Arun Kumar Singh
01 Feb 2023
Regional Connectivity Scheme RCS UDAN
As part of the National Civil Aviation Policy (in 2016, promoted by Honourable Prime Minister Narendra Modi), the scheme was implemented in 2016-17 with a vision to create an eco-system to make flying affordable for the masses through fiscal support, creating a support structure, policy reforms and airport infrastructure development. The scheme aimed to increase annual domestic passengers to 30 crores by 2022 (versus 9.9 crore domestic passengers in 2016).
Through the RCS scheme, air traffic at underserved & unserved airports is intended to be boosted by reviving non-operational airports, offering tax concessions (VAT & excise on ATF), concession and/or waiver on landing, parking, TNLC & RNFC charges, and by providing VGF (viability gap funding) to the airline. RCS was intended to be implemented only in those States which reduce VAT on ATF to 1% or less for a period of 10 years. Cost-effective security solutions by the Bureau of Civil Aviation Security (BCAS) were to be suggested.
1.1 Crore Passengers benefited since the launch
*4 Crores by 2026
453 New Routes
*1000 New Routes by 2026
70 New Airports
*100 New Airports by 2024, including 9 Heliports and 2 Water Aerodromes
2.15 Lakhs Flights
INR 2,218cr Viability Gap Funding
*As on November 2022
Under the scheme, it is understood that the routes earmarked will not have commercial viability, especially in the nascent stage, and hence the MoCA “funds” (or bridges) the potential losses of the airline by paying VGF on a monthly basis. The selected airline (SAO) is permitted to claim VGF per seat (with a ceiling), for all flights operated (regardless of the number of passengers). Over and above, the airline is permitted to charge regulated (and capped) fare to traveling passengers; fare is normally offered at a heavy discount. The scheme hence helps the airline in recovering costs, offers the passenger highly discounted fares, and enhances air connectivity to cities or routes which otherwise did not have the air connectivity.
VGF provided to the airline is shared between MoCA and State Government in the ratio of 80:20 (in the case of North-East states, the ratio is 90:10). Payments to VGF are made from the newly created “Regional Connectivity Fund”; which was funded by the levying INR 5,000 RCS charge on all flights with more than 80 seat capacity.
Airports Authority of India was selected as the implementing agency, and a dedicated RCS cell was created in AAI CHQ (Rajiv Gandhi Bhawan, New Delhi). RCS cell / MoCA invites bids for various routes. All airlines in India can bid for routes by quoting VGF and Air Fare per seat. Subject to technical evaluation, normally routes are awarded to the lowest bidder (L1), mostly on exclusivity for a period of three years from the date of commencement of flights. VGF and Air Fare that can be charged to passengers are reviewed every quarter to adjust for inflation, the USD exchange rate, and the effect of crude oil prices.
Regional Market in India
Air travel in India has been predominantly and heavily dominated by Tier 1 cities. From Apr 2015 to Nov 2022, a total of 81.7 crores domestic passengers were carried in India. Out of this, 15.7 crore passengers (19.3%) were carried by Delhi airport alone. The top 10 airports (Delhi, Mumbai, Bengaluru, Kolkata, Hyderabad, Chennai, Ahmedabad, Pune, Goa, and Guwahati) carried 58.8 crore passengers, amounting to 72% of Indian traffic (Note: Except Goa & Guwahati, all other top 10 cities are Tier 1 cities).
Further analysis reveals that the majority of traffic originating from Tier 2 or 3 cities (for example, from Goa) flew to another Tier 1 city. Air Traffic exclusively between Tier 2 & 3 cities (for example, Bhubaneswar Tier II to Jharsuguda Tier III) has been minuscule historically. In Apr 2015, a mere 2.4% of domestic passengers traveled exclusively between Tier II & III cities. In Nov 2022, this grew to 5.0% of total domestic passengers.
As of the end of 2022, the following is the “material prosperity” (by household) and some key indicators;
• Refrigerator: 40% of households.
• Television: 87% of households.
• Smartphone: 93% of households.
• Two-wheeler: 35% of households.
• Internet: 45% of households.
• Urbanization: 35% of households.
• Electricity: 99% of households.
• National Highway: 150,000 kilometer
• Access to train: >90%.
• Access to airport: ~30%.
In 2022, only 113 airports operated for at least one month (or more) during the year, carrying 11.1 crore domestic passengers from Jan to Nov 2022. The majority of the Indian population (~70%) does not have an airport in their district or even in the neighboring district.
From Apr 2015 to Nov 2022, domestic traffic grew at an annual rate of 8.4%. Traffic exclusively between Tier 1 cities (ex., Mumbai to Delhi, etc) grew at the rate of 4.5% annually, whereas traffic between Tier 2 &3 cities grew at the rate of 21% annually (see table below for passengers per day and growth dates).
Apr-15 Nov-22 CAGR
Tier 1-1 99,619 134,566 4.5%
Tier 1-2 88,480 179,405 10.2%
Tier 1-3 24,711 56,318 12.0%
Tier 2-2 2,944 10,302 18.5%
Tier 2-3 2,092 7,752 19.4%
Tier 3-3 104 942 34.3%
Total 217,949 389,286 8.4%
In the next 2 decades, if urbanization in India has to rise to 50% and Indian GDP leapfrogging between $15 to $20 trillion, the aviation sector has to (and will) penetrate down to Tier 2 & 3 cities, and air travel has to be made accessible to the vast majority of the Indian population. The next phase of aviation growth in India needs to be (and will be) from bottom to top (Tier 3, 2 & 1), and regional travel in the next 2 decades will witness substantial, steady state and viable growth.
IndiaOne Air obtained AOC on 24th June 2022 with the aim of providing regional connectivity to underserved & unserved brownfield & Greenfield airports. IndiaOne Air worked closely with AAI, DGCA, and the Government of Odisha for the development and licensing of Jeypore aerodrome. The airport serves the Koraput district, with a population of 1.4 million people; a district rich in natural resources with a significant presence of companies like HAL and NALCO. Incidentally, Jeypore is the only airport in the neighboring 4 states and only the 3rd operational airport in the state of Odisha.
The Fleet comprises two brand-new Cessna Grand Caravan 208 Ex aircraft. The aircraft is equipped with modern navigation equipment like G1000 NXi - Integrated Flight Deck and safety oversight equipment like CVDR. IOA will be expanding the fleet in the coming months and will launch operations in Jamshedpur, Utkela (greenfield airport), Raipur, Kolkata, Cooch Behar, and Guwahati. IndiaOne Air is also selected as one of the official carriers for the ongoing Hockey World Cup 2023 (held in Odisha).
Since the launch of scheduled operations, IndiaOne Air has constantly been amongst the top three airlines in India for Seat Factor (occupancy rate), has maintained ~95% OTP, zero cancellations (only airline in India), and nil complaints (only airline in India). IOA puts lots of emphasis on safe and reliable operations with a key focus on providing the best customer service.
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