UDAN takes off with down-to-earth fares

FLY EASY Levy from flights on key routes to fund scheme

NEW DELHI: The government on Friday launched its ambitious regional connectivity scheme UDAN (Ude Desh Ka Aam Naagrik), which it hopes will boost air travel between smaller cities by capping fares to regional airports at `2,500 for a one hour flight.

The first flight under the scheme is likely to take off in January next year .

The scheme provides for a fare cap for fixed-wing planes and helicopters (see graphic).

The government has said it will provide a viability gap funding (VGF) or financial support of up to `5,610 per seat to airlines to ensure that cost of operations is met. To fund the scheme, a regional connectivity fund would be created by imposing a levy per departure on domestic flights on key routes. The levy, which would help raise `500 crore annually, would, however, result in a hike in passenger fares and airlines have already threatened to move court against the new charge.

Civil aviation secretary RN Choubey said the rules related to the levy will be announced in a couple of days. The levy would be very small, Choubey added. “This is first-of-its-kind globally... We are doing something not done anywhere else,” minister of state for civil aviation Jayant Sinha said.

Opposing the levy, SpiceJet chairman and MD Ajay Singh said the government should fund the scheme from its own budget. “When you build a railway station it is not that you start penalising passengersforthatstation.Sowhen you launch a scheme of this sort, perhaps the government needs to fund it from its budget instead of imposing more tax on consumers,” Singh said.

The government will conduct a reverse bidding whereby the operator seeking the lowest VGF would be granted the right to operate services on a route. The selected airline operators shall be granted exclusivity of operations for a three year period during which no other airline would be allowed to operate flights on that route.

The Centre and state government would offer support by reducing excise duty, lower the VAT to 1% on ATF, provide land, security and fire services free of cost while airport operators shall not levy landing or parking charges on UDAN flights. The government hopes the incentives will help airline earn 16% return on their investments.

To be eligible for VGF, an operator would need to fly to at least one un-served or underserved airport. While an un-served airport is one which has no scheduled commercial flight operations an underserved airport is one which has no more than seven scheduled commercial flights per week.