NEW DELHI: The UDAN (Ude Desh ka Aam Naagrik) scheme, which was launched over eight years ago to boost regional air connectivity, has not yet reached its full potential. A recent analysis by ICRA suggests that the introduction of semi-high-speed Vande Bharat Express trains is creating significant competition for the scheme.
Kinjal Shah, Senior Vice President and Co-Group Head at ICRA, shared insights during a webinar on the aviation sector, revealing that the UDAN scheme still faces challenges in meeting its goals. "We analyzed the UDAN scheme recently, and to our surprise, it hasn’t fully achieved its potential," Shah said.
The UDAN scheme, launched in October 2016, was designed to enhance regional air connectivity to underserved airports and make air travel more affordable. Airlines are offered viability gap funding to operate on these routes through a bidding process.
However, Shah pointed out that the growing popularity of alternatives like the Vande Bharat Express trains is making it harder for UDAN to succeed. "The competition from modes like rail, especially the Vande Bharat Express, is tough. These trains offer cheaper fares for short-distance routes, making it a strong competitor to air travel on UDAN routes," Shah said. Despite its goals, the scheme has a low penetration rate, accounting for only about 1 to 4% of overall air travel, which remains a challenge.
Shah also identified other obstacles hindering the growth of the UDAN scheme. One major issue is that the viability gap funding provided by the government only lasts for three years, after which the routes must continue operating without this support. Additionally, airfare caps on these routes, which help keep tickets affordable, are lifted after three years.
"Without ongoing route additions, passenger traffic will not grow," Shah noted, adding that after the three-year funding period ends, airlines may no longer find these routes financially viable, leading to reduced operations. Despite the routes being awarded, around 50% of the routes have yet to be commercialized, further highlighting the scheme’s challenges.
Under the UDAN scheme, flights within 500 km are capped at Rs. 2,500 for 50% of the seats on each flight, subsidized by the government. However, many airlines have chosen not to operate on the awarded routes, especially due to low passenger load factors.
As competition from rail services like Vande Bharat intensifies, the future success of UDAN hinges on overcoming these ongoing challenges.
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