By R Chandrakanth
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Unlocking Growth in Tier-2 and Tier-3 India
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Outlay of ₹28,840 crore
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Development of 100 new airports, helipads and water aerodromes
Bengaluru. India’s regional aviation story stands at an inflection point as the next phase of the UDAN (Ude Desh ka Aam Nagrik) scheme, referred to as UDAN 2, seeks to correct structural gaps that have limited the programme’s full potential. While the first iteration succeeded in putting more airports on the map, the next phase, with an outlay of ₹28,840 crore, will determine whether those connections can be made economically sustainable, particularly in the underserved sub-20 seat segment.
A key aspect of the scheme is its strong focus on expanding aviation infrastructure in underserved and unserved regions, particularly Tier-2 and Tier-3 cities. The plan includes the development of around 100 new or revived airports from existing airstrips, alongside the construction of modern helipads and water aerodromes to improve last-mile connectivity in remote, hilly, and island regions. This infrastructure push is complemented by operational support mechanisms such as funding for maintenance of smaller aerodromes and enhanced route connectivity, aimed at making regional air travel both viable and sustainable.
Viability Gap Funding
Another central feature of UDAN-2 is its continued emphasis on affordability and airline participation through financial incentives. The government has allocated substantial viability gap funding (VGF) to support airlines operating on commercially unviable regional routes, ensuring that airfares remain accessible to the common citizen while encouraging carriers to expand into new markets. The scheme also integrates broader policy goals, including boosting tourism, trade, and local economies by improving regional mobility, as well as promoting indigenous aircraft manufacturing under the Atmanirbhar Bharat initiative. By combining infrastructure development with financial and policy support, UDAN-2 aims to democratise air travel while strengthening India’s regional aviation ecosystem
At the heart of the issue lies a stark economic mismatch. Larger regional operators such as Star Air and Fly91 have managed to make regional routes fairly viable by operating 70-seater aircraft, the smaller aircraft in the 9-19 seat category are finding it difficult. Explaining the economics, Prem Garg of IndiaOne Air said that for regional aircraft of 70 seats plus but less than 100, the per-seat costs range between ₹3,500 and ₹5,500 per hour. This allows airlines to break even at fares between ₹4,000 and ₹7,000 with load factors of around 65–75 percent.
However, for smaller aircraft in the 9–19 seat category, such as the De Havilland Canada DHC-6 Twin Otter, the economics are far less forgiving. Per-seat costs rise sharply to ₹9,500–₹13,000 per hour, while the market remains unwilling to pay beyond ₹3,000–₹6,000. The resulting gap makes commercial viability elusive without sustained support.
This disconnect is often obscured by comparisons with markets such as the Maldives or Indonesia, where small aircraft operations thrive. In those regions, high-yield tourism, island geography, and limited alternatives create natural demand for premium pricing. India’s Tier-2 and Tier-3 routes, by contrast, are defined by price-sensitive passengers, lower traffic density, and a perception of air travel as discretionary rather than essential.
Structural Adjustments Necessary
Expecting similar outcomes without structural adjustments has proven unrealistic, he avers. UDAN 2 attempts to address this by rethinking the role of subsidies. Instead of treating viability gap funding (VGF) as a short-term bridge, the emerging approach recognises it as a longer-term enabler. Extending support to five or even seven years allows routes to mature, while a more dynamic framework, where fares are gradually aligned with what passengers are willing to pay, could replace rigid caps. In this model, demand is discovered in real time, and subsidy levels adjust accordingly, creating a more responsive ecosystem.
Equally critical is the shift in how regional connectivity is conceptualised. Prem adds instead of viewing it purely as an airline business, UDAN 2 acknowledges it as a form of public infrastructure. This opens the door to shared responsibility, where state governments, local industries, and anchor institutions such as hospitals or mining companies contribute to sustaining routes. Airlines, in this framework, become facilitators of regional development rather than standalone commercial entities.
Non-towered Airports, a Solution
The current requirement for tower-controlled airports imposes disproportionate costs on low-traffic routes. With air traffic control towers costing upwards of ₹8–10 crore to build and around ₹3 crore annually to operate, the model is untenable for airports handling only a handful of daily flights. The introduction of non-towered or low-cost operational airports, using systems such as Aerodrome Flight Information Services,could reduce costs by as much as 50–70 percent, aligning infrastructure with the needs of small aircraft operations, he suggests.
Importantly, operators like IndiaOne Air have already demonstrated that a calibrated, demand-led approach can work. With a small fleet operating thousands of flights over several years, often beyond the initial subsidy window, such models offer a blueprint for sustainable expansion. Rather than aggressive fleet induction, the focus is on gradual growth, sub-500 km connectivity, and close alignment with state support.
Maturing Beyond VGF
Manoj Chacko, CEO of Fly91 opines that UDAN has already proven that regional India has real, untapped demand, with VGF playing a critical role in seeding these markets. As the scheme evolves, better route selection, right-sized capacity, and stronger network integration should improve sustainability, with several routes having the potential to mature beyond VGF over time. On demand, he stated, that what’s needed is consistency of operations, strong local partnerships, and improved last-mile connectivity to fully unlock it. Fly91 believes UDAN 2.0 can significantly accelerate regional air travel growth in India.
Indigenous Aircraft
Subhakar Papulla, Founder and CEO Flamingo Aerospace, said that the rollout of UDAN 2.0 marks an important shift in India’s regional aviation journey as the focus moves from expanding connectivity to building a more viable and sustainable ecosystem. The next phase is expected to place greater emphasis on route economics, infrastructure readiness and long-term scalability. As regional networks mature, the conversation is also moving toward the kind of aircraft platforms that can efficiently serve these routes without adding cost pressure on operators.
A key gap in the current ecosystem is the dependence on imported aircraft for regional operations. For short haul and low-density routes to become consistently viable, there is a growing need for aircraft that are better aligned to Indian operating conditions and supported by a domestic manufacturing and maintenance ecosystem. This is where indigenous aerospace development becomes relevant to the UDAN narrative. Strengthening local capability across design, production and lifecycle support can improve cost structures, reduce turnaround time and make regional connectivity more resilient over time.
Papulla added that UDAN 2.0 is pushing India toward a regional aviation framework that is truly built for its geography and economics. With 4.6 billion intercity journeys every year and nearly 90 percent of them under 400 nautical miles, the need is clear. This is a market that calls for a purpose-built turboprop, not a modified solution.
The IL-114-300 fits that requirement with intent. It offers 66 seats and a range of 1,450 km, and can operate from 1,400 meter unpaved runways even at maximum takeoff weight. It is designed to handle extremes, from minus 50 to plus 50 degrees Celsius and at elevations up to 3,000 meters, making it well suited to connect remote regions from Leh to Lakshadweep. At the same time, he believes that structural challenges that have historically held back regional aviation are being addressed. By offering leases in INR, the foreign exchange exposure for operators is removed. A domestic training ecosystem anchored by a full flight simulator ensures capability is built within the country.
Alongside this, a localized MRO network reduces dependence on external markets and improves operational efficiency. Flamingo’s roadmap for technology transfer is clearly defined, he said and mentioned that customization begins in 2027, followed by a gradual scale up to full assembly in India by 2029. Flamingo Aerospace, he reiterated, is not just introducing an aircraft into the market. It is building the foundation for a domestic aerospace manufacturing ecosystem that can position India as a formidable player in global aviation.
