UDAN

Regional Connectivity Scheme

A study on its need, progress and challenges

Group 3

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Arpit Lahoty | Ashok Suresh Das | Chirag Jasani | Gloria Pereria | Mamita Devburman | Rishika Behara
 Trends in Indian Aviation

Key Drivers Impact

CAGR (2006-16) Figures in
millions (FY16)
Growth of travel and tourism industry
Passenger 11.8% 223.6
Increased spending on business and leisure travel Traffic
Increase in middle income pop. (267 million in 2016) &
rising per capita income (7.4% CAGR FY10-16)
Domestic 12.7% 168.9
Passenger Traffic
Growth of the working population

Expected Trends
• By 2020, passenger traffic at Indian airports is expected to increase to 421 million from 308.75 million in
2017-18.
• The share of non-metro airports in air traffic is expected to increase significantly in the coming years;
increased traffic from people in tier 2 and tier 3 cities

Bottlenecks
• 15-16 airports account for 80% of total air traffic; Lack of a hub and spoke model
• Only 90/125 AAI airports operational; ghost airports (operational but no scheduled flights)
• Requirement of sufficient air traffic to offset operating costs and recover capital

Need to boost air traffic by tapping the latent demand from tier II & III cities lacking air services by
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expanding regional connectivity while ensuring route profitability
Evolution of Airport Network

Hub Feeder Routes Long-thin Routes

Connecting regional hubs to Directly connecting tier 2 and 3 3
tier 2 and 3 towns towns to metros
About UDAN

Ude Desh Ka Aam Nagrik (UDAN)

regional connectivity scheme launched
Scheme
by Ministry of Civil Aviation in October
2016

UDAN is a component of the National

Policy Civil Aviation Policy introduced by
MoCA in June, 2016

Time Period 10 Years

To make air travel accessible to

citizens in regionally important cities
Objective by providing air connectivity to
currently underserved and unserved
airports (tier 2 and 3 cities)

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Key Features and Funding Requirements

Key Features:
• 70 airports to be connected: 21 currently served | 12 currently under-served | 31 unserved
• Airfare for a 1-hour journey of approximately 500 km on a fixed wing aircraft or for 30-minute journey on a helicopter
would be capped at Rs. 2,500
• Selected airline operator to provide min. 9 and max. 40 UDAN Seats (subsidized rates) on the UDAN Flights for
operations through fixed wing aircraft
• Route is awarded to the bidder bidding the lowest subsidy level for half the seats on the flight. The other half of the
seats can be sold at market prices.

Central Government Airport Operators State Government

 Provide 80% Value gap funding –
instituted to subsidize airfare and to
bridge the gap between expenditure
and revenue (first 3 years of
operations)
 Provide concession on service tax on
tickets
 Grant exclusive flying rights to the on
the selected routes to the selected
airline (Revised to allow more than
one airline on a no-objection
issuance basis)
 Relaxation in norms restricting two
airports in close proximity from
participating in the bidding
 No parking or other charges
 No Terminal Navigation Landing
Charges (TNLC)
 Route Navigation and Facilitation
Charges (RNFC) discounted to
42.5% of normal
 Allow selected airline to manage the
ground handling of flights
 Provide free land for the airport, with
multimodal (rail, road, metro)
hinterland connectivity
 Provide water, electricity and other
utilities at reduced rate
 Co-ordinate with oil companies to
create fuelling infrastructure on
airports
 Provide free trained security
personnel
 Bring cost-effective security solutions
by BcAS
 Provide 20% share of VGF
 Reduce GST to 1% or less for 10
years 5
 UDAN : Connectivity In Phases
BIDDING PROCESS
� 3 rounds of bidding have been held for operationalization of new routes – April 2017, December 2017, January 2019.
� Key features of Round 3 were –
� Inclusion of Tourist Routes in coordination with the Ministry of Tourism
� Inclusion of Seaplanes for connecting Water Aerodromes
� Inclusion of the North-East region
� Post 2 successful bidding rounds, Phase 3 also received encouraging response from operators – 111 Initial Proposals and 17 Counter
proposals from 15 bidders covering 350+ routes. Scrutiny of technical and financial bids done for both Initial and Counter proposals.
� Evaluation of the bids :
� No VGF requested : Maximum number of RCS Seats quoted per week shall be selected.
� VGF requested : Lowest CGF requested per RCS Seat for proposed route

CONSIDERATIONS IN TECHNICAL BID RCS AIRPORTS AND ROUTES STARTED *

� Proposed RCS route – origin and destination
 Alliance Air – 45 routes
� Proposed date of commencement of operations
 TruJet – 26 routes
� Stage length or flight duration of the proposed route
 Spicejet - 59 routes
� Proposed aircraft type to be used on the RCS route
 Air Odisha – 8 routes
� Seating capacity of the proposed aircraft type
 Zoom Air – 2 routes
� Number of RCS Seats and non-RCS Seats per RCS Flights
 Jet Airways – 10 routes
� Number of RCS Flights per week
 Indigo – 36 routes
CONSIDERATIONS IN FINANCIAL BID  Heritage – 4 routes
VGF per RCS Seat sought under the scheme  Ghodawat – 4 routes
All-inclusive maximum airfare to be charged for an RCS-
* Routes considered as to and fro between origin and destination 6
Seat
 UDAN : Vision Of Connectivity For States

IMPACT OF UDAN IN CONNECTING STATES

� UDAN – Phase 1 had only fixed-wing aircraft while helicopters were included in Phase 2. Further, seaplanes were included in Phase 3.
� Participating states, North-East states and Union Territories are required to sign the MoU with the Union Govt to share 20% and 10% of
the VGF respectively.
� Seaplanes operating between Andhaman & Nicobar Islands and Lakshadweep to serve as cheaper connectivity options for the public.
� Helicopter operations under the Scheme are allowed in Priority areas. Pawan Hans will be serving the hilly and inaccessible regions.
� VGF Caps for helicopter operations were enhanced upto 10% of estimated annual inflows from RCF.
� UDAN-RCS is an enabler and beneficiary of other key GoI schemes such as Bharatmala, Sagarmala, BharatNet, Digital India etc.

• Introduction of helicopter services for better

• 4 cities would get airports under UDAN
connectivity in far-flung areas
• This is to ensure better connectivity in
• Mobile air dispensaries to be started –Provide
Chhattisgarh the eastern zone with Jharkhand, Manipur
primary healthcare services in rural & remote
Raipur, Odisha getting connected by
areas. Imphal and Shillong are the proposed
small planes
bases.

• Civilian flights to fly from IAF’s

Darbhanga airstrip – majorly for people
of Northern Bihar
Bihar
• Bihar Govt to hand over to AAI 109
acres of land acquired for expansion of
IAF-owned airstrip.
• Allahabad was the prime focus in the second
phase and had been connected to 13 cities.
Uttar
• Uttar Pradesh is among the states with
Pradesh
maximum number of airports and helipads
kicked off in second phase.
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Airport connectivity initiated under UDAN 1.0 & 2.0

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 UDAN 3.0 Results
S No. Particulars Initial Counter Proposals Annual RCS Seats (RCS Flight Capacity)
Proposals Fixed Wing 52.39 Lakh
1. No. of applicants 15 Sea Plane 1.18 Lakh
Tourism areas 15.73 Lakh
2. No. of proposals received 111 17
Total 69.30 Lakh

3. No. of routes involved 235 Annual VGF Requirement

• Priority RCS Routes 23
Fixed Wing Rs. 895 Crore
• Other than Priority RCS 166
Routes Sea Plane Rs. 17 Crore
• Routes proposed by 46 Ministry of Tourism Rs. 255 Crore
Ministry of Tourism
Total Rs. 1,167 Crore

S. No. Applicant Fixed Wing Proposals to be awarded Seaplane proposals to be awarded

1 Airline Allied Services Limited 8 -
2 Andaman Airways Pvt Ltd 1 -
3 Aviation Connectivity & Infrastructure 1 -
Developers
4 Ghodawat Enterprises Pvt Ltd 10 -
5 Heritage Aviation Limited 1 -
6 Interglobe Aviation Limited 12 -
7 Jet Airways India Limited 5 -
8 Spicejet Limited 22 2
9 Turbo Aviation Pvt Ltd 2 1
10 Turbo Megha Airways Pvt Ltd 2 -
11 Zexus Air Services Pvt Ltd 6 -
Sub-total 70 3 9

Total 73
Measures to promote regional connectivity

Degree of Support –
Support Schemes Applicability Regional Connectivity

More applicable on those routes which are already established but it is

Payment per flight Medium
desired to enhance frequency on them

Applicable on existing routes where it is intended to enhance passenger

Payment per passenger Medium
traffic volume

Discounts on passenger- Applicable to regional locations where demand is perceived to be low in

High
related charges initial phases but is expected to build up with time

Applicable to regional locations where, if initial support is provided, market

Airport Charges High
may develop and operate on its own

Applicable to regional locations where demand is perceived to be low in

Reduction or exemption
initial phases; if provided on permanent / long term basis, can be suitable for Medium
from Taxation
remote locations as well

Revenue guarantees (VGF) Reduce the impact on the airline of not reaching its break-even point High

To make it compulsory for airlines to provide services on routes which are

Route Control Medium
perceived to have low traffic potential or are remote locations

Comprehensive Aid Provide support to unviable routes; perpetual for remote while initial support
Medium
Packages to regional 10
Financial Viability for the Airlines

Aircraft Cost Monthly Lease NPV @ 16%

Aircraft Capacity (INR Cr) (INR ‘000) (INR Cr) Remarks
The profitability for 9 and 19 seater
9 10 1,000 0.05
aircraft is sensitive to cost of fuel,
aircraft lease, crew salaries and
maintenance. Any abrupt increase may
19 40 4,000 0.34
render operations unviable.

48 64 6,400 48.2 RCS is highly profitable for a 48 / 78

seater aircraft operator. The key
challenge would be to identify routes
78 73 7,300 167.5 that provide high load factors

Key Assumptions

Parameter Value

Stage Length 300km

RCS Trips per Day 6

Fleet Size 3

Seat Factor (Year 1-5) 60%; 70%; 80%; 80%; 80%

Airfare (RCS seats) INR 1,830 (3 years)

VGF for RCS INR 3,730 (3 years)

Airfare for non RCS Seats INR 2,800 (10% escalation YoY)
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Challenges

• Jet Airways and eight regional airlines (Air Odisha, Zoom Air, Air Carnival, Supreme Airlines,
Jamshedpur Air Connect, North East Shuttles and Air Costa) have ceased operations in the last 2
Closure of regional
years
airlines
• Reasons for closure include high costs, scarcity of airport slots, maintenance woes, inadequate
manpower and inability of promoters to raise capital

• Under UDAN Phase 1 and Phase 2, 56 unserved airports are to be operationalised

Implementation • Of these 56 airports, only 23 have been operationalised yet
shortfall • Of the 440-odd air routes allotted to 14 airlines (national and regional carriers combined) under
UDAN, only 40-50 routes are operating regularly.

v
• The government has put in Rs 400 crore to bail out UDAN scheme
• The bailout from the government was needed after the aviation ministry finalised the third phase of
Increased subsidy
the scheme, which shot up the total subsidy burden by almost double to Rs 1,250 cr per annum
requirement
• The total subsidy outlay under the first phase of the UDAN scheme was Rs 214 crore per annum,
which increased to Rs 500 crore annually under the second phase

• Only 102/486 airports/airstrips in India have scheduled operations

• Top 6 airports account for ~63% of air traffic, and are getting increasingly congested. Major airports
Capacity issues operating at >125% utilization
• While major airports have planned capacity expansion, progress has been slow and hence there
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might be a demand-supply mismatch