Regional airlines take to Indian skies

In a scenario of rising demand and intense competition between Full Service Carriers and Low Cost Carriers in India, regional airlines are emerging to take the lead discovers Anita Jain

The Indian civil aviation sector is poised for a quantum growth with growing levels of domestic and international tourism traffic. With the upward surge, the Indian Low Cost Carrier (LCC) sector is driving this change by successfully tapping 45 per cent of the Indian aviation market share. To cope with increasing demand, the supply and competition between airlines is on the rise. From 2005, about ten companies have applied for scheduled airlines licenses, in order to enter the race. Full service carriers focused more on international routes while the LCC sector focused on the metro and mini metro routes.


Indian regional aviation takes wing
The government, in order to enhance connectivity to tier II and tier III cities in the country and reduce congestion at airports in the major metros, introduced the regional airlines policy in August last year. However, Indian Airlines took the lead way back in 1996 with the introduction of Alliance Air. Its objective was to serve the regional air travel market. The airline was plagued by the fact that its fleet (mainly Boeing 737s), was not only ill-equipped to operate in regional airports, but also not suited for short haul flights. In addition, its four ATR aircraft could not be pushed for service elsewhere, as they were positioned to serve the North East market.

With the boom in the aviation sector after 2003, several players showed an interest in launching airlines with national operations. Approvals for nine of these were pending till August 2007, when the Ministry of Civil Aviation (MoCA) announced a separate category of airlines meant to serve India, beyond its big cities.

Soon after the policy was announced, some airlines awaiting national licenses, reapplied for regional permits. These included Star Aviation, Trans India Aviation, Air Dravida and Emric Aviation, all of which are looking to start operations in South India. In this region, air traffic outpaced other regions, in 2007.

Under the new regional aviation policy, which covers both aircraft and helicopter operators, airlines are supposed to operate primarily between airports of any of the four regions (North, South, West and East/North-East). Thus, a regional airline in a particular region operates from one metro to all non-metros in that region. However, airlines which have a license to operate in the Southern region can operate flights between the three metros in that region — Chennai, Bangalore and Hyderabad.

Directorate General of Civil Aviation (DGCA), the governing body for aviation in India, introduced a separate category for the regional airlines permit. The category is governed by the following guidelines:

Minimum initial startup capital will be required according to classification of the fleet operated (weight of the aircraft being 40,000 kg, at take off).

A regional airline should operate with three aircraft in one year with five at the end of two years.

For airlines with aircraft of a take-off mass of less than 40,000 kg, the paid-up capital should be Rs 12 crore for three aircraft. Two additional planes will ensure a required total paid-up capital of Rs 20 crore.

To ensure that such airlines remain viable, they should have a paid-up capital of Rs 30 crore, along with three aircraft to begin with. Addition of each aircraft will require Rs 10 crore extra, subject to a maximum of Rs 50 crore of equity.

Regional fixed wings continue to grow
Since 2003, passenger traffic has grown at almost 25 per cent, annually. This growth is not restricted only to metros. According to Airports Authority of India (AAI) estimates, traffic in tier-II and tier-III cities (such as Ahmedabad, Pune, Goa, Amritsar, Coimbatore and Vishakhapatnam) is expected to grow by at least 20 per cent, per year, until 2012. “As the impact of the Indian growth engine reaches smaller towns, the travel demand in such cities will increase. Further, increasing congestion and real estate costs in the metros will make non-metro cities attractive destinations for business. About 18 Special Economic Zones (SEZs) are coming up in India, mostly in tier II and tier III cities,” says Olivier Kobisch, DC/EM – Market Analysis Manager, ATR.

“According to recent research, the business segment constitutes up to 65 per cent of the Indian aviation sector, while the remaining 35 per cent is from leisure and VFR segments. Out of that 65 per cent of business travel segment, 78 per cent fly to metro cities, while of that 78 per cent, 87 per cent fly from metros to tier II and tier III cities,” says Koustav Dhar, President – Commercial & Special Projects, MDLR Airlines Ltd. According to Dhar, there are about 400 aircraft operating in India, of which only 68 are capable of regional operations. Currently, only 32 aircraft are operated by regional carriers. Thus, there is a huge requirement for regional airlines to increase fleet size, in order to absorb the growing demand. “The regional aviation sector has the capacity to add 300-350 aircraft, to its current fleet size,” adds Dhar.



Waiting for approval: Some regional airlines that are waiting to begin operations include Air Dravida, Trans India Aviation Pvt. Ltd, Emric Aviation Pvt. Ltd. and King Air. Regional airlines operate with hub-and-spoke networks; they connect non-metro cities in a region, to the main metro city of that area. From this point, full-service airlines carry traffic to other metros and international routes. “The existing policy framework in aviation encourages regional airlines, as it waives landing and parking charges for smaller aircraft. Regional airlines can benefit from lower parking charges, when they use non-metro airports as hubs. The US has a mature regional airline model wherein one out of every four domestic passengers flies a regional airline,” says Jerome Cheung, Manager of Asia Pacific – Markets & Airline Analysis, Bombardier Aerospace. “By introducing a separate category for regional airlines, the government has unintentionally solved a coordination problem for the third-party MRO business. There have been some moves by the industry, to set-up third party MROs that can service all aircraft (including Boeing and Airbus). It creates a natural demand for smaller aircraft, 50-100 seater ATRs, Embrears and CRJs,” says Steve Horner, Director – Marketing India, ELF. To tap the regional market Indian Airlines re-branded Alliance Air, in September last year as Air India Regional. Currently, Paramount Airways, Jagson Aviation and Star Aviation have got a green signal from MoCA, to operate as regional carriers. Air Dravida, Trans India Aviation Pvt. Ltd., Emric Aviation Pvt. Ltd. and King Air are awaiting approval. New players like Bird Group will consider regional carrier operations, by 2009.

Regional skies getting busier
According to Praful Patel, Civil Aviation Minister, regional air connectivity is still very low. Patel comments, “Regional aviation is the future. There is plenty of opportunity in connecting tier II and tier III cities with smaller airlines. ATF is cheaper and landing and navigation charges for 80-seater and smaller planes are waived.” Tax on jet fuel for smaller planes (which the regional carriers will use), is set at a low four per cent, compared to 30-40 per cent that FSCs pay. M Thiagarajan, Managing Director, Paramount Airways says, “Regional airlines can work well as feeder airlines. These in the South link a number of less connected places; for example, Hubli, Belgaum, Bellary, Salem, Tirupati and Pondicherry. Any airline, which has a 20-50 seater aircraft can carry passengers and feed them to larger airlines in metropolitan cities.” On the infrastructure front, the government is developing 33 non-metro airports. “There is definitely huge potential in the regional business, but DGCA should also provide financial concessions for airlines. ‘Watchhour’ charges should be waived, as well,” concludes Dhar. Despite the infrastructure crunch, the regional airlines policy is grabbing attention. This seems to be the only way for airlines to graduate to having national operations. MoCA is not approving any new FSCs. Regional airlines, with a good track record, may acquire national status in the coming years. As air routes to metros become increasingly congested, airlines see an untapped market in smaller cities and with regional airlines these might become busy hubs. The start of regional airlines opens another interesting chapter in Indian aviation. The government has set the right tone by creating a competitive environment. It should now let the market work and step in only to remove policy constraints or anti-competitive behaviour.

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About Devesh Agarwal

A electronics and automotive product management, marketing and branding expert, he was awarded a silver medal at the Lockheed Martin innovation competition 2010. He is ranked 6th on Mashable's list of aviation pros on Twitter and in addition to Bangalore Aviation, he has contributed to leading publications like Aviation Week, Conde Nast Traveller India, The Economic Times, and The Mint (a Wall Street Journal content partner). He remains a frequent flier and shares the good, the bad, and the ugly about the Indian aviation industry without fear or favour.

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