Heading for Trouble

The big, pale blue entrance gate of Ludhiana airport remains shut for most part of the day. It opens only when the airport staff comes to work or leaves in the evening. There's hardly been any passenger movement over the last 30 months since Air India closed operations here. Once in a while, people come to board private chartered flights.

Punjab Police personnel at the gate could barely write. When this was pointed out, the Director, A.N. Sharma, said the security staff will shortly undergo training in aviation safety that will prepare them for challenges after the airport starts functioning again from July-end, when it will kick off with scheduled flights from Alliance Air and Deccan Charters, thanks to the recent government push to regional air connectivity. In June 2016, the government had come out with a civil aviation policy that laid emphasis on making flying more affordable. Then, in April, Prime Minister Narendra Modi launched the UDAN (Ude Desh ka Aam Naagrik) Scheme that caps fares on regional routes at Rs 2,500 for half the seats in flights with duration of up to one hour. In the first phase of UDAN, five airlines have bid for 128 routes covering 70 airports, including 45 underserved/unserved ones. Besides this, the government intends to spend Rs 50-100 crore on each of these airports, a large number of which are undergoing last-minute fixes.

However, experts say fare subsidies and capital expenditure alone cannot ensure long-term sustainability of these airports. The biggest lifeline of an airport is passenger demand and airport traffic in India is skewed towards the metros and tourist destinations. Six airports - Mumbai, Delhi, Bengaluru, Hyderabad, Chennai and Kolkata - account for over 70 per cent of domestic traffic.

The Demand Conundrum

Sharma was selected by senior Airports Authority of India, or AAI, officials two months ago to speed up the renovation work at Ludhiana. His job is to ensure that civil and technical infrastructure is in shape. "We did a survey and found several gaps. The team is working on them. We are increasing the staff strength from 17 to 22. Since my joining, we have installed x-ray and metal detection machines," he says.

This is the second attempt to revive this airport. Back in 2014, Kingfisher Airlines and Air India used to fly to Delhi from here. But high fares and frequent cancellations, especially in winters due to fog, led to a dip in passenger traffic. The authorities upgraded the navigation system to DVOR, which costs about Rs 10 crore and helps aircraft land even when visibility is down to 1,800 metres. The previous system required visibility of over 5,000 metres. To put this into perspective, Delhis IGI airport has CAT III-B equipment that requires visibility of just 50 metres. This did not help as the airlines had already decided to leave. "Ludhiana has a lot of economic activity. We have demand for some 20 non-scheduled flights every month, more than other regional airports," says Sharma. He is waiting for the state government to approve the master plan, which includes construction of a new terminal building, installation of a superior navigation system, and expansion of runway for narrow-body planes such as A320 and Boeing 737.

Tough Task

The airports will have to do a tightrope walk. Passenger demand, especially in smaller cities, is directly linked with timings, connectivity and dependability. If any of these factors are ignored, the results could be adverse for both airlines and the airport. For instance, a flight from Kanpur to Delhi should feed into flights connecting Delhi to other metros. Also, the profile of the city is crucial. Out of 45 cities, just 10 - Agra, Jamnagar, Jamshedpur, Kandla, Pantnagar, Pondicherry, Shimla, Kullu, Ludhiana, Mundra and Shillong - are large industrial/tourism centres.

To this, G.K. Chaukiyal, Executive Director (RCS) at AAI says UDAN is a demand-driven scheme and the airlines were supposed to do due diligence of airport infrastructure and traffic projections before applying. This is crucial. "Traffic growth depends on many factors. Oil prices are at $50. If they cross $80, the fares will go up and that will affect demand. It's a highly price-sensitive sector," he says.

Long-term commitment of all stakeholders is a must for the plan to succeed as adhocism has not worked in the past. Last year, in a reply to a question in the Lok Sabha, Civil Aviation Minister A. Gajapathi Raju said a little over `600 crore was spent on 25 airports in two years when none of these handled even a single scheduled flight. Many of these 'ghost' airports, such as Jaisalmer, have fancy terminal buildings and big runways. SpiceJet will be starting flights from Jaisalmer under UDAN from October.

Critics blame faulty planning of the AAI and political influence for the mess. Demand surveys, they say, have failed to correctly predict passenger traffic. Only 75 airports out of 450 airports/strips have scheduled operations.

The government expects the UDAN Scheme to change things. The scheme offers subsidy for 50 per cent seats on regional routes, monopoly on the route for three years and a slew of other concessions. "There's always an element of uncertainty in such projects. We are encouraging airlines to invest, and that's why we are giving them exclusive rights to stations, because building the market takes time," says Chaukiyal.

Will it work? "The UDAN initiative, although good, is unlikely to work due to execution challenges. The success of an airport depends on regional growth, and many selected airports lack supporting economic activity. The whole point of UDAN is that it's not sustainable," says Mark Martin, Founder and CEO of Martin Consulting.

Airport Infrastructure

The AAI expects that all these airports will be revived by October but some airport officials BT spoke with are not aware of such a plan. S.S. Magirwar, Airport Director at Shimla airport, says he does not know about any such plan. "We renovate our airport every three-four years. Our airport is ready for scheduled and non-scheduled flights. As far as sustainability of UDAN is concerned, it depends on airline operators," he says. Unlike UDAN, where central and state governments are bearing the subsidy burden, the revival of airports is solely the responsibility of the AAI.

To a large extent, the regional rush is driven by buoyancy in the aviation sector. The AAI, as well as the airlines, are in a reasonably good shape. Despite making losses on 90 per cent airports, the AAI generated a net profit of Rs 2,537.36 crore in 2015/16, largely due to earnings from Delhi and Mumbai airports. "The government is funding the entire project. As traffic develops, we expect these regional airports to start earning revenues," says Chaukiyal.

The recent aircraft orders of airlines indicate that they have big plans to tap regional markets. Market leader IndiGo, for instance, has plans to buy 50 ATRs; SpiceJet has signed letter of intent for 50 Bombardier Q400 aircraft. Both aircraft are suited for smaller airports. "Aviation is a cyclical business. Since the sector is upbeat, airlines are ready to take the risk of flying to regional towns on the back of government subsidies. In a down cycle, they may need to relook at their network," says an aviation consultant.

"Leisure and native traffic will not stimulate demand. There's a need to support other industries and the services sector in these regional locations which will benefit from new airports, and create demand," says Amit Sinha, Partner at Bain & Company.

The government is hoping that UDAN will give fresh stimulus to regional connectivity but it has a lifespan of three years. Over-dependence on government dole and lack of demand might take the scheme down the tube.~

@manukaushik