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UDAN scheme: 11 airlines submit bids for regional flights

Livemint:  January 20, 2017

New Delhi: The government has received bids from 11 air transport operators for its scheme to start subsidized fights to remote and unconnected airports, junior aviation minister Jayant Sinha said Thursday.

The eligible airlines for the UDAN scheme are chosen through a process of reverse bidding. Fares are capped, and the airlines get a government subsidy and tax incentives for starting these flights.

Monday was the deadline for submitting bids to Airports Authority of India (AAI), which is managing UDAN.

Sinha, who met reporters on Thursday to provide updates on the progress of the scheme, did not name these 11 airlines, but a government official aware of the matter said most bids have come from charter or unscheduled operators.

“There are 6-7 bids from them; rest from (other) airlines,” this official said, asking not to be identified.

Air India, SpiceJet Ltd and TruJet, which have small aircraft ideal for regional flights, are among those who have put in bids, he added.

Vistara, IndiGo and GoAir do not have small planes.

Counter-bids on the current bids are expected to be placed in the coming days, after which routes will be awarded for a period of three years, Sinha told reporters.

Nearly 43 airports, which do not receive flights, could get them under the new scheme over time, Sinha said, taking the number of operational airports from the current 75 to 118. These include 21 airports in north India, 16 in the south, 32 in the west, 12 in the east and 11 in the north-east.

“Most airlines have bid for it,” Sinha said, adding “UDAN is a step change for Indian aviation”. The first flight he said could start as early as February.

Air India has started flying to Bhatinda, Punjab, and Kanpur in Uttar Pradesh under UDAN scheme after a temporary approval from aviation ministry, Mint reported on 13 December.

UDAN, the regional aviation scheme which will be in operation for 10 years, envisages providing connectivity to unserved and underserved cities and towns by reviving existing airstrips and airports.

This would be achieved by providing financial stimulus in the form of central and state government concessions, as well as viability gap funding for interested airlines to kick off operations while ensuring passenger fares are kept affordable.

The fare for a one-hour journey of about 500km on a fixed wing aircraft or a 30-minute journey on a helicopter will be capped at Rs2,500, with proportionate pricing for routes of different lengths and duration.

However, many airlines like IndiGo, SpiceJet, GoAir and Jet Airways have gone to court against the levy imposed by the government on existing flights to fund UDAN. Since the levy was introduced by the government in December, only one airline has deposited UDAN cess to AAI.

Replying to a question on how he plans to resolve this stalemate, Sinha said it will be in the interest of everyone to jump-start this scheme. He said his ministry was in talks with airlines but also added the government has other tools to use if things don’t change, without elaborating.

Many regional airlines have failed in the last decade. These include Paramount Airways, Air Mantra and MDLR Airlines. To be sure, they did not enjoy government support then.

New York based former Jet Airways (India) CEO Steve Forte said profits on such routes are tough.

“I would be curious to know who will bid for these routes because clearly, underserved or not-served routes are not profitable,” Forte said, adding, “It actually may be a good opportunity for entrepreneurs to start a new regional LCC (low-cost carrier). Time will tell.”

Sinha said this was only the first round of bidding since the policy was cleared only late last year.

The model, he said, will mature and evolve over time.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.