With domestic air traffic picking up and the Indian aviation industry showing signs of a recovery from the impact of the Covid pandemic, the Ministry of Civil Aviation and the Airports Authority of India expect 2022-23 to be a big year for the industry.
A preliminary estimate by the Airports Authority of India and the Ministry of Civil Aviation suggests that they will need a budgetary allocation of Rs 2,500 crore under the UDAN regional connectivity scheme in 2022-23, a government official told Moneycontrol.
In the Budget for 2021-22, the government had allocated Rs 600 crore for the UDAN scheme, which was 14.28 percent lower than the money allocated in 2020-21.
If the Finance Ministry accepts the proposal by the Civil Aviation Ministry, this will be the largest budgetary allocation towards the UDAN scheme.
“The government is pushing to complete its target of achieving connectivity to 100 airports under the UDAN (Ude Desh Ka Aam Naagrik) scheme, and hence more funds will be required to operate flights,” a senior AAI official said.
The AAI has now bid out routes under the fourth phase of the UDAN scheme, which is expected to increase the scheme’s subsidy burden, especially in 2022-23, when air traffic returns to pre-Covid levels on these routes, the official said.
The ministry and AAI expect regional routes to bounce back in 2022-23 after struggling since the outbreak of the pandemic, with the government prioritising development of the regional connectivity scheme, multiple officials said.
Dormant routes
The aviation ministry has awarded more than 800 domestic routes to various operators over four rounds since March 2017, providing connectivity to about 60 airports across the country under the UDAN scheme.
However, only 419 of the routes awarded are operational as of today, with large private airlines shying away from using most due to inadequate infrastructure and low demand.
In a report, rating agency ICRA said that only 47 percent of the total number of routes and 39 percent of the airports (unserved and underserved) had been operationalised under UDAN as of May 31.
Subsidy outlay
Under the UDAN scheme, financial incentives from the Centre, State governments and airport operators are extended to select airlines to encourage operations from unserved and under-served airports, while keeping airfares affordable.
The total subsidy outgo during the first phase of the UDAN scheme was Rs 214 crore per annum. This increased to Rs 500 crore under the second phase.
In the third phase, the government announced international as well as seaplane operations and the subsidy outgo was pegged at Rs 1,250 crore.
Viability gap funding
The UDAN scheme is funded through a Rs 50 levy on flight tickets on major routes. The levy accounts for 80 percent of the viability gap funding provided to the airlines, with the remaining 20 per cent provided by State governments.
Under the scheme, airlines are offered viability gap funding for 50 per cent of the seats on a flight and fares for those seats are capped by the government.
Alliance Air operates 79 routes under UDAN, while SpiceJet and IndiGo operate 84 routes each, according to AAI data.
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