MC Exclusive: Aviation ministry asks for 25-30% increase in FY25 budgetary outlay for RCS-UDAN scheme

Officials also expect that approvals of the revised Bharatmata Phase-l programme will likely come in by 2024-25, which will help boost the pace of project awarding and construction in the next financial year

With domestic air traffic rising to historic levels and Indian aviation surpassing pre-COVID-19 numbers, the Ministry of Civil Aviation (MoCA) and the Airports Authority of India (AAI) are looking to boost passenger traffic and routes as part of the government's regional air connectivity scheme (RCS) — UDAN, or Ude Desh ka Aam Naagrik.

To revive airports under the UDAN scheme and increase the pace of launching new routes, MoCA has asked for a budgetary allocation of Rs 1,500 crore, which is 25 percent higher on-year, under the UDAN regional connectivity scheme in 2024–25, several government officials told Moneycontrol.

The budgetary allocation of Rs 1,500 crore for 2024–25, if granted by the finance ministry, would be the highest-ever allocation for the UDAN scheme and would be more than twice the Rs 480 crore allocated under the scheme in 2019–20.

"Despite the overall aviation industry surpassing pre-COVID-19 numbers, passenger traffic under UDAN is still muted. To boost traffic under UDAN, we are looking to revive operations at airports that were shut down after COVID and also to launch around 50 new routes under UDAN soon," a senior ministry official aware of the ongoing discussions said.

Budget demands of the Ministry of Civil Aviation

In the Budget for 2023–24, the government allocated Rs 1,244.07 crore for the UDAN scheme, which was double that of 2022–23. As part of the Budget, the government had planned to revive 22 airports and commence operations on 100 RCS routes in 2023–24.

So far in 2023–24, the government has managed to commence operations on around 40 new RCS routes and revive three new airports, multiple officials said.

"A combination of limited capacity in the industry due to aircraft groundings and an airline collapsing, coupled with elections in some large states and high fuel prices, created a very uncertain environment to launch new routes and revive airports under UDAN this year," a second ministry official said.

He added that despite the uncertainty faced in 2023–24, the government is confident in the viability of the RCS-UDAN scheme, as newer entrants into the Indian aviation market like FLY91, JettWings Airways, and FlyBig are looking to expand their offerings under the UDAN scheme.

"We expect domestic air passenger traffic from Tier-II and Tier-III cities to outpace traffic from Tier-I cities next year, as was seen before the pandemic," the first official said.

To tap into passenger demand for air connectivity from Tier-II and Tier-III cities, the government is planning to not only boost capacity expansion through higher capital expenditure in 2024–25 but will also look to fast-track the second round of airport privatisation, he added.

As of October 3, 2023, after five rounds of bidding under UDAN, 493 routes had, on paper, commenced operations connecting 70 destinations, including two water aerodromes and nine heliports, according to the latest report by the Airports Authority of India (AAI).

However, an analysis of all operationalised routes awarded by the government under UDAN, based on the flight schedules of all airlines and data from online travel agents and local booking agents, shows that only 225 routes remained operational until October 2023.

Airlines have stopped 228 routes due to lack of infrastructure, low passenger demand, the shutdown of airlines to which UDAN routes were operationalised, passengers seeing no benefit of cheaper tickets, a lack of awareness about the UDAN scheme among passengers looking to book flights, or a combination of any of the above.

The data was shared with the Ministry of Civil Aviation by Moneycontrol on October 11, and at the time of publishing this story, no response had been received from the ministry.

Moneycontrol could not verify the status of all 40 routes operated by Pawan Hans, as the government-owned helicopter service operator's flight schedule and booking data were not available.

A senior company executive, on condition of anonymity, said, "Pawan Hans operates flights on 28 routes under the UDAN scheme. However, some routes are seasonal and have limited booking, and regular service on those routes is not available."

UDAN also failed to catch the eye of travellers during the first quarter of the financial year 2023-24 (Q1FY24), the busiest travel period in India’s aviation history.

Around 5.5 lakh passengers took to the air under the RCS-UDAN scheme during April-June 2023-24. During this time, domestic carriers in the country carried around 3.86 crore passengers, as per government data seen by Moneycontrol.

The UDAN scheme is applicable for 10 years from the date of its notification. The Central Government set a target of operationalising 1,000 UDAN routes and reviving or developing 100 unserved and underserved airports / heliports / water aerodromes by 2024.

While MoCA has asked for an increase in its budgetary allocation for 2024-25, AAI is lagging in its capex outlay for 2023-24 so far.

Till the end of the seven months of the current financial year (that is, until October 31), the AAI had invested only around Rs 2,000 crore as capital expenditure, missing its target of Rs 2,700 crore, senior officials of the AAI said.

AAI is likely to miss its capex target of Rs 4,000 crore for the full fiscal year, set under the Union Budget of 2023–24.

In 2022–23, AAI achieved its highest-ever capex, investing a total of Rs 5,175 crore to expand and enhance airport facilities, upgrade technology, and improve operational efficiency.

The AAI manages 137 airports, including popular ones like Chennai, Ahmedabad, Kolkata, and Jaipur. This comprises 23 international airports, 81 domestic airports, 23 domestic civil enclaves, and 10 customs airports.