Daybreak - Why India's scheme to make every Indian fly never took off

Episode Date: February 3, 2025

Back in 2016, the government launched a scheme called UDAN. It stands for Ude Desh Ka Aam Nagrik, which roughly translates to every ordinary citizen will fly. This was a scheme that promised affordable, hassle free air travel to tier-2, 3 and 4 cities across the country. But eight years later, flying in and out of smaller towns and cities could not  be more cumbersome. Direct flights are rare, and cancellations and delays are constant. So, that prompts the question – where did Udan go wrong? A report by the Comptroller Auditor General shows that more than half of the 770 odd approved flight routes under the scheme had not even commenced operations by March 2023. This largely had to do with two things – inadequate airport infrastructure and the lack of flights. But now the government is trying to fix it. Tune in. Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.We are now on WhatsApp at [phone]. Text us and tell us what you thought of the episode!

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganesh, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast.

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With that, back to your episode. Back in 2016, the government launched a scheme called Udan. It stands for Ude-Deshka Amnagric, which roughly translates to every ordinary citizen will fly. Now, this was a scheme that promised affordable, hassle-free air travel to tier two, three and four cities across the country. But eight years down the line, flying in and out of smaller towns and cities could not be more cumbersome. Direct flights are rare and cancellations and delays constant.

So that prompts the question, where did Udan go wrong? Well, data shows that the Radhu well-intentioned scheme never really took off. Pun intended. Now, a report by the Comptroller Auditor General shows that more than half of the 770-odd approved flight routes under the scheme had not even commenced operations by March 23. And this largely had to do with two things. Number one, inadequate airport infrastructure and number two, the lack of flights.

And then there are the horrifying stats on plane cancellations. Believe it or not, between November 2019 and November 24, the percentage of flights cancelled due to operational issues under the government's regional connectivity scheme increased by more than five times. and 2024 was actually worse than ever. Across the country, there were close to 12,000 cancellations within the first nine months of last year. Just to put that in perspective,

that is almost as many flights cancelled in all of 2022 and 2023 combined. Naturally, all these cancellations pretty much defeat the whole purpose that airline connectivity was meant to serve. Take the case of the northeastern state, Sikkim. The existence of its primary airport, Pakion Airport, depends on just one airline, spice jet. On several occasions, the airline has had to suspend its operations there, the most recent being between 2022 and 2024.

And then all air travel essentially comes to a standstill. Naturally, it is very chaotic, but this time around, the government is trying to fix it. It is revamping the Odan scheme, and it's doing this by ensuring that airports are ready before airlines begin bidding for flights. The initial hope was that the budget would allocate funds for developing unused airports and airstrips, but as expected, the actual budget allocation ended up falling short of expectations. The Udanskim ended up getting an allocation of only 540 cro during last week's budget. The overall budget allocation for the Civil Aviation Ministry meanwhile was cut by 10%.

You see, over the past eight years, the government has invested around 3,800 crore rupees in airline operators and vendors, as something called viability gap funding. It's essentially aimed at supporting infra projects that are economically beneficial, but not commercially viable as part of Odan. But the results so far have been underwhelming. While the initiative helped fly over 14 million passengers across 88 airports in 8 years,

a chunk of the landing strips lie underserved and unutilized. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Rahal Philippos and I don't chase the news cycle. Instead, every day of the week, my colleagues, Nikda Sharma and I will come to you with one business story that is worth understanding and worth your time. Today is Tuesday, the 4th of February. India currently has a total of 159 operational airports.

And just last year, the government said it wanted to raise that number to 200 by 2025 and 400 over the next two decades. That is an ambitious goal, especially considering that the airports that exist today are far from ideal. The same CAG report I referred to a little while ago states that the existing airports are all dealing with a combination of sustainability problems, poor monitoring and gaps in route feasibility. Now, a little while ago, I told you about the government's viability gap funding.

Generally, it is extended to airline operators in the first three years of their operations under the Udán scheme. Essentially, the government ends up covering 20% of the cost of of landing and parking fees, among several other things. But today, there is an eligibility issue. Consider this. While flight operations had commenced on 371 approved routes by March 2023, only about 30% of them were eligible for the government's financial support for flight operators.

Even among those 100-odd routes, only a little over half were able to sustain operations beyond the concession period. And despite that, the Airport Authority of India, or AAI, boasts 619 routes operational under the Udahn scheme. The catch is that nearly half of those currently have no direct flights. In fact, there are also a bunch of airports like Kushinagar in UP, Pakong in Sikkim, Hissar in Haryana and Sholapur in Maharashtra that are technically operational but have no flights currently. At least 27 airports across the country remain unserved or non-operational.

Some of these were heavily funded by the government under the ODAN scheme, and yet. But even the airports that are operational do have issues. Many of them lack basic infrastructure like night-time landing facilities, adequate hangars and road connectivity to the airports. A former IAF officer and the ex-CO of an airline operator told the care that it takes as little as one bout of rainfall for several of these airports to become completely unserviceable. Another critical question is whether there are enough passengers to sustain the routes under the Udahn scheme and if airline operators even have the capacity to meet the targets. Stay tuned. The Kent spoke to 11 aviation experts including consultants, airline operators and AAI officials.

India would need at least 1,500 aircraft to service the current set of awarded routes, is what most of them had to say. Currently, the combined fleet of all airline operators takes a tally to, A senior Indigo Airlines executive said that out of 434 aircraft that the airline has, over 80 are grounded due to technical issues. Now, Indigo commands 63% of India's civil aviation market, and it typically requires specific operational criteria when launching new routes. These routes often connect an airport with four to five destinations. But the thing is, many current regional connectivity routes fall short of these standards.

They only connect one or two airports, which fails to generate sufficient passenger traffic. So instead of reaching the target of 3 million passengers annually through the Udahn scheme, the total number fell from 2 million in FY23 to 1.9 million in FI24. Now, the role of airline operators in this whole mess cannot be ignored. You see, multiple have bought licenses at throwaway prices without any intention to actually operate. Generally, they were all just waiting to sell the license. to a third party at a much higher rate. And a lot of them are far more interested in availing government subsidies

than actually running operations efficiently. In fact, that same CAG report shows that between 2019 and 2022, airlines overcharged passengers to the tune of 72 crore rupees as O'Don Levy on all domestic tickets. The bottom line is that this was a well-intentioned plan. But like most experts will point out, it just was not exact. executed well enough. Manish Sinha, the former chief of Ahmedabad airport and chief executive of a consultancy firm called Amir's Aviation, shared his thoughts with the Ken recently. He said that India should have adopted a hub and spoke model. Now, this is a model where several smaller

airports are connected with larger hubs. It's considered a very useful model within the aviation industry because otherwise you could land up in a situation like Spicejet did a couple years ago. The airline launched flights from Port Bandar in Gujarat to Mumbai in 2017, but this point-to-point connectivity only ended up attracting passengers from these two cities specifically. In fact, this is also why airports in smaller places like Port Bandar, Kushinagar and Karnul remain underserved and could not quite attract adequate passengers over the years. Mani Sinha also pointed out that it makes sense to use smaller aircraft because that could significantly reduce operational costs for operators.

They require shorter runways and also end up lowering construction and operational expenses while ensuring higher seat occupancy. Now, the government is starting to realise that there is sense to this approach. In October 24, civil aviation minister Ramohan Nido said the future phases of the Udán scheme would focus on establishing a hub-and-spoke model. But will this take off in the long run? Only time will tell. Daybreak is produced from the newsroom of the Ken

India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. Head to the Ken.com and click on the red subscribe button on the top of the website. Today's episode was hosted by Rahil Filippos

and edited by Rajiv Sien.