Airfares to be revised on quarterly basis, under UDAN

The Dollar Business Bureau

Airfares and subsidy by the government to airlines under UDAN scheme will be reviewed on quarterly basis depending on the inflation.

The UDAN (Ude Desh ka Aam Naagrik) scheme, which seeks to connect under-served and un-served airports, provides for a limit on prices of air tickets and viability gap funding (VGF) for the airlines.

The Ministry of Civil Aviation has said that VGF and caps on the prices of air tickets under the UDAN scheme would be revised every three months.

The airfares would be associated with inflation, while VGF would be considered on the basis of inflation, aviation turbine fuel cost and dollar-rupee exchange rates.

The first flight, under the UDAN scheme, took off from Shimla to New Delhi, last month.

“Both airfare and VGF caps will be revised on a quarterly basis. While the airfare cap will be indexed to inflation, the VGF caps as well as VGF amounts determined for specific routes will be indexed to ATF prices and exchange rate of INR vis-a-vis USD in addition to inflation,” the Ministry said.

The revision on a quarterly basis would make sure that all the aspects impacting the operational cost of a carrier are considered while deciding VGF.

The carriers who have been given routes under the UDAN have to set aside 50% of the capacity of aircraft for discounted airfares.

Under the UDAN scheme, airfares are capped at Rs.2,500 for an hour flight and for this, subsidy would be provided to participating airlines by way of VGF in addition to other incentives.

Under the scheme, five carriers won bids for operating on 128 routes, which connect 70 airports. Out of that, 31 are un-served airports.

The government is expected to issue bids for second phase of regional connectivity scheme in the coming three months.