Regional Aviation - A flight too far

Even two decades after the liberalisation of the airline industry, much of the country still has poor air connectivity. Globally, the Indian market is already the ninth largest and growing at a pace that should catapult it to third position by 2020. But is any carrier geared up for regional operations?

Travelling by air in India is a fairly simple matter as long as you happen to live in a major city. Six carriers offer comfortable and convenient flights to major destinations across the country. With some luck and a few days in hand, it is unlikely that the desired flight will be full. And, would you believe it? Every airline wants to fly passengers for even less than it costs them, thanks to their suicidal embrace of Air India’s strategy of sub-cost ticket pricing. However, the distribution of aviation services is sharply skewed in favour of the lucrative routes between Tier-I metros and other major cities but abruptly declines towards the smaller population centres known as Tier-II and Tier-III cities. Away from the big cities, 133 routes across the country have less than one flight a day. Perhaps 250 potential low- to medium-density routes remain unused as they are not considered profitable for narrow-body jets. Pity someone from a remote region who needs to fly to a distant place in an emergency.

No growth

Uneven distribution has been an unwelcome feature of the remarkable growth of Indian commercial aviation over the past decade. The government’s policy on scheduled regional air transport operations, introduced in August 2007, was meant to set things right. It tried to make it easy for small startups to rapidly take aviation services to the hinterland. A number of entrepreneurs seemed keen to grab the opportunity but the policy apparently did not make things easy enough for them. In five years, despite as many as 18 regional airline hopefuls, with almost a dozen granted initial no objection certificates (NOCs), only MDLR Airlines based in Gurgaon actually got off the ground, and even that folded up after two years. From time to time, other names have been tossed around as being eager to commence regional operations including Jagson Airlines, Star Aviation, Luan Airways and Skyking, but nothing came out of it. Some experts blame the rigid stipulations regarding fleet size and other stringent conditions of the official policy. But is this dismal record on regional air connectivity about to change?

The Ministry of Civil Aviation recently granted NOCs to five new applicants to commence regional services. In the Southern region, there are Freedom Aviation and Air Pegasus; in the Western region, Deccan Charters; and in the northern region, Indus Airways, Karina Airlines and Religare Aviation. Another airline, Air Costa, with headquarters at Vijayawada, is proposed to be launched mid-year. The next 18 months are crucial. Within this time, the prospective parties need to meet various conditions and obtain the scheduled air operator’s permit for regional airlines. A regional carrier can operate either as a feeder airline to deliver passengers from surrounding cities to a major airline’s hub or as a commuter airline to provide standalone air service to isolated airports.

Regional Aircraft and Airports

Globally, the Indian market is already the ninth largest and growing at a pace that should catapult it to third position by 2020. However, is any carrier geared up for regional operations? IndiGo and GoAir have all-Airbus A320-200 fleets which prevents them from using shorter runways. SpiceJet, which earlier had only Boeing B737s, is currently the main airline trying to take air connectivity to Tier-II and Tier-III cities across the country. It is inducting 15 Bombardier Q400 turboprops which should all be received by the end of this fiscal. It may also opt for another 15 of these fuel-efficient planes to strengthen its hand in the regional sweepstakes. Jet Airways has 20 ATR 72-500 aircraft suitable for regional operations but not all are deployed on strictly regional routes. Air India has ambitious plans to expand its regional services, but these have been put on hold due to its dire financial condition. Kingfisher Airlines, whose survival is in doubt, has severely curtailed its scheduled flights and practically decided to vacate the low-cost segment and regional space. Its fleet of 25 ATR 72-500 planes may be leased out.

The Airports Authority of India (AAI) expects traffic from non-metro airports to surge to 45 per cent of the total in the next five years, up from 30 per cent currently. It should be only a question of time before the farthest points in the country are connected by air. Apart from the current tally of 127 airports (with 87 of them operational), perhaps another 120 airfields with runways of length 3,000 to 5,000 feet can be readied for regional jets or turboprops without much trouble. Half of the country’s population would then be within convenient reach of aviation services.

Some of the existing airstrips and many of those that may be reclaimed to operational status over the next decade or so, have relatively short runway length and rudimentary infrastructure that preclude narrow-body jet operations. However, some might still be suitable for Embraer E-jets and Bombardier’s new 100-seat CRJ1000. By the end of 2013, Bombardier will offer a brand new aircraft, the C-Series, which features 20 per cent less per-seat fuel burn. By 2018, Embraer plans to fit new engines and introduce other improvements in its regional jets, which may increase fuel efficiency by at least 15 per cent over current models. And the future of turboprop aircraft such as the ATR 72-500 and the Bombardier Q400 in the regional space is bright. Many airports that are unsuitable for regional jets can take turboprops. Aviation fuel in India costs considerably more than the world average and this too makes fuel-efficient turboprops objects of desire.

Unlike in affluent countries such as the US where regional carriers target their service at the relatively price-insensitive business customers, India’s regional demand is likely to be highly price-sensitive. Therefore, the low-cost model is the one most likely to succeed. Low-cost carriers need low-cost airports to rein in costs and offer attractive ticket prices to first-time flyers. Unless the price is right, travellers may choose to brave the rigours of surface travel and get to the nearest metro from where they can buy a more competitive ticket to their destination. Already, low-cost carrier (LCC) penetration in the country has doubled over the past five years and the total LCC market share including low-cost operations of full-service carriers is estimated to be over 70 per cent. However, a steep hike in airport charges, the proposed carbon emissions tax, and soaring aviation fuel prices, are expected to make air tickets 20 to 30 per cent more expensive in the not-so-distant future.