UDAN has to include freight at some point: Deloitte's Peeyush Naidu

Global consultancy company Deloitte has been working with the Union civil aviation ministry on the regional connectivity scheme UDAN (Ude Desh ka Aam Nagrik) for the past three years. It believes the demands like the inclusion of international flight services, connecting smaller airports to larger metros, etc, under the scheme are a reflection of market response and the scheme needs to respond back to incorporate some of these elements. Deloitte Touche Tohmatsu India LLP partner Peeyush Naidu, who is part of the team working with the ministry on UDAN, tells B Dasarath Reddy that, besides looking at some of these demands, the scheme also needs to expand to include freight by identifying suitable business models at some point. Edited excerpts: What has been achieved under the UDAN scheme so far? If you look at overall achievement, as the minister and everybody has been saying, over these two rounds (awarding of routes) 70 airports will get connected through scheduled flights. So people will have an option to fly from 70 more airports in the country by the end of this year. Is tweaking imminent in view of demands such as allowing international flight services under UDAN? I think nobody imagined that UDAN 1 and 2 would be so big when we started off. Ministry's objective was that regional connectivity will not happen with large planes so how do we get other operators interested in that segment. During the first round, IndiGo had said that it will not participate in the Udan scheme. By round 2, they had placed an order for 50 aircraft to participate in UDAN. As things stabilise we should continue to make changes as any scheme to become successful it has to respond to the market dynamics. Is the regional connectivity going to be a part of a larger logistics play in the country? If you look at how the regional connectivity can be expanded to include freight, we will possibly need to have a look at business models where we are able to move cargo in defined period of times to either domestic hub airports or through AFSs (air freight stations), which can be coexisting with multi-modal logistics parks, CFSs(container freight stations) and so on. Today the load is scattered because some of the people are taking it by trucks to some of the facilities nearby. As smaller aircraft are predominantly meant for passenger traffic, their ability to carry additional cargo is limited. The A320s or the ATRs may carry some belly cargo. We know, for example, air cargo finds it cheaper to go by truck from Kanpur to Delhi than find air connectivity in Kanpur. So the focus should be to find and identify where some of these rubbings can take place and what business models in which can private sector is facilitated or can be incentivised to operate so that we can aggregate the first mile and the last mile. Air traffic in India is growing at an average 20 per cent year-on-year.

Will the regional air connectivity further boost the traffic growth? While it sounds like a defined number of seats today, the real benefit of UDAN is to incentivise movement within rest of the network. Somebody who flies from a smaller city to Delhi may not be stopping at Delhi. He will now fly out further. So I think it has the contributory effect on the entire network. I think it will play a part in sustaining the double-digit growth in the next five years. As fuel prices are increasing, this might play a part in still bringing some more demand to sustain that growth. Some of the projections predict huge demand for new aircraft in India. What's your view? Not all of the aircraft on purchase is going to be additional. When airlines place bulk orders they get better rates. Then they are able to replace either the existing aircraft which are on lease or which are already ageing. But by any standard, we are looking at a very significant growth in the number of aircraft on the ground in the next 5-10 years.