Regional airlines bring connectivity and hope to hundreds of small and isolated cities and towns across the globe. Often they represent the only useful link such communities have with the provincial or state capital. In the United States, regionals as they are called, constitute a major portion of the airline industry and some 40 per cent of the passenger fleet is made up of regional jets and turboprops. Regional carriers operate 13,000 flights daily, constituting about 50 per cent of the nation’s passenger flights and serving 681 airports. In 75 per cent of such cases they provide the only scheduled service. Although they are in considerable difficulty lately, regionals form a vital part of the ubiquitous “huband-spoke” networks and there really is no alternative. In India, however, regional airlines have been an embarrassing flop.

Trying and Failing

India’s airline industry grew at a spanking pace during the period 2004 to 2008. However, it soon became apparent that most of the traffic was concentrated between the six metros and emerging mini-metros like Ahmedabad and Pune. The dream of providing air connectivity to other sorely neglected population centres remains as distant as ever.

Several entrepreneurs saw an untapped market in smaller cities and applied for permission to launch short-haul air transport operations. The Ministry of Civil Aviation (MoCA) was only too glad to oblige. The scheduled regional air transport policy of August 2007, had the fine aim of making it easy for small enterprises to connect Tier-II and Tier-III cities to the nearest metro, thus complementing the operations of the major carriers. Regional carriers were required to operate scheduled services within one of five designated regions, North, South, West, East and the North East. The government realised that entrepreneurs might be wary about operating away from the tried-and-tested intercity routes to touch remote airports. So it included several supportive measures that have been enhanced over the years. It exempted landing and airport parking charges for aircraft with a seating capacity of less than 80 passengers. Aircraft that currently qualify include turboprops like the Bombardier Q400 NextGen and the Alenia ATR 72-600. There are also ever-popular regional jets like the Embraer E-170 and Bombardier CRJ-700. As an additional incentive, small aircraft were charged at reduced rates for navigation facilities. But the most attractive measure was a uniform sales tax of just four per cent on aviation turbine fuel (ATF) across the country for aircraft with a take-off weight not exceeding 40,000 kg. Heavier aircraft in comparison are taxed at rates which vary from state to state and are as high as 30 per cent in some states. Considering that fuel constitutes 45 per cent or more of an airline’s operating cost, the lower sales tax on ATF is a matter of great relief.

The MoCA, perhaps not unreasonably, expected that there would be a deluge of applications for grant of permits to launch new regional airlines. And so there were. However, over the years, several companies that were granted initial no objection certificate (NOC) were unable to commence regional operations within 18 months and hence their permission was cancelled. Gurgaon-based MDLR Airlines with its three BAe 146/Avro RJ70 aircraft was the only one to commence service as a regional airline. But it soon ran up heavy losses and had to shut down. Since then the global economic crisis and its ramifications in India forced even the bravest entrepreneur to abandon any dream of launching a regional airline. In fact, the only new regional airline to get airborne in the last five years was Air Mantra in July 2012. Air Mantra’s scale was tiny as it has just two 17-seat Beechcraft 1900D turboprop aircraft touching three or four destinations. It has since suspended operations.

Why did the promising regional airline scene deteriorate so dramatically and so quickly?

Opportunity Lost

Clearly, the prolonged economic downturn and the dire straits of India’s existing airlines, were discouraging to potential entrepreneurs. And the high global price of ATF made even more hurtful by high taxes, rendered viability of operations practically impossible. However, other factors are also to be blamed. For instance, the concessions intended to benefit pure regional airlines flying small aircraft on regional routes created problems of their own. They had the unintended consequence of pitting fledgling regional carriers against the country’s largest airlines at the time such as Jet Airways, Kingfisher Airlines and Air India. These major airlines, deploying their own small planes on regional routes, gleefully grabbed the concessions. Consequently, prospective regional airlines discovered that they would be in direct competition with the major airlines on the same limited routes. The concessions had another unintended consequence. They prevented small regional airports from becoming economically viable. The Airports Authority of India (AAI), which had created airport infrastructure at considerable cost, was itself deprived of a major source of revenue.

The route dispersal guidelines (RDGs) formulated in 1994 and revised in 2003, also worked against the interests of prospective regional carriers. The policy which has had rather limited success in improving regional connectivity, forces all scheduled airlines to deploy a specified percentage of their capacity on certain poorly connected and unprofitable routes, particularly in Jammu and Kashmir, the Northeast and Andaman and Nicobar Islands. As a result, the major airlines already occupy the space that should rightfully have been filled by regional carriers. While regional airlines flying small aircraft might have succeeded in commercial operations at least with some government subsidy, the major airlines, with their larger aircraft, complain that these routes do not generate sufficient traffic to be profitable. The RDGs are under revision but although the new guidelines may promote regional flights by the major carriers, they will have the same effect of discouraging new regional airlines. What is needed is a scheme to help major and regional airlines to function in coordination on different routes, complementing each other, rather than in competition on the same routes.

Lack of airport infrastructure was and is a major hurdle to air connectivity. The Rohit Nandan Committee which went into measures to improve air connectivity across the country strongly recommended that the MoCA should devise ways to operationalise 225 additional airports over the next two decades, including those run by state governments and some privately-owned ones. Indeed it is only if sufficient dedicated low-cost regional airports are available that regional airlines can ever hope to succeed.