Airfares as well as the government subsidy for airlines under the regional air connectivity scheme will be revised every three months depending on inflationary trends.
The scheme — UDAN (Ude Desh ka Aam Naagrik) — provides for cap on air ticket prices and viability gap funding (VGF) for the participating carriers.
The Civil Aviation Ministry has said caps on air ticket prices and VGF under the scheme would be revised on a quarterly basis. While airfares would be linked to inflation, VGF would be decided after taking into consideration inflation, cost of aviation turbine fuel and the rupee-dollar exchange rate.
UDAN, that seeks to connect un-served and under-served airports as well as make flying more affordable, kicked off with the first flight taking off last month from Shimla to the national capital.
“Both airfare and VGF caps will be revised on a quarterly basis.
“While the airfare cap will be indexed to inflation, the VGF caps as well as VGF amounts determined for specific routes will be indexed to ATF prices and exchange rate of INR vis-a-vis USD in addition to inflation,” the Ministry said.
The clarification has been provided by way of a set of Frequently Asked Questions (FAQs) about the scheme. The quarterly revision would “ensure that all the factors that impact the cost of operations of an airline are taken into consideration while determining VGF”.
Airline operators who have been granted routes under the scheme need to set aside 50 per cent of the aircraft capacity for discounted fares.
Under UDAN, air ticket prices are capped at Rs 2,500 per hour and for keeping the fares low for select number of seats, subsidy would be extended to the participating carriers in the form of VGF apart from other incentives.
Last month, Air India’s subsidiary Alliance Air launched the first RCS flight on the Delhi-Shimla-Delhi route. Five airlines won bids to operate on 128 routes connecting 70 airports, of which 31 are un-served under UDAN. The government is likely to carry out bidding for the second phase of RCS within the next three months.