Bridging The Skies: The Success And Challenges Of UDAN-RCS (2017) – IMPRI Impact And Policy Research Institute

Policy Update
Armaan Rawat

Introduction 

The UDAN (Ude Desh Ka Aam Nagrik) – Regional Connectivity Scheme is a central government policy aimed at improving regional connectivity and airport infrastructure. Its main focus is on providing air travel to remote, unserved and underserved areas. By improving connectivity, the scheme aims at promoting tourism, fostering economic growth and providing better access to relatively obscure locations. It also aspires to make air travel affordable for the common citizens. The first phase of the scheme was launched in 2017, and since then 4 other phases have been launched.

Background 

In 2016, India had over 135 million air passengers, making it the tenth-largest civil aviation market at the time. While the sector was growing at a breakneck pace, there was an uneven development of airport infrastructure and air travel, which was concentrated in the metropolitan cities.

In order to bridge this gap and to leverage the growing demand for air travel, the UDAN-RCS was launched in 2016, as part of the broader National Policy on Civil Aviation (2016) by the Ministry of Civil Aviation. It aims for the dual objectives of increasing the growth of the aviation industry, and to make flying accessible to the masses by reducing airfare costs, reviving and building airport infrastructure and by opening new air routes for travel.

Functioning and Performance

The salient features of the scheme are as follows – 

1. The Regional Connectivity Scheme – UDAN is designed to enable air operations on underserved / unserved routes connecting regional areas, promote balanced regional growth and make flying affordable for masses.
2. Financial incentives in terms of concessions/subsidies from the Central, State Governments and airport operators are extended to selected airline operators to encourage operations from unserved/underserved airports/heliports/water aerodromes and to keep the air fare affordable. Fares are to be capped at Rs. 2500 for one hour flights.
3. Financial Support to the Selected Airline Operators is in the form of Viability Gap Funding (VGF). State Governments provide 20% share towards VGF for RCS flights pertaining to their states. However, the share of VGF for North-Eastern states and the Union Territories is 10%.
4. Excise Duty at the rate of 1% / 2% is levied on Aviation Turbine Fuel (ATF) drawn by Selected Airline Operators at RCS Airports for RCS Flights for a period of three (3) years from the date of commencement.
5. Airlines are required to commit a certain number of seats as RCS seats, depending on the type and size of aircraft on RCS flights.
6. Regional Connectivity Fund (RCF) is created by a levy on each departure of flights on aircraft having a MTOW (Maximum Take-Off Weight) above 40 Tonnes. The RCF is created by a levy on the departure of flights on routes in the North-East Region, Himachal Pradesh, Uttarakhand, Union Territories of Jammu & Kashmir, Ladakh, Andaman & Nicobar Islands and Lakshadweep Islands.
7. For balanced regional growth, route allocations are spread equitably across five regions in the country, viz. North, South, East, West, and North East (with a cap of 30% in a given region).
8. RCS-UDAN is a market driven scheme. Interested airlines based on their assessment of demand on particular routes can submit proposals at the time of bidding under RCS – UDAN.
9. Tenure of the Scheme: The scheme to be applicable for a period of 10 years, subjected to periodic review and VGF support for the RCS route is available for a period of three years only. 

More recently, the Government has announced its intentions to continue the program for another 10 years.

UDAN-RCS has seen 5 phases since its inception. The performance of the first 4 phases can be summarised as the following – 

Phase 1 of the scheme focused on connecting unserved and underserved regions. 36 new airports were commissioned, and 5 airline companies were awarded 128 air routes to 70 airports. The first UDAN flight was inaugurated on April 27, 2017 from Shimla to Delhi.

Phase 2 saw an expansion of the existing network, as 73 more unserved and underserved airports were announced. Airlines were awarded 325 new air routes, and for the first time helipads were also connected.

Phase 3 on the other hand focused more on the promotion of tourism, as tourism routes were created, in coordination with the Ministry of Tourism. Under phase 3, 235 new routes were awarded (189 RCS routes and 46 tourism routes), and 33 new unserved and underserved airports were announced. Six water aerodromes were also covered under this scheme, along with more routes in the North-east.

Phase 4 of the scheme focused on enhancing connectivity and operationalization of routes, with a special impetus given to the hilly states, North-East and the islands. Phase 4.0 saw the approval of 78 new air routes, while Phase 4.1 was focused on connecting smaller airports.

Phase 5 – 2023 Onwards

Phase 5, launched in 2023 focuses on improving last mile connectivity and access to remote places. Phase 5.0 of UDAN focused on Category-2 (20–80 seats) and Category-3 (>80 seats). The earlier stage length cap of 600 km was waived off and there is no restriction on the distance between the origin and destination of the flight. Viability gap funding (VGF) to be provided was capped at 600 km stage length for both Priority and Non-Priority areas, which was earlier capped at 500 km.

Phase 5.1 on the other hand, was focused entirely on helicopter routes. There was an increase in the scope of operations for operators, wherein the scheme will now allow routes where only one of the origin or destination locations is in a priority area. Earlier, both points had to be in priority areas. Airfare caps were reduced by as much as 25% to make flying in helicopters more affordable for passengers. Viability Gap Funding (VGF) caps for the operators were increased substantially for both single and twin-engine helicopters to enhance financial viability for operating the awarded routes. 

Phase 5.2, focused on small aircraft (Category 1 and 1A planes) which carry less than 20 passengers to improve connectivity to remote regions. Under this, 22 new routes were awarded. Phase 5.3, was announced in January 2024, and is ongoing. This phase focuses on the routes that were discontinued and whose awards had been cancelled by the Ministry. 

Impact of the UDAN Scheme

1. Since the start of the scheme, the number of operational airports in India have increased to 157 (as of August 2024). Similarly, India is now the third-largest domestic aviation market (from 10th in 2016) and the aviation sector in India has shown substantial growth, with a 15 per cent YoY increase in total air passengers handled at Indian airports reaching 37.6 crore in FY24 (from 13.5 crore in 2016). The scheme has also led to an increase in demand for new aircraft as well. Therefore, UDAN-RCS has led to remarkable growth in the sector, even with the impact of the COVID-19 pandemic.
2. 583 RCS routes have so far been operationalised, connecting 86 airports, including 13 heliports & 2 water aerodromes. This is especially important, as it connects many tier-3 and tier-4 cities and remote areas, which were earlier unserved or underserved.
3. Over 1.4 crore passengers have availed the benefits of this scheme, and more than 280,000 flights have been operated under this scheme. The scheme has been quite successful in improving access to air travel for the common man.
4. Rs 4500 Crores have been allocated for the development of airports in the country under the Scheme, out of which Rs. 3751 Crores have been utilized since its inception. Rs. 3,587 crore have also been disbursed to various airlines as VGF. 
5. The UDAN scheme has also had a positive impact on tourism as it connected destinations such as Khajuraho, Deoghar, Amritsar, and Kishangarh (Ajmer), which have substantial relevance in religious tourism. The tourism sector in the North-East has also shown an upsurge in tourism due to the improved connectivity and development of airports under this scheme.

Emerging Issues

Despite the positive impact, some major issues have emerged with the UDAN-RCS scheme – 

1. Low Occupancy and Demand – Low occupancy and low demand on many routes is the primary problem faced by the UDAN-RCS scheme. The mismatch between supply and demand raises important questions about the long-term sustainability of the scheme. 
2. Financial Sustainability of Air Routes – One of the major challenges under the UDAN-RCS scheme is the financial sustainability of air routes. Airlines are generally operating on thin margins due to the price cap on airfares for UDAN routes, which affects profitability. Low-demand routes, with fewer passengers, have become unsustainable for airlines to run. In 2023, out of 489 total air routes, 225 (46%) have ceased operations, while the rest have been shutdown by airlines. Even with the subsidies, these routes are still financially unviable. The CAG in its 2023 report also noted – “Up to UDAN-3, 52 per cent (403 out of 774 routes) of the awarded routes could not commence operations and from the 371 commenced routes, only 112 routes (30 per cent) completed the full concession period of three years. Further, out of these 112 routes, only 54 routes (i.e., 7 per cent of the awarded routes) connecting 17 RCS Airports could sustain the operations beyond the concession period of three years, as of March 2023.”
3. Airport Infrastructure – Issues with airport infrastructure is another major concern in this scheme, as many airports, especially in rural areas, lack proper infrastructure, trained staff and facilities like enough hangars, belts, fuel stations and runways which impede their functioning. As the number of passengers rises, inadequate airport infrastructure is bound to cause more delays and expenses. Infrastructure constraints also hinder overall accessibility. There have also been issues with shutting down of airports, as 15 airports have fallen into disuse (till 2023) due to the aforementioned reasons.
4. Lack of Awareness – The scheme also suffers from a lack of awareness among passengers about how to book UDAN-RCS on regional routes, as there is no dedicated platform for booking tickets. This in turn also affects the accessibility of the scheme, especially for those who are not as digitally literate.

Increased cancellation of UDAN flights, high ticket prices for consumers on low demand routes and a decline in the overall number of flights operated under the scheme are indicative of the above-mentioned problems.

Way Forward

In order for the scheme to be successful in the future, certain policy changes have to be implemented – 

1. Funding Model – Changes must be made to the funding structure of the scheme, to move beyond the VGF model. Public-Private Partnerships (PPP) and other revenue-sharing models can be considered, to encourage investment in infrastructure and connectivity. PPP models have been shown to be successful in building airport infrastructure in Delhi and Mumbai, and such models can be adopted for airports built under the RCS-Scheme. 
2. Airports – There needs to be a renewed focus on investment in airport infrastructure and facilities, especially in smaller towns. As mentioned earlier, collaboration with private investors can help expedite the development of infrastructure and technology. The CAG also recommends developing a better mechanism for identification of airports for revival/development, which should be devised for sustained operations based on a feasibility study. Budget estimates for RCS airports should be reviewed, based on ground realities and workable timetables.
3. Route Sustainability – A more nuanced approach must be taken to solve the issue of low passenger demand and route sustainability. The CAG recommends creating mechanisms to assess the feasibility of routes for achieving sustainability of operations in the long run and for identification of unserved/underserved airports, based on factors like the stage length, availability of alternate  mode of transportation, terrain, socio-economic scenario and tourism potential, etc. More tax incentives or subsidies on maintenance/repair costs can also be provided to reduce operating costs for airlines on these routes.

Conclusion 

UDAN-RCS has been pivotal in democratising air travel in India, and has contributed to the major growth of the civil aviation sector. However, as the scheme moves into its fifth phase, it must focus on the issues of sustainability of routes and operations, low passenger demand and infrastructure development. By focusing on these key areas and adopting suitable policy measures, UDAN-RCS can come closer to achieving its vision of “Ude Desh ka Aam Nagrik”

References

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About the Author: Armaan Rawat is a research intern at the Impact and Policy Research Institute, pursuing a B.A. Honours in Political Science at Kirori Mal College. His interests include public policy, policy research, analysis and public administration.

Acknowledgement: The author would like to thank Aasthaba Jadeja, Stuti and Sumit Dahiphale for their valuable contributions.

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