.
- Addressing Cross-Subsidy Concerns: The revision becomes particularly important as India's mainline carriers, including IndiGo and Air India, may be unwilling to cross-subsidize the scheme.
Industry executives have welcomed the proposed changes, emphasizing the broader economic benefits of regional air connectivity. "Regional air connectivity is a powerful engine for progress," stated Simran Singh Tiwana, CEO of regional airline Star Air. He elaborated that new flight routes to regional cities generate significant economic benefits by providing local businesses access to wider markets, while also enhancing healthcare access, educational opportunities, and overall quality of life through faster travel options.
Historical Context and Future Implications
The need for a revised funding mechanism gained urgency after the government had to reverse a 2022 plan to increase the per-flight levy to Rs 15,000 following strong pushback from airlines. Carriers had argued that such a hike would inevitably increase ticket prices and negatively impact passengers.
Under the current UDAN framework, airlines are required to commence flights within four months of winning a route bid and enjoy three-year exclusivity on these routes, which shields them from competition. The proposed revamp aims to strengthen this framework while addressing the financial sustainability concerns that have limited the scheme's full potential.
As the proposal moves toward Cabinet consideration, aviation stakeholders remain hopeful that the revised mechanism will provide the necessary financial stability to make regional air connectivity truly sustainable, bringing affordable air travel to India's remotest corners while ensuring operational viability for participating airlines.
