UDAN Scheme Revamp: Will New Govt Bailout Save India’s Regional Airlines?

All aboard for UDAN? Regional connectivity scheme revamp awaits cabinet nod

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For years, the dream of affordable air travel to India’s remotest corners has been championed by the UDAN scheme revamp—a flagship initiative to democratize the skies. But the reality on the tarmac has been harsh. Many airlines operating on these routes have been flying into red ink, making the entire project commercially unsustainable. Now, in a critical move to salvage its vision, the Indian government is set to seek Cabinet approval for a sweeping overhaul that would directly compensate airlines for their losses on these vital but unprofitable routes .

A New Lifeline for Regional Skies?

The proposed changes mark a significant shift in strategy. Instead of relying solely on the existing model of capped fares and limited subsidies, the new plan aims to provide direct financial support to cover the operational deficits incurred by carriers. This move is designed to make flying to hinterland destinations not just a social obligation for airlines, but a commercially viable business proposition .

The stakes are high. The success of this UDAN scheme revamp could determine whether small towns across India remain connected to the national air grid or are left behind in the country’s aviation boom.

Why the UDAN Scheme Revamp is Needed

The original UDAN (Ude Desh ka Aam Nagrik) scheme, launched in 2016, was a noble idea: to connect unserved and underserved airports with affordable flights. However, the economics have proven challenging. Low passenger volumes on many routes, coupled with high operational costs, have led to consistent losses for participating airlines.

This financial strain has resulted in route cancellations and a reluctance from major carriers to fully commit to the program. The government’s recognition of this core problem is what’s driving the current push for reform. The goal is to create a more stable and attractive environment for airlines, ensuring the long-term sustainability of regional connectivity .

Key Challenges Faced by Airlines

  • Low Passenger Load Factors: Many routes simply don’t attract enough passengers to fill even small aircraft.
  • High Operational Costs: Fuel, maintenance, and crew costs for short-haul flights can be disproportionately high.
  • Limited Aircraft Suitability: The market for smaller, efficient turboprop aircraft suitable for these routes is limited in India.

The Financial Mechanics of the Proposed Overhaul

The heart of the revamp lies in its approach to financial support. The current system relies heavily on Viability Gap Funding (VGF), where the central government covers 80% of the subsidy, and state governments contribute the remaining 20% . This VGF is primarily funded through a levy of ₹6,500 on every commercial flight in the country .

The new proposal appears to go a step further by potentially guaranteeing a minimum level of profitability or directly compensating for verified losses. This would de-risk the venture for airlines, encouraging them to not only maintain existing routes but also to bid for new ones under the scheme. The plan is also expected to include provisions for using larger aircraft on certain routes to improve efficiency and passenger comfort .

Past Investments and the Road Ahead

The government has already made a massive financial commitment to the UDAN vision. To date, it has disbursed over ₹4,352 crore in subsidies to airlines as VGF and invested another ₹4,638 crore in developing airport infrastructure across the country . This includes the development of 649 routes connecting numerous towns and cities .

However, the journey hasn’t been without its bumps. Reports indicate that nearly ₹900 crore has been spent on the upkeep of 15 airports that are currently non-operational, highlighting the complexities of managing such a vast infrastructure project . The upcoming revamp must therefore not only address airline viability but also ensure that future investments in airport development are strategically aligned with actual demand and operational feasibility.

Looking ahead, the revamped scheme aims to add 120 new destinations, potentially bringing affordable air travel to an estimated 4 crore more passengers over the next decade . For more on India’s broader aviation strategy, see our analysis on [INTERNAL_LINK:civil-aviation-growth-india].

Conclusion: Balancing Accessibility and Viability

The pending UDAN scheme revamp represents a crucial crossroads for India’s regional aviation policy. It’s a bold attempt to correct course by acknowledging that good intentions alone aren’t enough; a solid, sustainable business model is essential. If the Cabinet gives its nod, this new financial backing could be the catalyst that finally makes the dream of truly accessible air travel for every Indian a lasting reality. The challenge will be to implement it efficiently, ensuring taxpayer money is used wisely to build a robust and self-sustaining regional air network for the future.

Sources

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