Launched in 2016, UDAN has benefitted more than 1.4 crore passengers; 619 routes connecting 88 airports, including two water aerodromes and 13 heliports, have been operationalised so far under the project. Inspired by that success, the finance ministry announced a modified UDAN scheme, which will be launched to enhance regional connectivity to 120 new destinations, to carry an expected 4 crore passengers in the next 10 years and support helipads and smaller airports in hilly locations and in districts in the northeast.

But a CAG (Comptroller and Auditor General) report that examined the scheme after the third round of bidding (up to UDAN-3) also found that 52 % (403 out of 774 routes) of the awarded routes were not able to commence operations. Moreover, from the 371 commenced routes, only 112 routes completed the full concession period of three years. Further, out of these 112 routes, only 54 routes ( 7% of the total awarded routes) connecting 17 regional connectivity scheme airports could sustain the operations beyond the concession period of three years (as of March 2023).

So, where did it go wrong despite the host of concessions offered? The short answer is that UDAN was reasonably well-planned and executed but barely any credible player came forward to enter the regional space.

Workings, wins and losses

Under UDAN, scheduled and regional operators are asked to bid for routes and the bidder pitching for the lowest support is awarded the route. This was financed by creating the Regional Air Connectivity Fund (RCF), to be funded by a levy or fee per departure on all domestic flights for providing concessions and VGF (Viability Gap Funding) for operating on regional routes.

In addition to the RCF, the government also announced a series of measures to help operationalise UDAN. To begin with, the regular charges airlines pay at these airports were almost entirely waived, be it landing, parking, navigation. A budgetary support of ₹4,500 crore by the Centre was earmarked towards the development and revival of the identified airports, airstrips, heliports and water aerodromes. The Airports Authority of India (AAI) was designated as the nodal agency for implementation of the scheme.

The wins of UDAN have to be examined in the light of what would be the situation had it not been operationalised. Before UDAN was announced, a number of airports – built for reasons not easy to identify – had fallen into disuse and disrepair since the infrastructure was never used. “A lot of exchequer funds had gone into creating these small airstrips and airports and it was going to seed”, said a former MOCA official who was part of the team that worked on the scheme in 2016 with Sinha.

Shifting sands and other Gaps

A big factor that altered the rules of transportation in India has been the rapid growth and expansion of India’s roads and highways in the last decade. The government has added close to 50,000 kms to the pre- existing national highway length since it took charge in 2014. Small and remote towns are now accessible because of better roads, expressways and bypasses. Similarly, for touristy routes like Dehradun-Delhi where road connectivity has vastly improved in the last few years, families are now finding it economical and less time-consuming to drive than fly.

“All routes offered under the scheme have to be re-examined in the light of the new reality,” said a former SpiceJet staffer who works as an independent consultant for smaller regional players, arguing that the connectivity offered should not be dependent on the VGF subsidy in perpetuity. With the government introducing faster trains across the country, the selection of routes will have to be closely examined.

Industry players say that by and large air travel for distances under 500 km might not be viable in the plains but UDAN can be more beneficial in the Himalayan region and even in parts of the northeast, where road and highway construction can be a challenge for many reasons including environmental damage. “Even here, helicopters might be better than small airplanes since they don’t need runways and have shorter flight times so are more affordable,” said Harsh Vardhan Pratap Singh, who heads the association of Flying Training Organisations in India.

But the biggest factor contributing to UDAN’s limited success has been the lack of committed, credible and well-funded smaller players opting for it. The few routes, which became viable have mostly been those IndiGo or SpiceJet have adopted; but almost no regional player has been able to make it a long-term sustainable business proposition.

Several small airlines players with regional plans and ambitions have run for a few months, maybe years, before shutting shop in the past decade. These include Zoom Air, TruJet, FlyBig, IndiaOne, Air Pegasus, Air Costa, Air Dravida, Air Carnival, Air Mantra and Air Odisha among a host of others. Many of these players run separate businesses, have cash they can invest and are attracted by the glamour of owning aircraft and an airline.

Since the initial investment required for a small aircraft airline is much lower -- ₹40-50 crore of initial seed money allows the operation to reach year two with four to five small aircraft -- than for a scheduled operator, many who have spare cash moved in when UDAN was launched.

But there are multiple reasons why the smaller players have failed to sustain operations. To begin with, some players moved into the sector solely attracted by the concessions offered. They believed that they could make quick money in the first few years. However, once the VGF funding stopped, these operators wrapped up. “In almost all the cases, the operator did not manage to make the kind of profits they envisaged or anticipated,” said KG Vishwanath, an aviation consultant and a former Jet senior management member. He has worked as an independent consultant with a clutch of regional players including TruJet. For example, one company he worked with had to eventually exit the space after five years, eventually losing interest after spending almost ₹500 crore in the process.

Second, many business houses want to operate only in and around their home region and do not want to take up opportunities in other parts of the country. A Hyderabad or Chennai- headquartered player might not want to venture into routes in the northeast or in the Himalayan belt. Also, airline promoters lack expertise in the aviation sector and while professionals are hired, the owner word is often final. In many cases, the professionals are former Jet, Kingfisher or Air Deccan employees who offer their expertise to these startups.

Lastly, for many of the new entrants, aviation is not their primary business; it’s more like a glamorous side hustle. This is a fundamental problem why most smaller entrants failed to make it a long-term sustainable business model. “In most cases, the promoters run multi-crore businesses in other industries and enter aviation more for a lark. Their livelihood does not depend on making this a success,” said a former DGCA official. As a consequence, the businesses last as long as the concessions keep it afloat.

Of the two regional players currently operating, Star Air is the aviation arm of the Sanjay Ghodawat Group, an Indian business conglomerate with varied interests. With a fleet of nine fixed wing aircraft comprising Embraer E145 and E175, the operation has been running 44 daily flights and connects almost 22 destinations since 2019, almost 80% of which are UDAN routes.

Industry experts and analysts seemed to be more bullish on the prospects of Fly91, a regional player, which started flying out of Goa from March 2024 with two ATRs and expects to have four aircraft by April this year. The promoters have aviation expertise (one of the founders Manoj Chacko was with Kingfisher Airlines), have raised almost ₹200 crore in capital and this venture is their primary focus.

Experts like Vishwanath said that if the government wants UDAN to truly take off and thrive, it should consider a more thorough screening process for founders and promoters and offer long-term financial support including low-cost loans. It should also set up an incubation cell that helps professionals who have the expertise -- and the passion for the sector -- but lack the capital required to come in. Until this happens, UDAN is likely to remain more a flight of fancy than anything else.