UDAN fails to give wings to smaller airlines THE SWEEPSTAKES

While the bigger ones have started operations, the smaller airlines are yet to get the basic infrastructure in place

On Monday, Spicejet launched its maiden flight on the Mumbai-Porbundur-Kandla route, becoming the third airline to start operations under the UDAN scheme, after Alliance Air and Turbo Megha Airways. But in March, it was Air Odisha and Air Deccan that stole the show by winning more than half the routes that were opened for bidding under the scheme to stimulate regional connectivity. They had won the right to fly underserved air routes from 45 airports across the country. But nearly four months later, the two smaller airlines have not fixed a finite date for their launch. Air Deccan, which had earlier planned to start operations in July, has pushed the launch to September, while Air Odisha can’t get delivery of its 12 Beechcraft planes because it is still awaiting night parking slots from airport operators. Industry watchers say the two airlines have embarked on an ambitious plan, but they don’t have the financial muscle to pull it off. Adding to the complexities, they say, are the allegations of cheating against Air Odisha and the suspension of its intrastate services in its wake. The reality, however, is more complex. Smaller airlines say they are confronted with serious roadblocks: reluctance of state governments to put money in making airports under their control functional; lukewarm response from private airports to provide them with parking slots; and an unequal battle with scheduled operators who have the advantage of economies of scale.

More importantly, aviation experts say making money with under 20 seaters even after viability gap funding is a big ask. Potential investors, as a result, are chary to sink in cash and are playing the waitand-watch game.

To be fair, attempts by previous governments to give a boost to increasing regional connectivity came a cropper, with airlines such as Air Pegasus, and Air Costa, among others, grounding their operations after being weighed down by debt.

The National Democratic Alliance government by offering subsidy to operators has tried to give regional routes a new lease of life. In order to make the scheme attractive to consumers, half the seats are capped at ~2,500 (for a 500 kilometre flight). For operators, the government offers viability gap funding. The amount is decided through competitive bidding, with a cap on how much an airline can ask for a period of five years. To sweeten the deal further, airlines are offered a three-year exclusivity on the routes, and provided tax concessions apart from no landing and parking charges.

The result is a mixed bag. Scheduled carriers Alliance Air and Turbo Megha, which runs the Truejet brand, and Spicejet have Air Odisha Air Deccan Turbo Megha Alliance Air Spicejet launched operations. But smaller players remain grounded. In Odisha, Air Odisha cannot build a viable route plan from Bhubaneswar as it does not know when the two airports (Jeypore and Utakla) under the state government will become operational.

The lukewarm approach of private airport operators, who control some of the key metros, has further delayed their plans. Airlines say operators are reluctant to give night parking slots as there is no financial incentive for them to do so (parking is free).

Airport operators, however, say they do not have any intention of jeopardising a government scheme. As peak traffic is in the night, they say they are genuinely struggling with slot availability, and working with the government to sort out the problem.

Air Deccan says potential investors are willing to put in money only if they know that there is growth for them after the viability gap funding is withdrawn. “UDAN will have far reaching impact especially in the hinterland. But for investors to invest in regional airlines, without subsidies, it must be able to build a nationwide network in an unhindered manner,” says G R Gopinath, founder, Air Deccan.

In other words, smaller airlines want one licence with permit to operate flights across the country rather than limiting their scope to the UDAN scheme.

Analysts, however, say the regional business is skewed against smaller players, with under 20 aircraft. According to a Ficci-KPMG report, while regional routes are profitable on a 48 to 78 seater, those flying smaller planes will have to carry out at least six flights a day, and supplement revenues with charter operations to become profitable.

It’s a different story for larger airlines. SpiceJet CEO Ajay Singh says: “We have chosen routes which should have flight connectivity in any case, like Delhi-Kanpur and Delhi-Jalandhar. We did not even ask for viability gap funding. With a three-year exclusivity and the economies of scale of operations that we have, we will surely make money.” SpiceJet points out that the concessions given under the scheme adds up to 7-8 per cent of its operating costs.

Turo Megha, which picked up 18 routes under UDAN, too, says that the business is viable: “We expect to make money at a 77 per cent passenger load factor within one year,” says a company spokesperson. Other scheduled carriers are equally upbeat. IndiGo, which has ordered over 50 ATRs, is looking to bid for the second round of UDAN routes.

Smaller airlines, meanwhile, are yet to give wings to their dreams. Routes won