Going Regional Is The Way Forward
The Regional Connectivity Scheme, which offers fares and facilities to let the common citizens of the country fly, is here to stay irrespective of the outcome of the next general elections
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The domestic civil aviation sector is in crisis, again. Be it the grounding of Boeing 737-800 flights, the financial crisis at Jet Airways forcing it to fly only a third of its fleet of 119 aircraft or the closure of airspace over Pakistan financially impacting the cash-strapped Indian carriers flying to Europe. The only sanity amid the turmoil is the thriving domestic aviation market. Passengers continue to flock to airports, be it in the metros, non-metros or the smaller airports that are witnessing new flight routes being added by private carriers including SpiceJet, IndiGo, Vistara, Jet, among others, all thanks to the Regional Connectivity Scheme (RCS) under UDAN (Ude Desh ka Aam Naagrik).
In December 2018, Indian aviation completed 52 consecutive months of double digit growth. “With a growing economy, rising incomes, supportive policy environment and intense competition among airlines, the growth story is likely to continue. The rapid expansion in India’s airport and air navigation infrastructure will fuel it further,” says Amber Dubey, aviation and defence expert with KPMG in India. With just 187 million passengers (to, from and within India) in FY 2017-18, many believe this is just the tip of the iceberg. The best of Indian aviation is yet to come, he says.
The Directorate General of Civil Aviation (DGCA) reports that the growth in demand, measured by revenue passenger kilometres (RPK), has consistently outpaced the growth in supply, measured by available seat kilometres (ASK). This has resulted in an increase in domestic passenger load factor in India. Trade association of the world’s airlines IATA says that in March 2018, India registered the highest domestic load factor of 87.8 per cent among top seven aviation markets in the world. There are over 450 airports and airfields in India, out of which 101 were operational as of December 2018. The government-run Airports Authority of India (AAI) owns 125 airports, one of the largest owners of airports in the world.
Union minister of State for Aviation Jayant Sinha says the UDAN scheme has become very successful in the country with the creation of 1 crore seat capacity. “Out of 70 airports in the country, over 30 airports are now opened up for UDAN and Jharsuguda airport in Odisha has now been added to the aviation map of the country,” said on 3 March.
UDAN-RCS, in fact, has been hailed as a major achievement of the Indian civil aviation sector by the Prime Minister Narendra Modi-led NDA Government, which is now seeking a second term based on achievements in creating infrastructure across aviation, roads, ports, in-land waterways, cleaning of river Ganges, among others. The Union Cabinet has already sanctioned Rs 4,500 crore to boost regional air connectivity. According to the approved plan, the money will be used to “revive and develop” a number of “unserved and under-served airports” across the country.
“Under UDAN Phase 1 and Phase 2, 56 unserved airports are to be operationalised. Of these 56 airports, 23 have been operationalised. Under UDAN 3, routes connecting 13 unique unserved airports have been awarded on 25 January,” Sinha had told the Rajya Sabha on 13 February.
Initiatives such as Nabh Nirman (for airport capacity augmentation), Digi Yatra (for paperless travel) and AirSewa (for online passenger grievance redressal), etc., are bringing in radical changes. The tax structure for aviation turbine fuel (ATF), maintenance, repair and overhaul (MRO) and aircraft leasing may be gradually aligned with leading global jurisdictions, experts say.
Private Carriers Speak
SpiceJet is already operating 23 daily UDAN flights connecting more than 10 smaller airports to nearby larger airports. The carrier plans to add 16 new flights starting April. It has started flights to Porbandar, Kandla, Jaisalmer, Adampur, Kanpur, Pakyong, Kishangarh, Surat, and Lakhimpur, among other places. “UDAN has been a successful scheme, which has provided unprecedented air connectivity and all credit goes to the present government. We are committed to taking air services to every corner of India,” says Ajay Singh, CMD, SpiceJet.
Leading domestic carrier IndiGo is not far behind. It, too, has started connecting smaller destinations. Going forward, the airlines plan to go even deeper to tier-2 and tier-3 towns. “With UDAN flights already in the pipeline along with others, we plan to offer our flights and services to more people across the country by adding new destinations to our routes,” says William Boulter, Chief Commercial Officer, IndiGo. In addition, IndiGo has always been keen to explore long-haul operations, and the carrier remains open to opportunities around the same, Boulter adds.
Leslie Thng, CEO of Vistara, says the company supports the UDAN scheme and with plans of adding more aircraft in 2019 and 2020, the airline has not ruled out the possibility of participating in UDAN as part of its efforts to further strengthen its domestic network.
The scheme allows passengers to fly at a fare of Rs 2,500 for up to one hour of flight. But these fares apply to only half the aircraft’s total passenger capacity, the gap to be filled by the government subsidy. In practice, the average fares across several of the smaller airports that are now operational works out to be in the vicinity of Rs 3,800-Rs 4,800 for an hour of flights if booked 7-12 days in advance. Fares are much lower obviously if a passenger books it 20-30 days in advance. A back-of-the-book calculation shows that for a Q-400 propeller aircraft (deployed by SpiceJet) or ATR 72-600 (deployed by IndiGo), an hour of fuel cost works out at around Rs 1 lakh. With an average passenger fare of, say, Rs 4,000 with 90 per cent seat occupancy, an hour of flight yields over Rs 2.8 lakh in ticket revenue. This rough calculation is just to show that airlines servicing the routes under UDAN will make money going forward.
Challenges to UDAN
Of course, the critics of UDAN, and the NDA government in general expect much more. One school of thought is that UDAN is not as big a success as it is being made out to be. Responding to one such criticism, Union Minister for Roads, Highways, Inland Waterways Nitin Gadkari recently said: “If one expected everything to work out within five years of governance, then that is not a practical view. The quantum of work started by NDA government is visible and the desired results are showing. Once we return to power and continue finishing our work, people will themselves see the results.”
Well, it is true that of the 440-odd air routes allotted to 14 airlines (national and regional carriers combined) under UDAN, only 40-50 routes are operating regularly. Airports such as Hisar (Haryana), Cooch Behar (West Bengal), Tezu (Arunachal Pradesh) and Sholapur (Maharashtra) are fully geared up but are yet to see a single flight land or take off. Airports at Bareilly (Uttar Pradesh), Jagdalpur (Chhattisgarh), Darbhanga (Bihar), Bokaro (Jharkhand), Utkela (Odisha) and Jalgaon (Maharashtra), among others, are far from completion even though flight routes were allotted to them almost a year ago.
Then, there are challenges and financial constraints faced by smaller/regional airlines including Air Odisha, Zoom Air, Trujet, Pinnacle Airlines, Heritage and AAA Aviation, among others. There are shortages of trained and approved pilots that can handle smaller aircrafts. Maintenance, repair and overhaul remains a challenge and so does the availability of spare parts (most of which needs to be imported).
Do these conditions make UDAN a failure? “No it does not. The steps undertaken so far by the civil aviation ministry coupled with the participation and enthusiasm demonstrated by private carriers gives a lot of hope,” says a former bureaucrat in the civil aviation ministry. “Give it a few more years, I am sure all challenges will get sorted out. There is no other way. No Indian government can ignore the civil aviation sector considering its high double-digit growth, need for expansion and demand for flights at smaller towns.”
If the trend of passenger traffic continues, India would become one of the top aviation hubs by 2040, says the latest Ficci-KPMG report. The report, which was released in January, projects the passenger traffic to grow six-fold to around 1.1 billion. India has one of the largest aircraft order books currently with pending deliveries of over 1,000 aircraft. Its commercial airline fleet is likely to grow from 622 in March 2018 to around 2,359 in March 2040. The country may have around 190-200 operational airports in 2040. Its top 31 cities may have two airports and the cities of Delhi and Mumbai three each.
The incremental land requirement is expected to be around 150,000 acres and the capital investment (not including cost of acquiring land) is expected to be around $40-50 billion. All major domestic carriers are broadly in agreement with the projections.
“Demand for air travel in India continues to grow, and as a ‘rule of thumb’, we would anticipate it to run at around double the GDP growth. In recent years and months, it has been higher than that. Aviation is both a stimulant to, and beneficiary of, high GDP growth, as has been proved time and again elsewhere,” says Boulter of IndiGo.
On its part, SpiceJet has been supporting the UDAN scheme as well as its ambition to connect more international destinations in coming years. “SpiceJet has been one of the most enthusiastic supporters of UDAN since the very beginning and is delighted to help fulfill PM Modi’s vision of ensuring that every Indian can fly,” says Singh.
On a cautionary note, the Ficci-KPMG report, however, makes it clear that its projection for the Indian aviation market is higher than the projections made by leading organisations. “Given the untapped potential of the Indian aviation market and the significant reforms being driven by the federal and state governments, we feel that the above projections are eminently achievable,” the report says. Of course, these projections are predicated on the assumption that volatility in oil prices and exchange rate will be within a reasonable range and the constraints in terms of policies, taxation, infrastructure and ease of doing business shall be addressed on priority.
Coming back to the present times, it is a reality that the air traffic in India is still concentrated in top 15 airports. In FY 2018, top 15 airports in India contributed to around 83 per cent of total throughput in the country. The concentration of traffic in top 15 airports is significantly higher than comparable markets such as the US and China.
As per Federal Aviation Administration (FAA) of the US and Civil Aviation Administration of China (CAAC) data, the top 15 airports in US and China contributed to around 54 per cent and 57 per cent of total throughput in 2017. “As Indian economy matures, economic growth is expected to spill over to its interiors. The future growth in Indian aviation market is therefore expected to be driven by non-metro cities,” says Dubey of KPMG.