On Friday, the Narendra Modi government unveiled its most ambitious scheme of taking flying to India’s smaller towns by making it affordable. Jayant Sinha, Union minister of state for civil aviation, talks to Arindam Majumder about the economics behind the scheme and the steps that he thinks will kick-start regional aviation market. Edited excerpts:
There are many sceptics who question the viabilty of regional connectivity scheme. What steps have you taken to enable the regional aviation market?
If we look at the national aviation scenario, most of the traffic is between large airports. So, how do we connect Bikaner, Udaipur, Kota to Jaipur or Meerut, Moradabad, Varanasi to Lucknow? It was not possible because the regional aviation market was not doing well. What we have done through the Udan scheme is to strengthen the regional aviation market. Its a first-of-its-kind scheme, where you bid on a per-seat basis.
There are three important things in this scheme that will jumpstart regional aviation. First, we have increased the exclusivity period from one year to three years. If you win one route in the bidding process, you can run it for three years without anybody coming there. Second, we’re taking steps to reduce the airport charges at metro airports. So, if you’re flying from, say, Silchar to Kolkata, there will be no airport charges in Kolkata that obviously reduces the cost of flying.
At the same time, we are doing is trying to make a liquid market for lessors in case of smaller aircraft to enable easy leasing. With all these steps, the regional market has been brought to life. This is a big development in India’s aviation sector. You look at the large aviation markets such as the US, Australia or China, which are also large geographies, you always have the hub-and-spoke model where you have big airplanes flying in the major routes with smaller airplanes working as feeder service.
How will you make it viable for a small entrepreneur to get an aircraft and participate in the scheme? It is very costly.
Today, if you want to start a regional airline and cover 10-20 cities with three ATR-72, it can be very costly as buying an ATR can cost you $7-10 million. So, we had to help create a liquid, vibrant market feasible for lessors of small planes. Today, there exists such a market for leasing narrow-body aircraft and wide-body aircraft because the lessor can repossess them easily. We’re working on a process where the entrepreneur can keep a security deposit of three to six months depending on business risks and start on a variable cost basis rather than a fixed cost basis. The cost of running a 72-seater aircraft is Rs 1.76 lakh a month. One can put in a few crores as security deposit, get an ATR, bid for the route and start flying. We have reduced the barriers to entry dramatically.
23/10/16 Arindam Majumder/Business Standard
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There are many sceptics who question the viabilty of regional connectivity scheme. What steps have you taken to enable the regional aviation market?
If we look at the national aviation scenario, most of the traffic is between large airports. So, how do we connect Bikaner, Udaipur, Kota to Jaipur or Meerut, Moradabad, Varanasi to Lucknow? It was not possible because the regional aviation market was not doing well. What we have done through the Udan scheme is to strengthen the regional aviation market. Its a first-of-its-kind scheme, where you bid on a per-seat basis.
There are three important things in this scheme that will jumpstart regional aviation. First, we have increased the exclusivity period from one year to three years. If you win one route in the bidding process, you can run it for three years without anybody coming there. Second, we’re taking steps to reduce the airport charges at metro airports. So, if you’re flying from, say, Silchar to Kolkata, there will be no airport charges in Kolkata that obviously reduces the cost of flying.
At the same time, we are doing is trying to make a liquid market for lessors in case of smaller aircraft to enable easy leasing. With all these steps, the regional market has been brought to life. This is a big development in India’s aviation sector. You look at the large aviation markets such as the US, Australia or China, which are also large geographies, you always have the hub-and-spoke model where you have big airplanes flying in the major routes with smaller airplanes working as feeder service.
How will you make it viable for a small entrepreneur to get an aircraft and participate in the scheme? It is very costly.
Today, if you want to start a regional airline and cover 10-20 cities with three ATR-72, it can be very costly as buying an ATR can cost you $7-10 million. So, we had to help create a liquid, vibrant market feasible for lessors of small planes. Today, there exists such a market for leasing narrow-body aircraft and wide-body aircraft because the lessor can repossess them easily. We’re working on a process where the entrepreneur can keep a security deposit of three to six months depending on business risks and start on a variable cost basis rather than a fixed cost basis. The cost of running a 72-seater aircraft is Rs 1.76 lakh a month. One can put in a few crores as security deposit, get an ATR, bid for the route and start flying. We have reduced the barriers to entry dramatically.
23/10/16 Arindam Majumder/Business Standard
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