Centre Unveils UDAN, caps fares at Rs 2,500

The scheme aims to increase the ticketing volume from 80 million to 300 million by 2022.

Centre Unveils UDAN, caps fares at Rs 2,500

In an ambitious regional connectivity scheme (RCS) of Government, UDAN (Ude Desh Ka Aam Naagrik) caps the fares at Rs. 2,500 for one-hour flights. It will be based on market mechanism as well as bidding for a minimum of 9 seats and a maximum of 40 seats in a fixed wing aircraft.

According to the reports, 50 percent of the seats of the flights under UDAN will be capped at Rs 2,500 while the rest will be based on market-based pricing.

"We are cautiously optimistic about it (UDAN)," Civil Aviation Minister Ashok Gajapathi Raju told the media. He added that the first flight under the scheme is expected to take off in January 2017.

According to the media reports, the regional connectivity model will be based on Viability Gap Funding (VGF), under which 80% of the cost will be borne by the state government and the rest by the centre. The subsidies will be given for a period of three years. The scheme as envisaged in the new civil aviation policy (NCAP), entails capping fares and subsidies at Rs2,500 and Rs3,800 respectively for flights of one-hour duration.

The larger part of the plan is to provide air services between unserved and under-served areas, along with boosting the domestic aviation sector. The Government also plans to upgrade 50 unserved and underserved airports in the country. India has 394 unserved and 16 under-served airports.

The scheme aims to increase the ticketing volume from 80 million to 300 million by 2022. And also connect 50 Indian cities in the next 4 years. Interestingly, the scheme will provide exclusivity to selected airlines on awarded routes.

It has been reported that VGF will be created by charging a small levy per departure on all domestic flights on certain routes and small aircraft below 80 seats. Excise duty of 2 percent on jet fuel purchased from airports under RCS has already been notified in August.

However, according to a report on Mint, the aviation industry was unhappy with the proposal. In a CEO’s roundtable organized by Minister of State for Civil aviation, CEO’s expressed skepticism over the implementation of the scheme stating various reasons, one of them being non-availability of slots at major airports like Delhi and Mumbai.

According to the officials, the proposed subsidy is too little for a small 10-20 seat aircraft as the cost of seat per kilometer, their acquisition cost, is almost twice that of a regular 80-seater plane, the report added.

Global airlines grouping International Air Transport Association, in its latest 20 years forecast, has projected that India would add 322 new fliers in its total 442 million air passengers by 2035, media reported.