The maximum fare under the UDAN scheme will be capped at Rs 2500.
Highlights
- UDAN scheme devised to increase connectivity across the country
- Will link airports like Bikaner, Jamnagar, Bhatinda, Allahabad, Lakhimpur
- Airlines to be compensated if cost exceeds Rs 2500 by taxing other routes
To boost air travel between smaller cities, fares for one-hour flights will be capped at Rs 2,500 in the new UDAN scheme that is likely to launch in January.
The UDAN scheme (an acronym for Ude Desh Ka Aam Naagrik or "helping the average Indian fly") has been devised to increase connectivity.
Here's how the scheme works. The government has identified airports that are either unused or under-utilised, even though they have infrastructure like a terminal building and air traffic control towers. It has also committed to spending Rs 4,000 crore ($598 million) to reopen 50 disused airports within four years.
The UDAN-vetted airports include Bikaner and Jaisalmer in Rajasthan, Bhavnagar and Jamnagar in Gujarat, Bhatinda and Pathankot in Punjab, Allahabad in Uttar Pradesh, and Lakhimpur and Jorhat in Assam.
Airlines will be asked to bid for routes that connect small towns to cities. Fares for one-hour flights will be capped at Rs 2,500 and taxes will be kept very low. If the airline's cost of a seat exceeds this amount, the government will pay the difference - by collecting more from airlines operating on profitable routes. In technical terms, this is Viability Gap Funding. So far, two options have been discussed: either the government charges a 2 per cent cess from passengers flying on profitable routes, or it asks airlines to pay Rs 8,000 every time they land at an airport in a major city or metro.
Airlines have not commented officially but many are apprehensive that it will push up their costs and fares on profitable routes like Delhi-Mumbai.
Questions have also been raised if the government can cap fares without changing the law on aviation.
"We have already clarified from the ministry, based on our own discussions with the Law Ministry. We think that within the current legislation that we have, we can look forward to this kind of arrangement," Jayant Sinha, the junior minister for aviation, told reporters.
The ministry's top bureaucrat, RN Choubey, said airlines could now start bidding to run specific routes. Successful bidders will have exclusivity for the route for three years, after which government support would tail off as the market becomes sustainable on its own. The scheme will run for 10 years.