Monday, June 12, 2017

Aviation infrastructure: For UDAN to be successful, state governments have a critical role to play

Not long back, flying was considered to be a domain of the elite. Consequently, aviation was paid lip service in the overall planning schemes. However, the current government’s ambitious scheme ‘Ude Desh ka Aam Nagrik’ is an acknowledgement of citizens’ growing aspirations.
The Indian aviation market is growing at double digit rates and is likely to reach a size of 450 million passengers by 2035, next only to China and the US. However, the penetration of air travel in India is still low at less than 0.1 trip per capita compared to its peers like China (around 0.3). Low penetration of air travel coupled with high economic growth is expected to drive the burgeoning aviation market in the coming decade. A large part of this growth is expected to be fuelled by tier 2/3 cities in India. Consequently, by 2030, almost 46% contribution to air traffic in India is projected to be fuelled by tier 2/3 towns. Likewise, the number of active airports/strips is expected to double providing further impetus to air traffic growth.
The UDAN scheme is expected to act as a catalyst for this growth. The current scheme means to enable people in tier 2/3 towns and cities to avail air transportation at an affordable price. The scheme caps the maximum ticket price at Rs 2500 for 50% of the seats for an hour-long journey (500 km) and provides for viability gap funding to make the route possible. However, the breakeven price for an airline varies significantly with the passenger load factor (PLF); accordingly, the active support of state governments would be crucial for the scheme to achieve the desired results. This is important, especially as most of the air routes (at least in the initial years of operations) would be unviable if left to the market forces.
12/06/17 Manish Agarwal/Financial Express