The low ratio of per capita air trips in India, while being an embarrassing statistic, suggests a huge potential for air traffic growth largely in the regional sector. The current dynamics of progress, however, needs to change gears to exploit the country’s veritable cache of 500 airports spread across its vast expanse.

The second wave of liberalisation in the regime of Indian civil aviation policy came a decade ago and was characterised by an avaricious gravitation of Indian domestic airlines to metros. A recent study on regional air connectivity commissioned by the Civil Aviation Ministry and carried out by Deloitte stated that 93 per cent of total seat deployment in the winter of 2012-13 was between metros to smaller cities, while routes connecting Tier-II and Tier-III cities, was only seven per cent. This trend, driven by commercial considerations, has relegated regional aviation to the background. Government policies to stimulate regional airports by way of route dispersal guidelines (RDGs), though well-intentioned, did not achieve the desired objective. This was because the RDGs served as a “stick” to the airlines, mandating them to fly a minimum proportion of their metro-to-metro Air Seat Kilometres (ASK) on regional connectivity without any tangible returns. Instead, a “carrot” by way of financial relief, i.e. lower taxes on aviation fuel, as also lower airport/navigation charges at smaller airports, might have proved more useful. Gravitation of airlines to metros led to their saturation pushing fresh ASKs inexorably towards Tier-II and Tier-III airports. The trend of expanding regionally is yet a fledgling one, but appears set to be universally embraced by all airlines operating in India.

Route Dispersal Guidelines

The policy on RDG was introduced in 1994 and is based on an airline’s deployed capacity measured in available seat kilometres (ASKM). Though revised periodically, airlines feel that it has outlived its utility and needs to be scrapped altogether. As per the policy, all domestic routes are divided into three categories based on traditionally surplus generating routes (Category-I), loss making routes (Category-II) and the remaining routes (Category-III). The Category-I routes are profit-making inter-metro routes which cross subsidise losses largely on Category-II routes that serve regions of difficult terrain and destination in remote areas such as the North-eastern region, Jammu and Kashmir (J&K), Andaman and Nicobar and Lakshadweep Islands. Category-III comprises routes other than those included in Category-I and II. The RDG policy mandates that every operator deploy on Category-II routes at least ten per cent of the capacity deployed on routes in Category-I. Further, of the Category-II routes, at least ten per cent need to be deployed on services or segments thereof operated exclusively within the North-eastern region, J&K, Andaman and Nicobar, and Lakshadweep. Also every operator must deploy on routes in Category-III, at least 50 per cent of the capacity deployed on Category-I routes. This policy is applicable only to national airlines which are policed into adhering to the letter of this regulation. Alas, the policy has failed to achieve the laudable objective in spirit.

Regional Airlines

Another policy defines a Scheduled Regional Air Transport Service or Regional Airline as “an airline which operates primarily in a designated region and which on grounds of operational and commercial exigencies, is allowed to operate from its designated region to airports in other regions, except the metro airports of other regions”. Regional airlines are not permitted to operate on Category-I routes except in the Southern region which has three metros. Here a regional airline is allowed to operate between the metros within the Southern region, namely Bengaluru, Chennai and Hyderabad. Thus, as can be seen, RDGs apply only to national airlines and not to regional ones. As an analogous extension of that logic, regional airlines are not permitted to trade-off their ASKM on Category-II, IIA and III routes with national ones. They are thus constrained to fly routes within their region. Moreover, they are denied the benefit that could have accrued from a reciprocal arrangement with a national airline which did not have an aircraft suitable for short trips typical of regional aviation. This policy has effectively kept regional aviation stifled. As of now, there is no regional airline functional in India. Several applicants have in the past, obtained no objection certificates (NOCs), the first step towards launching a regional airline, but only two actually commenced operations. MDLR Airlines was launched in 2007 in the Northern region. However, after two years, the airlines terminated its operations. Religare’s Air Mantra has been the only other regional airline to actually start flying but has suspended operations after a few weeks of insipid market response. Air Costa is reported to be almost ready to go. Hence so far, the impact of regional airlines has been negligible.

The hiatus thus extant is gradually being pervaded by national airlines. Air India has had its subsidiary, Alliance Air, operating 11 ATRs/CRJs on regional routes, but besides being unprofitable despite subsidies, it did not make significant impact on regional aviation. The other national airlines have had some presence in the regional domain due to RDG.

Airline Disposition

SpiceJet was the first national airline to seriously address and exploit the regional space through a strategic vision. Neil Mills, CEO of SpiceJet, is on record as having stated, “Regional airports will ultimately be the growth drivers for Indian aviation.” In 2011, SpiceJet deployed Bombardier Q400 at Hyderabad for operations to Aurangabad, Belgaum, Bhubaneswar, Goa, Indore, Madurai, Mangalore, Nagpur, Nasik, Raipur, Rajahmundry, Tirupati and Vijayawada. It currently has 15 Q400s and future plans include regional hub at Delhi. As a platform, compared to the Boeing 737, the Q400 is an excellent choice for small hops requiring smaller numbers to break-even.

SpiceJet stands third amongst India’s airlines in terms of passenger load and has the largest regional network. It recorded an 82 per cent year-on-year growth in regional traffic during the third quarter of 2012-13. That period also represented the airline’s highest ever net profit in a quarter. However, the grapevine has it that the Q400 is not very suitable for Indian climatic conditions and that the fleet suffers from acute maintenance and engineering problems. SpiceJet’s initiative in regional aviation has been laudable but whether its spectacular turnaround in operational performance and profitability is because Q400 operations is profitable or despite their unprofitability, is unclear. Some feel that the profitability of SpiceJet’s international operations are compensating for loss making Q400 operations. In any case, introduction of the Q400 by SpiceJet has enhanced regional connectivity. Jet Airways operates 15 ATR 72s, although some of these are due to retire soon. Jet is planning to lease five ATR 72-600s for regional operations. The airline perceives regional aviation as the future growth area in Indian civil aviation.

IndiGo appears set to launch regional operations under a new subsidiary airline which will look at 20 ATRs as a first goal. Given IndiGo’s professional approach and on-time performance record, its entry into regional aviation could significantly improve regional connectivity. Yet another factor is the entry of AirAsia into the Indian domestic scene. AirAsia has already shown disdain for operating on overcrowded metro routes especially Delhi-Mumbai, which has 67 flights a day and is set to commence operations from Chennai to mainly Tier-II and Tier-III cities. Although AirAsia is commencing operations with A320s, it is expected to operate a smaller turboprop aircraft fleet to exploit the regional market.