Monday, October 24, 2016

UDAN ready for take-off: Fares for 1-hour flights capped at Rs 2,500

The central government on Friday unveiled final guidelines on its ambitious regional connectivity scheme, aimed at bringing down the cost of flying to and from smaller cities. Concerns, however, remained that the policy of cross-subsidising might get legally challenged by airlines.

While a levy to fund the corpus for the scheme was not announced, Civil Aviation Secretary Rajiv Nayan Choubey said the government would frame rules in this regard by the end of this month. The government aims to have an annual corpus of Rs 500 crore for this purpose.

In the hallmark style of the Narendra Modi government, the scheme has been named UDAN — Ude Desh ka Aam Naagrik — and aims to cap fares at Rs 2,500 for a 500-km flight of up to 30 minutes. The auction is expected to begin within days and will follow a reverse bidding process, implying that an airline which bids the lowest fare and provides more seats will win the bid for a particular route. The scheme aims to encourage airlines to provide low-cost flying by providing subsidies like viability gap funding (VGF), zero landing charges by airport operators and reduction of excise duty on jet fuel.

The ministry had announced the draft guidelines of the scheme, following which consultation with stakeholders took place. In the final guidelines, the ministry has increased the VGF amount for participating airlines. “Stakeholders said the draft VGF was not enough to bridge the cost of operation of flying on these routes,” said Choubey.

While major scheduled operators said they were still weighing pros and cons of participating in the scheme, Civil Aviation Minister Ashok Gajapathi Raju said he was “cautiously optimistic”. “As we gather experience, we will learn about it,” the minister said, adding that the first flight under the scheme would take off by January from one of the 16 underserved airports. There are more than 25 ghost airports in India.
23/10/16 Arindam Majumder/Business Standard