Thursday, August 27, 2020

Centre's flagship UDAN aviation scheme finally has NE focus. But will it fly?

On August 26, the Union minister of civil aviation via a social media platform announced the award of routes in Phase 4 of the regional connectivity scheme (popularly called UDAN). The Northeast figured prominently in the award; in the words of their own representative, “Bonanza to North East.”
Of the 78 routes awarded, 41% are focused on the Northeast. All seven sister states have been covered with Assam leading with 20 routes while Mizoram has only two. Interestingly, Meghalaya has been awarded 10 routes. But the award of the routes is only part of the story. Whether these will be flown remains to be seen.
Because of a host of challenges that span operations, finance and commercial aspects. Take short runways, high altitudes and a lack of aircraft support infrastructure. Throw in challenges of financing, technology and logistics. Soon even the most basic operation soon starts to look fairly complex.

The beautiful Northeast has been an area where many aviation entrepreneurs want to start operations. Yet when it comes to planning a venture even the most seasoned entrepreneurs bow out. Because of a host of challenges that span operations, finance and commercial aspects. Take short runways, high altitudes and a lack of aircraft support infrastructure. Throw in challenges of financing, technology and logistics. Soon even the most basic operation soon starts to look fairly complex. On the commercial front the demand patterns are highly cyclical and the volumes are low. And then there is the issue of viability where it requires financial support to ensure that flight services continue year-round.
While the UDAN scheme was launched with much fanfare, it has been fraught with challenges. A series of decisions have been taken which stare at the face of commercial viability.
The government tried to address this via a host of measures including viability-gap-funding (VGF) which is a cash-payout to airlines to subsidize seats. This payout is shared between the centre and states. For the centre, the cash-in is generated from levies on passengers flying on core routes mostly between metro cities. The state is left to its own measures to generate the cash. 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 3 years after which the route is assumed to have gained enough traction (a matter of much debate).
While the UDAN scheme was launched with much fanfare, it has been fraught with challenges. A series of decisions have been taken which stare at the face of commercial viability. Earlier this year airlines were advised to cut frequencies from a daily flight to 3-4 times a week; subsidy levels were being adjusted for certain routes; and airlines were advised to fly only those routes that are under 500kms. These measures are all focused towards cash-conservation and do more harm than good. Yet they have been necessary. Because the cash-flow has simply dried up.
27/08/20 Satyendra Pandey/East Mojo
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