WHY would one of the world’s fastest-growing airlines buy a ten-seat propeller plane, when most of its customers fly on 200-seat jets? Switching to smaller, less efficient aircraft defies commercial logic. But it is an appealing thought for those living in isolated communities far from big airports. That is what India’s new regional connectivity scheme, Ude Desh Ka Aam Nagrik (UDAN) or “let the common man fly”, promises to offer. It uses subsidies to improve the commercial viability of seldom-used routes. It also caps half of the fares on such routes at 2,500 rupees ($38) per hour of travel. If properly implemented and funded, the scheme could become a powerful tool for spreading India’s economic wealth more evenly.
When Gulliver last reported on the aviation policies of Narendra Modi, India’s prime minister, there was little cause for optimism. At the time, Mr Modi was stonewalling a new policy aimed at resuscitating the ailing sector. Airlines were hamstrung by high taxes and needless regulations. Constructions like Jaisalmer Airport in Rajasthan, which was built to serve 300,000 passengers a year but was yet to see any, epitomised the cack-handedness of India’s social-flying schemes.
Two years on, the winds of change are finally blowing in places like Jaisalmer. This month SpiceJet, a low-cost carrier, will connect the city with Delhi, the country’s capital, and Jaipur, the state’s capital. The latter route will be the fourth launched by SpiceJet under the UDAN scheme, which uses tax concessions, airport-charge waivers and exclusivity rights to entice airlines into challenging markets. Viability gap funding is even provided for some routes. But only once airlines have bid for the lowest subsidies, ensuring that market forces prevail over blind support.
Compared with the Route Dispersal Guidelines, a parallel set of rules that mandate social flying with little financial help, UDAN is a breath of fresh air. In the first round of bidding, 128 routes were allocated to five airlines. The results of a second round are due in November. IndiGo, India’s largest airline, is widely expected to join the scheme after signing a tentative order for 50 ATR turboprops, propeller planes that seat up to 78 passengers. Jet Airways, the country’s second-largest carrier, is also warming to the idea.
But the real test is yet to come. Having bought 25 Bombardier turboprops for its larger UDAN routes, this month SpiceJet put out feelers for an order of over 100 tiny Quest Kodiaks. They can land on water, gravel and grass, says Ajay Singh, the carrier’s chairman, and thereby reach even the most-remote communities. As a social equaliser, the single-propeller plane has clear appeal. But as a vehicle for low-cost transportation, it is a poor solution. High per-passenger costs on seldom-used routes will force Mr Modi to draw the line somewhere. Inevitably, he will conclude that not every commoner deserves the gift of flight.
UDAN’s egalitarian ideals have already left some disappointed. Air Odisha and Air Deccan won more than half of the designations in the first round by bidding for the very lowest-capacity routes. But neither airline has yet flown a single flight on that network. Slot constraints in Delhi are partly to blame. The suspicion is that financial viability may also be a factor.
Nevertheless, there is more good news than bad. In two years, India’s government has introduced a complex and socially beneficial scheme. It is also privatising Air India, the country’s loss-making flag-carrier, which was being propped up at the taxpayer’s expense.
Moreover, the government has begun chipping away at over-regulation. It removed foreign-ownership restrictions on domestic airlines. And it diluted rules that stopped Indian carriers from flying internationally until they reached five years of age and had a 20-plane fleet. With domestic traffic growing by more than 20% a year and 97% of the population still not flying, India’s airlines have every reason to be optimistic. Don’t stop now, Mr Modi.
Reprinted from https://www.economist.com/blogs/gulliver/2017/10/letting-them-fly