UDAN takes off: 50% seats of 1-hour flights at Rs 2,500

These subsidised fares will be funded through a levy or fee on departure flights on major routes, a plan opposed by major airlines.

By: ENS Economic Bureau | New Delhi | Updated: October 22, 2016 1:52 am
Domestic airlines, Airfares, UDAN, regional connectivity scheme, connectivity scheme, govt scheme airlines, latest news, indian express, india news Civil Aviation Minister P Ashok Gajapathi Raju with MoS Jayant Sinha in New Delhi. (Source: Express photo by Prem Nath Pandey)

The government on Friday announced the final Regional Connectivity Scheme (RCS) under which fares will be capped at Rs 2,500 for half of the seats in one-hour flights. These subsidised fares will be funded through a levy or fee on departure flights on major routes, a plan opposed by major airlines. The exact quantum of levy to be imposed would be decided in the next few days.

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The scheme — ‘UDAN’ or Ude Desh ka Aam Naagrik — envisages providing connectivity to un-served and under-served regional airports for the common man at affordable prices. Civil aviation minister Ashok Gajapathi Raju said the first flight under the scheme is expected to take off in January 2017. The cap on fares on RCS routes would be reviewed periodically based on inflation rate, price of aviation turbine fuel and foreign exchange rates. The UDAN scheme will be based on market mechanism as well as bidding for a minimum of 50 per cent seats in the participating airline’s flight and the rest would be market-based pricing. Helicopter services too can be part of the scheme.

Bidding of seats will be done through a reverse auction basis, which means the airline quoting lowest subsidy will
be allowed to fly. “The successful bidder would have exclusive rights to operate the route for a period of three
years. The support would be withdrawn after that as the route is expected to become self sufficient by then,” civil
aviation secretary Rajiv Nayan Choubey said.

Under the scheme, fare for a one-hour journey of around 500-km on a fixed wing aircraft or a 30-minute journey on a helicopter would be capped at Rs 2,500, with proportionate pricing for routes of different lengths and flight durations. On each RCS route, the minimum frequency of flights would be 3 and a maximum of 7 in a week. Choubey said that interested entities can submit their proposals to be part of the scheme from today. The government also plans to spend around Rs 4000 crore rupees on upgrading 50 un-served and under-served airports to support the scheme and boost regional air connectivity. At present, there are almost 400 un-served airports and airstrips, and 16 under-served airports in the country.

The airline operator flying under the scheme will have to provide half the seats of the flight–minimum of nine and maximum of 40–in fixed-wing aircraft at a price lower than the specified cap for that sector. The remaining seats can be sold at market rates. The government will provide subsidy for 50 per cent of the seats, irrespective of whether these are sold or not.

Raju said the Centre wants the scheme to be economically viable over a sustained period of time. “You can have non-functional airports but not non-functional airlines,” he said. To attract carriers, financial viability support and concessions are being offered to them on flights operated to and from RCS airports. While the viability support is being offered for three years, the tenure of the scheme is 10 years. Apart from viability gap funding, the Centre will support the scheme by keeping the rate of excise duty levied on jet fuel bought from regional airports at just 2 per cent against, which is significantly lower than the 14 per cent charged across all other airports. The government will also give a service tax exemption on 90 per cent of the taxable value of tickets of flights for one year.

States that join the scheme will levy VAT on jet fuel at the rate of just 1 per cent or less at airports falling under the scheme.

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