UDAN: Subsidising Flights to Small Cities

How India's regional connectivity scheme uses subsidies and fare caps to bring flights to smaller towns, and what it has achieved.

Many smaller Indian cities lacked air connections. In 2016, the government launched UDAN, short for “Ude Desh ka Aam Nagrik” (let the common citizen fly), to make regional flying affordable.

How UDAN works

Airlines bid for routes connecting underserved or unserved airports.
On UDAN flights, a portion of seats is sold at capped fares, for example around 2,500 rupees for about an hour’s flight, with caps revised over time.
The government provides viability gap funding: subsidies to cover the gap between the airline’s costs and revenue from capped fares.
Airlines get exclusive rights to a route for a few years.
Central and state governments offer concessions, such as lower airport charges and reduced VAT on fuel.

The first UDAN flight took off in April 2017, between Shimla and Delhi.

Achievements

Hundreds of new routes were launched.
Many unused or underused airports, heliports and water aerodromes became operational.
Small towns gained connections to major cities, helping tourism, business and medical travel.

Challenges

Route sustainability: many routes were discontinued, especially after the subsidy period ended, because demand was too low.
Small airlines: several regional operators struggled financially.
Infrastructure: some small airports lacked facilities for reliable operations.
Weather: small airports often lack equipment for flights in poor visibility.

The economics

UDAN is an example of a subsidy for a service with positive externalities, such as regional development, where private demand alone may be too low. The key question is whether routes eventually become self-sustaining or whether subsidies are needed indefinitely.

The scheme was extended for another decade in the 2025 budget, with plans for more airports and routes.

The hill town flight

A hill town previously a 10-hour drive from the state capital gets an UDAN flight. Tourists and patients seeking hospital care use it. But during the monsoon, bad weather cancels many flights, and demand in the off-season is low, testing the route's viability.

Thinking UDAN routes are profitable on their own

Many routes depend on subsidies, and some closed after support ended.

Key takeaways

UDAN, launched in 2016, subsidises regional flights with capped fares.
Viability gap funding and concessions support airlines on these routes.
Hundreds of routes and many small airports became operational.
Many routes struggled to survive once subsidies ended.