When one looks at the connectivity map, the scheme has simply not delivered for the Northeast
When one looks at the connectivity map, the scheme has simply not delivered for the Northeast|File image
OPINION

Govt’s flagship aviation scheme has not delivered for Northeast

There areas that the government will have to address if the goal of Northeast connectivity is to be realized

Satyendra Pandey

The country finally saw its first National Civil Aviation Policy released in 2016. Integral to the policy was the regional connectivity scheme aptly named the Ude Desh Ka Aam Nagarik (UDAN) scheme. It was launched with much fanfare including the slogan “from Hawai chappal to Hawai-Jahaz.” Put simply, it incentivized airlines to fly to unserved and underserved airports. The goal: connecting all parts of India. Yet, when one looks at the connectivity map the scheme has simply not delivered for the Northeast.

The intent of the UDAN scheme was to encourage spur connectivity especially to the un-served or underserved parts of the country. It was widely believed that the Northeast which has been a focus area of the government would finally get the connectivity it required. Not only to other cities but also intra-region connectivity. The inauguration of Pakyong airport along with the laying of the foundation stone for the greenfield airport at Hollongi by the Prime Minister further cemented this belief.

Air India
Air India Twitter
Alliance Air (a perpetually loss-making subsidiary of Air India) is the only airline with significant presence. Interestingly, Alliance Air which services several cities in the Northeast is doubly funded by taxpayer money since it is government owned and loss making and further receives UDAN subsidies

But as of today, the region continues to want for connectivity. Flights from Pakyong have been pulled, there is no estimate on how soon the airport at Hollongi will be completed, intra-region flights are few and far between, the list goes on…

The scheme is built around supply side focused initiatives and entices airlines to fly routes via economic incentives. These include a reduction of charges and also cash subsidies for a portion of seats on the aircraft. The cash is generated from levies on passengers flying on core routes mostly between metro cities. The only caveat is that in exchange for this cash, the airfares on these routes have to be capped at pre-determined levels. And the cash-subsidy is only valid for three years after which the route is assumed to have gained enough traction. It goes without saying that the scheme depends on robust passenger demand on core routes to generate the cash. And with passenger demand at 40% - 50% of previous levels and not expected to recover anytime soon, the cash-flow has simply dried up.

The subsidy burden on the government if all UDAN routes are flown as allocated is estimated to be between Rs 1,700 – Rs 1,900 crore per annum. The collections were falling way short of this even prior to the Covid impact. The budgetary support requirements for the scheme were estimated at INR 441 crores for FY19 and INR 480 crore for FY20. In earlier years, the shortfall was made up by a dividend payment by the Airports Authority of India that ironically is also the designated implementing agency for the scheme. But now in a catch 22 situation, the AAI is also owed money (at times by the same operators that the scheme will subsidize with dividends paid by AAI).

With this lack of funds coupled with current traffic levels, the government will have to find alternate means. Presumably, the States will also be asked to step up to provide additional funds. In the current economic climate, this puts additional burden on the states as well.

With regards to the Northeast, between the seven sisters states only 11 airports are served via six airlines. This is in spite of several key aspects that line up as core demand drivers and a strategic imperative to connect the region to the rest of the country.

Alliance Air (a perpetually loss-making subsidiary of Air India) is the only airline with significant presence. Interestingly, Alliance Air which services several cities in the Northeast is doubly funded by taxpayer money since it is government owned and loss making and further receives UDAN subsidies.

The challenge of lack of flights to and within the Northeast is traced to a failure to understand demand characteristics, a mismatch between the aircraft and route characteristics, operational challenges, operational costs and confidence. Any initiative must address all of these together and not in a piecemeal fashion. For instance, investors get confidence with access to credible data which can help with risk assessments. There is not only a lack of data for the region but also an unwillingness to engage by institutions at the center. Earlier in the year, investors reached out to DoNER and InvestIndia for data on traffic flows from the Northeast. Both organizations maintained that they do not maintain such data rather redirecting to a one page document on the state’s economic review. Investors simply chose to deploy funds elsewhere. The government in its budget also announced the launch of Krishi-UDAN which is aimed at helping farmers in the Northeast get their produce to markets via air. Yet details of the scheme are not available as yet for airlines that want to understand how this can be incorporated into their business plans.

With this lack of funds coupled with current traffic levels, the government will have to find alternate means
With this lack of funds coupled with current traffic levels, the government will have to find alternate means Twitter
The government in its budget also announced the launch of Krishi-UDAN which is aimed at helping farmers in the Northeast get their produce to markets via air. Yet details of the scheme are not available as yet for airlines that want to understand how this can be incorporated into their business plans

With regards to the Northeast, between the seven sisters states only 11 airports are served via six airlines. This is in spite of several key aspects that line up as core demand drivers and a strategic imperative to connect the region to the rest of the country.

Alliance Air (a perpetually loss-making subsidiary of Air India) is the only airline with significant presence. Interestingly, Alliance Air which services several cities in the Northeast is doubly funded by taxpayer money since it is government owned and loss making and further receives UDAN subsidies.

The challenge of lack of flights to and within the Northeast is traced to a failure to understand demand characteristics, a mismatch between the aircraft and route characteristics, operational challenges, operational costs and confidence. Any initiative must address all of these together and not in a piecemeal fashion. For instance, investors get confidence with access to credible data which can help with risk assessments. There is not only a lack of data for the region but also an unwillingness to engage by institutions at the center. Earlier in the year, investors reached out to DoNER and InvestIndia for data on traffic flows from the Northeast. Both organizations maintained that they do not maintain such data rather redirecting to a one page document on the state’s economic review. Investors simply chose to deploy funds elsewhere.

The government in its budget also announced the launch of Krishi-UDAN which is aimed at helping farmers in the Northeast get their produce to markets via air. Yet details of the scheme are not available as yet for airlines that want to understand how this can be incorporated into their business plans.

Earlier in the year, investors reached out to DoNER and InvestIndia for data on traffic flows from the Northeast
Earlier in the year, investors reached out to DoNER and InvestIndia for data on traffic flows from the Northeast Twitter
There are areas that the government will have to address if the goal of Northeast connectivity is to be realized. As of now, the government’s flagship aviation scheme has not delivered for the Northeast

As far as the UDAN scheme is concerned, if the intent of the scheme was to connect unserved and underserved parts of the country make for viable and sustainable regional operations, as of now it has not fructified. This while passengers on metro routes, are forced to pay an additional ₹50 as an UDAN levy, as a cross-subsidy. For the Northeast, the scheme has not delivered. Against 266 routes only 16 are focused on the Northeast and the track record of service on these routes is at best patchy.

The difference between intent and impact can be traced to a failure to address structural challenges, an inability to take on airport monopolies, a lack of on-ground research, a lack of focus on the demand side and attempting to address the chances of failures without adequately addressing the costs of failure.

These are areas that the government will have to address if the goal of Northeast connectivity is to be realized. As of now, the government’s flagship aviation scheme has not delivered for the Northeast.

[The author is an aviation professional. His positions include working as the Head of Strategy at GoAir and with CAPA, (Centre for Aviation) where he led the Advisory and Research teams]

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