The regional airline industry in the US is an essential mode of transportation as it connects various States. If we can make an analogy, the regional airline industry in the US networks the way inter-state buses do in India. The essence is quicker transportation without many frills, accordingly the frequencies are good and convenient. The regional airlines in the US carry 22 per cent of passengers. The domination is by the large hub-and-spoke carriers such as United Airlines, Delta Air Lines (DAL) and American Airlines (AAL) who fly most of the planes regional airlines operate. The connectivity they provide is far-reaching and there is frenetic activity in the skies.

However, they are not without problems. The old regional airline, capacity-purchase model is well and truly broken and airlines have to look at more revenue-bearing models. Regional airlines have been rapidly evolving, expanding capacity purchase portfolios or acquiring branded operations such as Republic’s acquisition of Midwest and Frontier to form Frontier Airlines. But the problem is of plenty as there are many aircraft in a reportedly vastly shrinking regional airline system. The dependence of regional airlines on some of their major partners may not have really worked in their favour.

The problem for regionals really began in the post-9/11 period when major-carrier bankruptcies allowed the restructuring of that sector. Regionals took on an increasing capacity lift for their partners with 8-10 per cent margin contracts. Major carriers were still suffering a negative or just-barely positive margins and in 2007 began a watershed change in the industry.

The regional airlines have little leverage with their major airline partners, and without leverage we believe it will be difficult for the industry to return to profitability. The regional airlines generally control a lot of aircraft, too many 50-seat aircraft, but there are still too many airlines competing for too few opportunities. Consolidation is the answer but, unlike their major-carrier counterparts, it has not resulted in a reduction of capacity, and won’t until carriers earn their Single Operating Certificates (SOC).

Pilot shortage

One major problem for the regional airline industry is pilot shortage. The cost of flight training can top $100,000, and the entry-level pay at regional airlines, which handle roughly half of US flights, for years hovered between $17,000 and $22,000 a year. The resulting nationwide pilot shortage is putting a squeeze on regionals, and ultimately some may not survive. A recent report from the US Government Accountability Office (GAO) found 11 of 12 regional airlines fell short of their hiring targets.

The shortage has deepened s when federal regulations raised the number of hours in the air, to 1,500 from 250, that first officers—entry-level pilots—must have under their belts. That makes training even more expensive, as aviation graduates typically fall short of the new requirement. Some fledgling pilots take on debt, many work as flight instructors, and others abandon plans to fly for a passenger airline.

The new federal rule raising the minimum flight hours was an effort to increase safety by requiring that airlines use more experienced pilots. The mandate was passed by Congress in 2010 in response to the 2009 crash of a Continental Express regional flight near Buffalo in which all 49 people on board and one on the ground were killed. Regional airlines are having trouble hiring enough pilots, and a government report says one reason may be they simply don’t pay enough. The US airline industry will need to hire 1,900 to 4,500 new pilots annually over the next 10 years because of pilots retiring at age 65 and increased demand for air travel, the report said.

Lessons for India

The regional airline industry in India is nascent, if not non-existent. What is it that India can learn from the US. As mentioned earlier, India can model the route network on the lines the US has done, connecting smaller cities to other smaller cities; smaller cities to major hubs etc. The large hub and spoke model has been effective in the US. It certainly calls for entrepreneurs to take the call of starting regional airlines in India where there is enormous potential to expand air connectivity. The government has come out with a pro-regional policy and it needs to be seen how many are going to bite the bullet.

The only regional airline in India at the moment is Vijayawada-based Air Costa, while several applications have been approved by the government for private operators to start regional airlines.

According to Ramesh Lingamaneni, Chairman of Air Costa, running a successful regional airline is no different from any other business. The fundamentals are the same. The focus, he mentions, is to drive costs down without compromising on service quality. He adds that two key lessons that airline industry has to learn from the failure of other airlines (within India) is lack of focus and discipline on the sectors the airline is operating.

Air Costa is seeking from the government waiver of value added tax on aviation turbine fuel; development of Tier II and III airports and concession of airport charges.

As regards lessons from the US regional airline industry, the two are different as India is yet to make a beginning. However, one needs to guard against pilot shortage and take necessary action before operations commence itself. With regards to consolidation as is happening in the US, the question does not arise at the moment, but the ones who are making a bid should first get their act together.

The government has announced a new regional policy and it remains to be seen whether these 15 odd applicants will starting operations in the near future. The civil aviation ministry is clearer now about the role of regional aviation and intends to promote regional and remote-area connectivity.

Low–cost Airports

The Airports Authority of India (AAI) is developing 50 low-cost airports in remote and interior areas. The government envisages an investment of $12.1 billion in the airports sector during the 12th Plan period, of which $9.3 billion is expected to come from the private sector for construction of new airports, expansion and modernisation of existing airports and development of low-cost airports.

New Policy

As per the new policy, it is now mandatory for all scheduled airlines to operate at least six per cent of their total domestic operating capacity to airports in remote or strategic areas. Areas/airports where operations mandated are – North East region with the exception of Guwahati and Bagdogra; all airports in J&K except Jammu; Andaman and Nicobar Islands and Lakshadweep. It is also mandatory for airlines to operate at least one per cent of their total operating capacity on sectors/routes operated within the above areas. The total operating capacity means the number of seats operated by an airline in all its sectors, multiplied by sector distance in kilometres. The Ministry states that these areas/airports would be reviewed from time to time to ensure that the operators adhered to the norms.

Concessions for Regionals

The Ministry has announced the following concessions to any passenger or cargo aircraft which operate to the above airports for an initial period of three years. The concessions are: Exemption from landing and parking charges; RNFC chargers; PSF; Fuel throughput charges and any other charges levied by AAI.

The policy has been long overdue but one must appreciate the fact that the Ministry had several discussions with various stakeholders. Consultancy firm KPMG had suggested that the government allow ‘no-frills’ airport model to lower the fixed cost of airport development and to improve the financial viability of Tier II and III airports.

While the government is trying to create an eco-system, it is for the private sector to capitalise on the same and help build regional connectivity. It is a model which has enormous benefits, considering that a large part of India needs to be connected by air and regionals are the only answer.