Budget FY24: Allocation under UDAN to fall by 17%

The budgetary allocation for the government's regional air connectivity scheme Ude Desh ka Aam Nagrik (UDAN) is expected to fall by as much as about 17 percent in the upcoming budget for FY24, senior officials said.

Funding for UDAN is likely to fall to Rs 500-550 crore from about Rs 600 crore in each of the past two years, a senior official from the Airports Authority of India said.

“The government is looking at a more sustainable approach for routes under the UDAN scheme and is focused on launching more profitable routes that can be operated without concessions or grants,” the official said.

UDAN, which started in October 2016, provides viability gap funding, or grants, to airlines selected via a bidding process to operate flights on under-served or unserved routes.

The Union Budget allocated Rs 10,667 crore for the civil aviation ministry for FY23, of which Rs 600.7 crore was earmarked for UDAN. In the budget for FY22, the government allocated Rs 600 crore for UDAN, but the total expenditure rose to Rs 994 crore.

High jet fuel prices, disrupted aviation supply chains, and the financial health of domestic airlines have taken their toll on UDAN in FY23. The number of passengers carried under UDAN till November 30 of FY23 had fallen to about 1.8 million, government officials said. This was 22 percent lower than in the same period in FY22 and about 15 percent lower than in FY20.

High fares

About 3.3 million passengers flew under UDAN in FY22 on the back of pent-up demand for travel after multiple lockdowns due to the pandemic.

“Passenger traffic under UDAN had risen due to limited railway operations, relatively cheap ticket prices due to government fare caps, and pent-up demand as people had been forced to stay at home for most of 2020,” a government official said.

He added that passenger traffic under UDAN so far in FY23 had fallen mainly due to high ticket prices, which have risen almost every month after fare caps were removed.

“Flights to airports like Kishangarh, Hubballi, Kalaburagi, and Bidar have been stopped by airlines,” another government official said. He added that the government could not force airlines to operate on certain routes even though they had successfully bid for them.

“FlyBig, Alliance Air, Star Air, and SpiceJet, the biggest operators under the UDAN scheme, have had the highest number of flight cancellations in the past six months,” the second official said. He added that customers were wary of booking UDAN flights because they anticipate cancellations.

According to official data, FlyBig reported the highest number of cancellations in six of the seven months from April to October. Alliance Air reported the highest cancellations in September.

The scheme, which will complete six years in 2023, has been a success for smaller airports such as Darbhanga in Bihar, Jharsuguda in Odisha, Shillong in Meghalaya, Kishangarh in Rajasthan, Jagadalpur in Chhattisgarh and Hubballi in Karnataka.

Earlier this year, a report submitted to parliament by the Standing Committee on Civil Aviation said that only one out of four routes under the scheme were operational at the end of the government’s subsidy period of three years.

Delayed airport projects

The government had expected airlines to sustain the routes without outside support after the expiry of the three-year subsidy period. The government told the committee that 300 routes "have been affected due to poor demand on account of COVID-19 pandemic situation."

The scheme document says the key guiding principle is to encourage “sustainability of operations” in the long term so that the connectivity established is not dependent on viability gap funding in perpetuity. It recognised that select areas may need funding support for a longer period.

The government has also said there have been delays in completing airport development work due to lack of funds and non-availability of land.

As of November 29, 2022, after four rounds of bidding under UDAN, 453 routes have commenced and 70 airports including two water aerodromes and nine heliports started operating.

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.