India’s regional connectivity scheme is headed for a revamp, awaiting Cabinet’s approval for a plan that would financially support airlines operating on remote routes to cover potential losses. Launched in 2016, the scheme caps fares on half of the seats to make air travel affordable. However, flights to hinterland destinations often remain commercially unviable due to low traffic and fare caps. To address this, the government currently offers incentives to carriers, including waivers on landing and navigation charges, along with subsidies. At present, around 80% of the subsidy is financed through a fee of Rs 6,500 per commercial flight, while the remaining portion is borne by the state governments where the airports are located. “According to our calculations, the existing mechanism of funding will not be enough to make those viable. We have proposed this alternative mechanism. Inter-ministerial consultations have been completed, and it is now awaiting cabinet’s approval,” a government official told ET. Since its launch, the scheme has disbursed over Rs 4,352 crore in subsidies and invested an additional Rs 4,638 crore in developing and upgrading airports. Yet, it has yielded mixed results, with only about 60% of the original 649 routes currently operational. The civil aviation ministry has spent nearly Rs 900 crore on 15 regional airports that remain non-operational. The official added that scrutiny of the scheme suggested a possible need to extend the subsidy period beyond the current three years, which may require increasing the overall fund size. Under UDAN, airlines are required to commence flights within four months of winning a route bid. They enjoy three-year exclusivity on these routes, shielding them from competition. Remote airports also levy lower aviation turbine fuel taxes and do not charge airport fees. “For smaller airlines, who are substantial players in remote connectivity, they can’t start flights despite getting permission due to non-availability of aircraft or readiness of the airport. It becomes a big financial burden for them. So, there may be a requirement to increase the period of subsidy,” a second government official said. Revising the funding mechanism is considered important, as India’s mainline carriers, including IndiGo and Air India, may be unwilling to cross-subsidise the scheme. Back in 2022, the government had to reverse a plan to raise the levy to Rs 15,000 per flight after pushback from airlines, which argued that it would increase ticket prices and hurt passengers. Executives at regional carriers emphasise the significance of government support. “Regional air connectivity is a powerful engine for progress,” said Simran Singh Tiwana, CEO of regional airline Star Air. He added that new flight routes to regional cities generate economic benefits by giving local businesses access to wider markets. Faster travel options also enhance healthcare access, educational opportunities, and the overall quality of life, he said.
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