REACH­ING FOR THE RE­MOTE

The gov­ern­ment led by Prime Min­is­ter Naren­dra Modi came up with the UDAN scheme with the aim of tak­ing avi­a­tion to the re­mote re­gions and smaller cities of the coun­try.

SP's Airbuz - - Table of Contents - BY JOSEPH NORONHA

IT IS NOW WELL known that In­dia is the world’s third largest do­mes­tic avi­a­tion mar­ket and is set to be­come the third largest over­all in the next few years. But try telling that to some­one in a town or a re­mote re­gion and you will draw a blank stare. Be­cause, if a trav­eller needs to make an ur­gent visit to an ail­ing rel­a­tive in a dis­tant place, he or she has to en­dure a slow sur­face jour­ney to reach the near­est metro or large city and catch a flight. The flight would prob­a­bly land at an­other large city where yet an­other te­dious rail or road jour­ney would be re­quired to reach the fi­nal des­ti­na­tion. As a re­sult, the main rea­son for air travel is de­feated.

Out of 130 crore In­di­ans, just three crore fly an­nu­ally and about 65 per­cent of these re­side in the six met­ros or travel di­rectly be­tween them. How­ever, peo­ple would nat­u­rally pre­fer to fly from their own lo­ca­tion rather than travel to an­other city to catch a flight. In many coun­tries, re­gional car­ri­ers spe­cialise in con­nect­ing re­mote des­ti­na­tions with the near­est metro, but in In­dia they are con­spic­u­ous by their ab­sence. Suc­ces­sive gov­ern­ments have strug­gled over the years to dis­trib­ute avi­a­tion ser­vices more broadly, yet even the com­pre­hen­sive 2007 pol­icy on sched­uled re­gional op­er­a­tions, failed. Sev­eral air­lines that ven­tured to launch re­gional ser­vices, came a crop­per, some within a mat­ter of months, leav­ing only the main­line car­ri­ers to oc­cupy the re­gional space.

That is why the gov­ern­ment led by Prime Min­is­ter Naren­dra Modi came up with the UDAN (Ude Desh Ka Aam Na­grik) scheme with the aim of tak­ing avi­a­tion to the re­mote re­gions and smaller cities of the coun­try. UDAN UN­LEASHED. The am­bi­tious Re­gional Con­nec­tiv­ity Scheme (RCS) UDAN was in­tro­duced in Oc­to­ber 2016 and its first flight was launched in April 2017. UDAN seeks to make it com­mer­cially vi­able for car­ri­ers to op­er­ate on re­gional routes while lim­it­ing the fares for some seats to make them af­ford­able. Each UDAN flight is re­quired to ear­mark a min­i­mum of nine and max­i­mum of 40 low-priced seats (re­stricted to 50 per­cent of the air­craft’s ca­pac­ity) and the op­er­a­tor may de­cide fares for the re­main­ing seats. The UDAN fare for a one-hour jour­ney on fixed-wing air­craft ( half an hour on he­li­copters) is capped at Rs 2,500 with

pro­por­tion­ate pric­ing for routes of other du­ra­tion. Oper­a­tors get var­i­ous con­ces­sions, plus Vi­a­bil­ity Gap Fund­ing (VGF) sup­ported mainly through a levy of Rs 5,000 per flight by reg­u­lar car­ri­ers, on key metro routes. The cen­tral gov­ern­ment pro­vides 80 per­cent of the VGF cor­pus, while the states con­trib­ute 20 per­cent, drop­ping to ten per­cent for the North-Eastern states and union ter­ri­to­ries.

In the first round of bid­ding un­der RCS, five oper­a­tors were al­lot­ted 128 routes con­nect­ing 70 air­ports, out of which 31 were un­served and 12 were un­der-served. How­ever, only 15 routes could be ac­ti­vated by the stip­u­lated dead­line of Septem­ber 30, 2017. Air Dec­can and Air Odisha that bagged the lion’s share of routes were not ready to com­mence op­er­a­tions by this date. Be­sides, the Air­ports Author­ity of In­dia (AAI) could not make many of the ear­marked air­ports op­er­a­tional in time. Air Dec­can launched its first flight on De­cem­ber 23, 2017, while Air Odisha did so only on Fe­bru­ary 17, 2018. As of June 2018, only 16 out of the planned 31 un-served air­ports and 60 out of 128 routes have been ac­ti­vated. The re­main­ing 15 air­ports are ex­pected to be ready by the end of July this year.

In the sec­ond round of bid­ding un­der RCS, re­sults of which were an­nounced on Jan­uary 24, 2018, 325 routes were awarded to 15 oper­a­tors con­nect­ing 78 air­ports, of which 29 were un-served. Out of these routes, 129 were in a newly cre­ated ‘pri­or­ity ar­eas’ cat­e­gory that in­cludes the re­mote states. A heart­en­ing fea­ture is that as many as 31 he­li­pads will also be con­nected, thus bring­ing sev­eral re­mote places into the avi­a­tion main­stream. Al­though the routes are re­quired to be ac­ti­vated within six months, sev­eral un­served air­ports are yet to be made op­er­a­tional, which will re­sult in de­layed im­ple­men­ta­tion of this round too. Con­se­quently, fur­ther rounds of bid­ding are likely to be de­ferred.

There is a huge jump in the VGF from about Rs 213 crore per an­num for the first round to around Rs 620 crore for the sec­ond. How­ever, it is note­wor­thy that air­lines such as Spice­Jet and IndiGo bid to op­er­ate flights with­out claim­ing VGF. NA­TIONAL OR RE­GIONAL?. Most car­ri­ers in­tend to ex­pand their re­gional fleets in the com­ing years. Spice­Jet, an en­thu­si­as­tic sup­porter of UDAN from the start, al­ready has 23 Bom­bardier Q400 tur­bo­props which are mostly de­ployed on re­gional routes. It has placed a firm or­der for 25 ad­di­tional Q400 air­craft plus op­tion for 25 more. IndiGo leads the pack with 40.9 per cent do­mes­tic mar­ket share in May and has signed a term sheet for 50 ATR 72-600 planes val­ued at $1.3 bil­lion at list prices. About ten of these are al­ready fly­ing on re­gional routes. Jet Air­ways has 15 ATR 72-500 and three ATR 72-600 air­craft; Air In­dia has three ATR air­craft; its re­gional sub­sidiary Al­liance Air op­er­ates two ATR 42-300s and 14 ATR 72-600s and plans to reach 20 air­craft by De­cem­ber. Re­gional air­craft en­joy low fuel taxes, very low air­port charges and other ben­e­fits un­der UDAN.

While it is apt to re­joice that avi­a­tion is fi­nally reach­ing the re­mote re­gions, UDAN may have the un­in­tended con­se­quence of dis­tort­ing the re­gional avi­a­tion mar­ket. Re­call that the scheme was de­signed mainly to as­sist cash-strapped re­gional car­ri­ers, char­ter oper­a­tors and small start-ups to launch ser­vices on unattrac­tive routes. If most of the routes are awarded to the big play­ers, what ef­fect will it have on the min­nows? Al­though un­re­lated to the RCS, since June 2016, Air Pe­ga­sus, Air Costa and Air Car­ni­val have ceased op­er­a­tions due to fi­nan­cial dif­fi­cul­ties. This leaves TruJet as the sole re­gional air­line cur­rently with three ATR 72-500 and two ATR 72-600 air­craft. Bel­gaum-based start-up Star Air plans to launch UDAN op­er­a­tions shortly us­ing two Em­braer ERJ-145 re­gional jets. Air Dec­can and its strate­gic part­ner Air Odisha pos­sess the sched­uled com­muter op­er­a­tor (SCO) per­mit to fly on re­gional routes and plan to op­er­ate a com­bined fleet of twelve 19-seat Beechcraft B-1900D air­craft. How­ever, their RCS plans are well be­hind sched­ule due to the de­lay in readi­ness of sev­eral hith­erto un-served re­gional air­ports. RE­GIONAL AVI­A­TION – GROW­ING AND YET… Be­tween 2011 and 2017, In­dia’s do­mes­tic pas­sen­ger traf­fic nearly dou­bled to 117 mil­lion pas­sen­gers. It is es­ti­mated that the first two rounds of bid­ding un­der UDAN may add an­other four to five per­cent to the to­tal do­mes­tic pas­sen­ger traf­fic and the fig­ure is likely to rise fur­ther as the scheme ex­pands in scope and cov­er­age. But in the eu­pho­ria over this im­pres­sive growth, the huge chal­lenges ahead should not be un­der­es­ti­mated, es­pe­cially con­strained air­port ca­pac­ity. A short­age of pi­lots for small re­gional air­craft is also an emerg­ing prob­lem.

The al­ready creaky air­port in­fra­struc­ture, with flight slots and air­craft park­ing bays scarce at sev­eral air­ports, will be fur­ther stretched and will in­evitably in­hibit re­gional op­er­a­tions. Pri­vate air­ports are look­ing for prof­its and are there­fore some­what un­en­thu­si­as­tic about re­gional flights that bring them lit­tle or no rev­enue. The Min­istry of Civil Avi­a­tion has al­ready ex­pressed its help­less­ness in en­sur­ing slots at Mum­bai air­port for flights un­der RCS. There­fore, an­a­lysts be­lieve that more air­port ca­pac­ity needs to be quickly cre­ated to make UDAN sus­tain­able. Con­se­quently, the an­nounce­ment in the Union Bud­get for 2018-19 of the new NABH-Nir­man scheme that tar­gets a five-fold in­crease in ca­pac­ity at 124 AAI air­ports within ten years is to be wel­comed.

The first two rounds of bid­ding un­der UDAN will ul­ti­mately con­nect 56 un-served re­gional air­ports and 31 he­li­pads across In­dia, rep­re­sent­ing a re­mark­able in­crease in the 76 air­ports ac­tive be­fore UDAN. How­ever, with per­haps 300 dis­used or aban­doned re­gional air­ports still wait­ing to be con­nected, be­sides scores of Green­field air­ports, the cap­i­tal ex­pen­di­ture needed to im­prove avi­a­tion in­fra­struc­ture over the next two decades, is es­ti­mated at a mas­sive Rs three to four lakh crore.

As for re­gional air­craft, only 12 per­cent of the in­dus­try’s fleet can cur­rently op­er­ate on re­gional routes and their num­ber needs to be raised rapidly. Run­ways at most of the re­gional air­ports are in­ad­e­quate even for ATR or Q400 tur­bo­props, leave alone re­gional jets. How­ever, the Beechcraft B-1900D favoured by Air Dec­can and Air Odisha may be a good op­tion to speed­ily ex­pand re­gional ser­vices. Hin­dus­tan Aero­nau­tics Lim­ited (HAL) is also adapt­ing its 19-seat Dornier Do-228 mil­i­tary air trans­port for civil­ian re­gional con­nec­tiv­ity. Lastly, the in­dige­nous 19-seat Saras (Crane) is com­menc­ing a pro­posed 25 test flight sched­ule and prom­ises to be 20 to 25 per­cent cheaper than sim­i­lar air­craft pro­cured from abroad. When Saras en­ters ser­vice, hope­fully within a cou­ple of years, it would pro­vide a home-grown an­swer to the re­gional avi­a­tion riddle.

IN THE EU­PHO­RIA OVER IM­PRES­SIVE GROWTH, THE HUGE CHAL­LENGES AHEAD SHOULD NOT BE UN­DER­ES­TI­MATED, ES­PE­CIALLY CON­STRAINED AIR­PORT CA­PAC­ITY

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