India launches Regional Connectivity Scheme

India's Civil Aviation Minister Shri P Ashok Gajapathi Raju launched (21-Oct-2016) the Ministry's Regional Connectivity Scheme (UDAN) (Ude Desh Ka Aam Naagrik) on 21-Oct-2016, aimed at developing the regional aviation market. It is a market-based mechanism in which airlines bid for seat subsidies with the aim of creating "affordable yet economically viable and profitable flights on regional routes so that flying becomes affordable to the common man even in small towns." The aim is for the scheme to become effective by Jan-2017, calling for support "from all players to make it a success." Minister of State for Civil Aviation Shri Jayant Sinha said the scheme should "ensure affordability, connectivity, growth and development. It would provide a win-win situation for all stakeholders - citizens would get the benefit of affordability, connectivity and more jobs. The Centre would be able to expand the regional air connectivity and market. The state governments would reap the benefit of development of remote areas, enhance trade and commerce and more tourism expansion. For incumbent airlines there was the promise of new routes and more passengers while for and start-up airlines there is the opportunity of new, scalable business. Airport operators will also see their business expanding as would original equipment manufacturers". Details are as follows:

• Aim: The scheme envisages providing connectivity to unserved and underserved airports of the country through revival of existing airstrips and airports;
• Time period: The scheme would be in operation for a period of 10 years;
• Market-based model: UDAN has a market-based model to develop regional connectivity. Interested airline and helicopter operators can start operations on hitherto unconnected routes by submitting proposals to the implementing agency. The operators could seek a Viability Gap Funding (VGF) apart from getting various concessions. All such route proposals would then be offered for competitive bidding through a reverse bidding mechanism and the route would be awarded to the participant quoting the lowest VGF per Seat. The operator submitting the original proposal would have the Right of First Refusal on matching the lowest bid in case his original bid is within 10% of the lowest bid. The successful bidder would then have exclusive rights to operate the route for a period of three years. Such support would be withdrawn after a three year period, as by that time, the route is expected to become self-sustainable;
• Seat provisions: The selected airline operator would have to provide a minimum of nine and a maximum of 40 UDAN Seats (Subsidised rates) on the UDAN services for operations through fixed wing aircraft and a minimum of five and a maximum of 13 seats on services for operations through helicopters. On each such route, the minimum frequency would be three and maximum of seven departures per week. Route networks would also be encouraged under the scheme to achieve economies of scale and optimal usage of aircraft;
• Fares: According to the proposal, the "fare for a one hour journey of appx. 500km on a fixed wing aircraft or for a 30 minute journey on a helicopter would now be capped at INR2500, with proportionate pricing for routes of different stage lengths / flight duration";
• Financial stimulus: Low fares would be achieved through a financial stimulus in the form of concessions from Central and State governments and airport operators and a Viability Gap Funding to the interested airlines to launch operations from such airports so that the passenger fares are kept affordable. Details of incentives for the services are as follows:
• • Central Government would provide concessions in the form of reduced excise duty, service tax, permission to trade ASKMs for Non-RCS (UDAN) Seats and flexibility of code sharing at the RCS (UDAN) airports.
  • State governments will have to lower the VAT on ATF to 1% or less, besides providing security and fire services free of cost and electricity, water and other utilities at substantially concessional rates.
  • Airport operators shall not impose Landing and Parking charge and Terminal Navigation Landing Charges in addition to discounts on Route Navigation Facility Charges;
• Fund: A Regional Connectivity Fund would be created to meet the viability gap funding requirements under the scheme. The RCF levy per departure will be applied to certain domestic services;
• State government partnerships: The partner State Governments (other than North Eastern States and Union Territories where contribution will be 10%) would contribute a 20% share to this fund. For balanced regional growth, the allocations under the scheme would be equitably spread across the five geographical regions of the country ie North, West, South, East and North-east. The selection of airports where UDAN operations would start would be done in consultation with State Government and after confirmation of their concessions. [more - original PR] [more - original PR - Policy]