The Ministry of Civil Aviation has asked all airlines to either reduce the frequency of flights or the number of seats per flight such that their overall Viability Gap Funding (VGF) requirement on routes over 500 km, awarded under the UDAN scheme, is lowered by 40 per cent.
According to industry sources, the Ministry has sent an email to all airlines operating Regional Connectivity Scheme (RCS) routes awarded under UDAN 1, 2, 3, 3.1 and 4, since its inception in 2017.
RCS, or more popularly known as UDAN (Ude Desh ka Aam Naagrik), is a government initiative to connect the country's under- and un-served airports. The government provides Viability Gap Funding for a set time period to airlines operating on these routes.
Post the pandemic, airlines were not allowed to fly UDAN routes beyond 500 km. But, now, to give flexibility to the airlines, the Centre will allow routes of over 500 km so long as the VGF cap rules are followed.
A Civil Aviation Ministry official said this move is a temporary rationalisation effort.
While this rule is applicable to all Scheduled Aircraft Operatiors (SAOs), Satyendra Pandey, Managing Partner at advisory firm AT-TV, said this is likely to affect regional airlines the most.
“Demand can often be stimulated via tactical measures but this directive speaks to how demand has totally dried up,” Pandey said. LSN Murty, CEO, TruJet said this move is likely to impact cash flows of regional airlines. Another regional operator, requesting anonymity, said that this will be a fresh blow to small operators as, “Some of the routes may become unviable after this order.”
Pandey said that the government, too, is losing on RCS funds due to lack of demand, and the pandemic. “Ironically, this action is necessary as UDAN funds are running low due to the overall mechanism of the scheme and allocating taxpayer money for empty flights is not an ideal situation,” he said.