UDAN – Boosting Economic Development by Opening the Skies
The UDAN (Ude Desh ka Aam Nagrik) scheme of the Ministry of Civil Aviation completed five successful years. It was initiated in October 2016, and the first flight from Shimla to Delhi under the UDAN scheme was operated in April 2017. Since its inception, this scheme has achieved the following milestones:
- Over one crore passengers have flown on the UDAN flight routes
- 425 new routes have started connecting 68 under-served, and unserved destinations
- 58 airports, eight heliports, and two water aerodromes are now connected via UDAN
- Number of operational airports increased from 74 in 2014 to 141 in 2022
- The UDAN scheme envisages to open 220 airports and to connect 1000 routes by 2026
What is the UDAN scheme?
Our country is the third-largest market in the aviation industry. The primary objective of UDAN is connecting medium and small cities with larger locations via air service. Under this scheme, the fare for a one-hour journey of around 500 km is capped at INR 2500.
Different companies bid for the various routes, and the lowest bidder is awarded the contract. The government will compensate the airline through viability gap funding (VGF) to cover the loss incurred due to lower fares. The Airport Authority of India (AAI) also waives off the airport fees for flights operating under the UDAN scheme. The state governments provide electricity, fire fighting, and security services without any costs.
UDAN has two components. Firstly, the scheme aims to develop new airports and improve existing airports to increase the number of flights. Secondly, UDAN will add a large number of economically viable, capped airfare new routes for greater connectivity between smaller cities.
Business model of the UDAN scheme
Impact of UDAN on Indian Aviation
Till July 2022, 425 routes connecting 68 locations were operationalized under the UDAN scheme. Over 10 million under-deserved or underserved travelers have benefited from affordable air travel to these locations. This number is expected to double and the success of this scheme has resulted in a paradigm shift in how the Indian population views air travel.
Until recently, air travel was reserved for the few elite but with UDAN, air travel is becoming an affordable option for people from all walks of life. As more people opt for air travel, the common populace is contributing to the growth of the aviation industry. It won’t be surprising if air travel overtakes the Indian Railways for volumes in second-class AC and above categories.
Domestic Passenger Traffic (Millions)
In 2016, 65% of the traffic was handled by the top six airports in the country. Since the inception of UDAN, the contribution of non-metro airports has slowly increased in the domestic passenger pie, and several destinations have become emerging as traffic continues to grow at these locations. Some examples are Jagadalpur (Chhatisgarh), Hubli (Karnataka), Shillong (Meghalaya), Jharsuguda (Odisha), and Kishangarh (Rajasthan). This change has significantly reduced the disparity between rural and urban areas.
The UDAN scheme is administered by the Ministry of Civil Aviation. However, it is a collaborative model with active partnerships from the state governments, airlines, and airports. All these stakeholders pool their resources and offer monetary and non-monetary incentives for maximizing benefits.
Airlines are making voluntary contributions for the implementation of this scheme and are operating flights beyond the usual routes using the government incentives available under UDAN. Airports are waiving off certain fees to assist airlines to deliver affordable services. The scheme will increase demand and trigger growth as airlines scout for opportunities that are beyond the metro locations.
Employment – Several opportunities in airport operations, maintenance, air traffic control, and technical staff are created. As a thumb rule, one additional aircraft employs about 100 people.
Tourism – Approximately 46 locations have been identified to boost tourism and agreements on 23 routes are conducted. Some of these destinations include Agra, Goa, Udaipur, and Varanasi, routes like Agartala-Aizole, Dimapur-Imphal, Guwahati-Pakyong, and Shillong-Kolkatta are connected via this scheme. Work for the construction of a water aerodrome at Sabarmati Water Front (Statue of Unity) in Ahmedabad, Nagarjuna Sagar in Telangana, and Tehri Dam in Uttarakhand is under progress. Additional water aerodromes in Andhra Pradesh, Andaman and Nicobar Islands, and Assam are also planned.
Business – According to the International Civil Aviation Organization, improved air services boost economic growth by three percent and employment by six percent. The UDAN scheme has connected smaller locations, which has boosted business growth in these areas. For example, connecting Kishangarh with Ahmedabad, Delhi, Hyderabad, and Indore has resulted in a three percent growth in the city’s marble industry.
Opportunities offered by UDAN
Balanced regional growth – The regional allocation will promote balanced growth and connectivity within the country. Based on the Flight Information Regions, the country will be divided into five regions and have an equitable distribution and enhanced air connectivity.
Passenger growth – Airfares under UDAN are comparable to the three-tier AC rail tickets. Air travel is faster and, when affordable, can have several advantages. With airfares being in line with AC rail tickets, such passengers may migrate to air travel, which not only increases passenger traffic but will also reduce the pressure on the railways.
Investment opportunities – International aviation companies and investors can benefit from the multiple opportunities arising in the Indian aviation industry. Media reports state that almost 100 aircraft have been ordered under the UDAN scheme. The demand for smaller aircraft and helicopters will also increase. This increase in demand will offer several opportunities to international leasing and airline companies. Additionally, 100 percent FDI is allowed in the modernization of existing airports and the development of new airports, which provides several investment opportunities. FDI is also available in other segments, such as air transport services, regional air transport services, and domestic scheduled passenger airlines.
Code sharing – Airlines operating in the UDAN routes can code-share with bigger airlines, which is an arrangement where two or more operators share the same flight. The airline operating the flight is known as the operating carrier. The marketing airline is called a marketing carrier. Both these carriers can sell flight tickets, and airlines can broaden the number of destinations offered without investing in new aircraft.
Until a few years ago, inclusive growth in the aviation industry may have seemed impossible. UDAN has provided a new outlook to the Indian aviation sector and has played an important role in boosting regional development. The scheme has also been resilient when faced with challenges. For example, Lifeline UDAN allowed airlines to transport medical cargo without delays during the COVID-imposed lockdown. Krishi UDAN is another initiative adopting a similar framework where improved cargo logistics at high-potential airports will be used for transporting perishable agricultural produce.
UDAN is designed to ensure air travel benefits are available to every Indian citizen. The scheme’s journey over the last five years since its inception has delivered important lessons like adaptability, collaboration, inclusivity, and resilience. These principles will define how this scheme will perform till 2026, which is expected to be its sunset year.