UDAN VERY POS­I­TIVE FOR GROWTH

The on­go­ing ef­forts of the In­dian Gov­ern­ment to de­velop re­gional avi­a­tion will have a very pos­i­tive im­pact on the eco­nomic and so­cial devel­op­ment of the coun­try

SP's Airbuz - - Table Of Contents - BY TOM AN­DER­SON, ATR —The writer is Se­nior Vice Pres­i­dent, Com­mer­cial and Customer Sup­port, ATR

AIR CON­NEC­TIV­ITY CAN FOL­LOW the devel­op­ment of the econ­omy, but most im­por­tantly, it can be a driver that pre­pares the ground for eco­nomic devel­op­ment. It is in­tri­cately cor­re­lated with and con­trib­utes to GDP growth, for­eign di­rect in­vest­ment, em­ploy­ment level, so­cial devel­op­ment and tourism. We ob­serve that air con­nec­tiv­ity has been fol­low­ing sim­i­lar devel­op­ment pat­terns in var­i­ous coun­tries.

Rapid eco­nomic devel­op­ment is ini­tially driven by ma­jor cities, with cre­ation of in­ter­na­tional air­ports, con­nected to­gether. In­dia is no ex­cep­tion and the con­nec­tiv­ity be­tween metro cities is high, with an in­tense com­pe­ti­tion driv­ing air­fares down.

As this devel­op­ment reaches a ma­ture stage, the pace slows down and re­gional con­nec­tions and devel­op­ment are nec­es­sary to sus­tain eco­nomic growth. We typ­i­cally ob­serve the devel­op­ment of hub and spoke mod­els to con­nect large cities to smaller ones. In­dian car­ri­ers sig­nif­i­cantly in­creased ca­pac­ity be­tween met­ros and Tier-II or -III cities and many ac­tu­ally ex­ceed the min­i­mum ca­pac­ity re­quire­ments set in the 1994 Route Dispersal Guide­lines. This needs to ex­tend fur­ther to cre­ate bet­ter con­nec­tions be­tween smaller com­mu­ni­ties.

Now, re­gional con­nec­tiv­ity is be­com­ing paramount. Devel­op­ment path of large coun­tries has his­tor­i­cally taken a de­cen­tralised ap­proach and mar­kets like the United States, Canada, Brazil, Europe, China and Ja­pan have strength­ened their economies by con­nect­ing re­gional cen­tres to­gether rather than only to­wards few main busi­ness hubs. More­over, if there is too much em­pha­sis on con­nect­ing smaller cities to large ones, it can of­ten trans­late into a higher at­trac­tive­ness of the met­ros at the ex­pense of smaller, less de­vel­oped towns.

The new UDAN scheme aims at fa­cil­i­tat­ing and stim­u­lat­ing re­gional air con­nec­tiv­ity by mak­ing it af­ford­able to an in­creas­ing num­ber of In­dian cit­i­zens. This is a very pos­i­tive ini­tia­tive, and a ma­jor guide­line must be to en­cour­age sus­tain­abil­ity of op­er­a­tions in the long-term. In that re­spect, air­craft se­lec­tion will be cru­cial for the suc­cess of the pro­posed scheme.

Large sin­gle-aisle air­craft are ef­fi­cient and of­fer low costs per seat but will be hard to fill on thin mar­kets. Fur­ther­more, they re­quire run­ways, ter­mi­nals and ground sup­port equip­ment that may not be avail­able in smaller air­ports. This will re­sult in se­vere op­er­at­ing losses for the air­lines, with or with­out the sup­port of a Vi­a­bil­ity Gap Fund­ing. Very small com­muter air­craft ( less than 20 seats) may have lower costs per trip but a sub­stan­tially higher cost per seat. Op­er­a­tors fly­ing these air­planes will re­quire a sig­nif­i­cant amount of sub­si­dies — be­yond what is cur­rently pro­posed. In both cases, the main ob­jec­tives of the UDAN scheme — to stim­u­late re­gional con­nec­tiv­ity, make it af­ford­able and sus­tain­able — will be missed.

Un­der the pro­posed UDAN scheme, the ATR 72-600 re­quires less than 30 pas­sen­gers to gen­er­ate a profit, mak­ing it the right equip­ment to de­velop new routes, of­fer pas­sen­gers en­hanced ser­vices and air­lines an ac­cess to new mar­kets. Most im­por­tantly, as de­mand builds up and reaches lev­els ob­served on more ma­ture re­gional routes, ATR air­craft will not re­quire sub­si­dies and the op­er­a­tions will even­tu­ally be­come vi­able with­out any form of gov­ern­ment sup­port.

With about 90 per cent of the In­dian do­mes­tic ca­pac­ity de­ployed on routes serv­ing met­ros and an un­prece­dented growth of the avi­a­tion mar­ket, it is the right time to en­cour­age the devel­op­ment of re­gional air trans­port. Since 2010, ATR air­craft have con­trib­uted to the cre­ation of 100 new routes ev­ery year world­wide. The ATR air­craft have ex­plored new mar­kets, stim­u­lated de­mand and of­fered the right com­ple­ment to larger air­planes at off-peak times. ATR es­ti­mates that 3,000 routes will open and sus­tain­ably de­velop with turboprops over the next 20 years. No doubt many of these will be in In­dia.

This is why the on­go­ing ef­forts of the In­dian Gov­ern­ment to de­velop re­gional avi­a­tion will have a very pos­i­tive im­pact on the eco­nomic and so­cial devel­op­ment of the coun­try. ATR is look­ing for­ward to sup­port at its own level such sus­tain­able growth.

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