Vande Bharat trains pose significant competition to UDAN scheme: ICRA – ET TravelWorld

Launched little over eight years ago, the regional air connectivity scheme popularly known as UDAN or Ude Desh ka Aam Naagrik, is yet to realise its full potential and other transport modes such as the advent of semi-high speed Vande Bharat Express trains poses a significant competition, according to senior analysts from ratings and research firm ICRA.

“We have done some analysis on the UDAN scheme a couple of months back and in fact to our surprise as well, the UDAN scheme is yet to realise its full potential,” said Kinjal Shah, Senior Vice President and Co-Group Head, ICRA, to journalists in a webinar held on the aviation sector.

Affordable air travel for the masses
UDAN scheme was launched in October 2016 with an aim to promote regional air connectivity from unserved and underserved airports in the country and make air travel affordable to the masses. Under the scheme viability gap funding is provided to airlines for operating on such routes via a bidding process.

…the competition from the other modes of connectivity like rail, etc, the Vande Bharat Express trains coming in and all those also pose a significant competition to the UDAN routes, where the fares would be cheaper than the airfares. So overall, if you look at the penetration of the UDAN routes vis-a-vis the overall air travel penetration, that penetration has remained very low at around 1 to 4%,” said Shah, highlighting that such semi-high speed trains are giving competition to airlines for short-distance journeys.

Challenges for UDAN
Other factors, which have prevented a significant offtake of the scheme include aspects such as the viability gap funding provided being limited to a period of three years and volatility in passenger traffic.

“So after three years, while you will continue to operate on that route, you would typically not have that viability gap funding and the airfare caps which were there, those are also not applicable on those routes once they move out of the UDAN route,” said Shah.

“So unless and until you have more route additions coming up every year, the passenger traffic wouldn’t see an improvement,” she added.

Under the scheme, airfare up to a distance of 500 km for an aircraft has been capped at Rs. 2,500, which is applicable on 50% of the flight capacity or seats earmarked under the scheme and subsidised via viability gap funding.

“The second factor is that because of the lower PLFs (passenger load factor) on these routes, after three years, you would not get that viability gap funding and many of the airlines who were even awarded these routes chose not to actually start operating the routes. So out of the total routes that were awarded, I think almost only about 50% of the routes actually got commercialised,” she added.