The objective of Regional Connectivity Scheme, UDAN (Ude Desh ka Aam Naagrik) is to enhance air passenger traffic in the country by stimulating demand on regional routes. Amount collected as Regional Connectivity Fund (RCF) will be used to provide financial support to airlines in the form of Viability Gap Funding (VGF) for operations under the Scheme.
As per the directions of MoCA, RCF will be funded by a small levy per departure on all domestic flights other than the ones on Category II / Category IIA routes under RDG, RCS Routes and aircraft having maximum certified takeoff mass not exceeding 40,000 kg.
The RCF would channel funds generated from the sector to stimulate further growth and development of the sector itself. A part of the fund will also be contributed to by the states that have signed the UDAN MoU: as of date, 19 states have either signed or given their consent.
The national scheduled airlines providing services on domestic routes where such fee per departure is levied would also be eligible under the Scheme to avail benefits of RCS. Similarly, even the passengers would be benefited through additional connectivity on regional routes at prices which are at or below the airfare caps.
Thus, the funds collected from national scheduled airlines will (i) benefit the same airlines and passengers from whom it is collected and (2) is further expected to lead to creation of regional air connectivity / services that would have spin-off benefits within the sector in terms of passengers taking other flights (not under RCS) and using airports / airport services that are not at concessional rates under RCS. The amount collected under the levy will be ploughed back into the sector.
UDAN recognizes the challenge of high costs faced by regional operators. Accordingly, the scheme brings down the operating cost for an airline by reducing taxes on aviation turbine fuel (ATF) and airport and other charges. Improving liquidity in the small plane leasing market will make it easy for entrepreneurs and airlines to start these routes.
The winning bidder gets a three year exclusivity on the route so that the route can be matured and made profitable. The scheme uses the power of markets to discover to the lowest subsidy on the route. Half the seats can be sold by the winning bidder at market prices – this will also provide good information on the price the passengers on the route are willing to pay as and when the subsidy support goes away (between three and ten years).