There is no apparent sense of urgency to exploit this segment of civil aviation. If one were to summarise the prospects for regional aviation in India, one could state that it is still warming up but is yet to take off.

The fact that there is only one regional airline (Air Costa) functional in India, is both a reason to rejoice and a cause for commiseration—the former on account of optimism for the future, and the latter due to regret over collapsed regional attempts in the past decade (since Air Deccan blew the first trumpet announcing a new epoch in the history of Indian civil aviation). The decade gone by has been extraordinarily daunting for the Indian civil aviation industry in general. However, regional aviation has had more than a fair share of misfortunes. Not many ventured into the patently unprofitable sector; and the trials and tribulations of those who did, discouraged others waiting in the wings from venturing into regional aviation. MDLR Airlines survived for about two years before caving in, while Air Mantra lasted only a couple of months. The fact that the set of regulatory and infrastructural circumstances that have stunted the growth of regional aviation should have been allowed to endure for more than a decade is mystifying; the self-evident state of regional aviation and the equally transparent causal mechanisms are there for the establishment to perceive (and revamp, if it had the will to). Alas! That has not been done. The major problems afflicting regional aviation are discussed below.

Infrastructure

The foremost causative factor is the slow development of airports at the Tier-II/III level; eleven states (Bihar, Chhattisgarh, Gujarat, Jharkhand, Madhya Pradesh, Meghalaya, Odisha, Punjab, Rajasthan, Uttar Pradesh and Uttarakhand) are barely noticeable on the air map of India. A recent study by Deloitte listed 52 Tier-II and Tier-III cities that have the potential to become busy airports in the future. In recent months, the Airports Authority of India (AAI) has been working rather unsteadily towards improving infrastructure at 35 airports at non-metro stations (including some identified in the Deloitte list). The economic value of improving airports within their geographical domain is also being realised gradually by state governments (Andhra Pradesh being the leader in this regard). However, a macro level comprehension of the contribution of aviation to economy is yet to come about.

The Minister of Civil Aviation, Ajit Singh, speaking at the Fourth India-US Aviation Summit in Washington recently, stated that “the Indian Government has taken a number of measures to make air connectivity to remote and interior areas of the country in Tier II and Tier III cities of India affordable”. He also went on to call for more foreign direct investment from America to contribute to airport infrastructure in India—a segment which needs for far more funds than those readily forthcoming from either the government or the private sector.

The Privations of Privatisation

The Airports Authority of India (AAI) manages 125 airports although India has around 500 airports in varying stages of decay/development. AAI plans to develop another hundred airports and some humble beginnings have been made in that direction. According to the Minister of Civil Aviation, India has envisaged an investment of $12 billion in the airport sector in the Twelfth Five-Year Plan, of which $9 billion is expected from the private sector. However, for aircraft operators and passengers, privatisation of airports has not been an unadulterated delight so far. The cost of operation at airports operated privately or on a public private partnership (PPP) model has become exorbitant since their exit from the AAI fold and the incremental costs of operation have been passed on to the passengers by helpless airlines. Understandably, there has been severe criticism from airlines and their global representative body, the International Air Transport Association (IATA), primarily on the grounds that it has led to a massive hike in airport costs and charges. Nonetheless, privatisation is inevitable as the cost of development of all 500-odd airports (and some new greenfield ones) is mind boggling and certainly not within the government’s reach, despite the monopolistic regime exercised by the government over airport, parking, navigation and landing charges levied on all aircraft operators. As part of the second phase of privatisation in the near future, airports at Chennai, Lucknow, Kolkata, Ahmedabad, Guwahati and Jaipur, are planned to receive private investments of Rs. 4,250 crore for their development. According to the qualification documents issued recently by the Ministry of Civil Aviation, the private players awarded the contracts for operations, management and development in the second phase of airport privatisation programme, would have to make estimated investments in the range of Rs. 500-1,200 crore for development and upgrade works at each of these airports. This move has not gone down very well with AAI employees who allege that the government wants to develop only those airports as are expected to generate minimal revenue while the more lucrative ones are being privatised. Balraj Singh Ahlawat, General Secretary, AAI Employees Union, asked a very relevant question, “The government says it plans to develop a network of 100 smaller airports, so why should it not ask private companies to develop those instead of giving only the revenue generating ones to them.” He also feels that AAI revenue has gone down substantially consequent to the privatisation of Delhi and Mumbai airports. Despite opposition from within AAI and despite protests about extortionate charges by aircraft operators, the government appears to be focused on privatisation of a substantial number of airports. Specifically, there is a noticeable haste to finalise the privatisation plans for the six airports mentioned above; although for the time being, the internal resistance has forced AAI to postpone the bidding process for about two months.

However, the private route is not a perfect solution to the infrastructure problem. In Karnataka, the PPP model, espoused robustly by the state government for building infrastructure, has failed to deliver results in the aviation infrastructure sector. The PPP projects to develop airports in Gulbarga, Shimoga, Hassan, Bijapur and Bellary are stuck at various stages of development due to problems with private parties. On the other hand, three other regional airports—Mysore, Hubli and Belgaum—were developed and upgraded by AAI and are functioning. The government is now planning to partner with AAI to develop regional airports in the five cities mentioned above. This decision is also influenced by AAI’s announcement that it plans to develop over 100 regional airports across the country.

During the discussions on privatisation of more airports, the Planning Commission had proposed a draft concession agreement based on a model linking landing and parking charges at airports to the Wholesale Price Index (WPI). This suggestion was rejected by the Ministry of Civil Aviation as it would have given those charges an upward bias. The Ministry feels that on the contrary, there should be a new index introduced to progressively lower those charges as the airports progressively recover their construction costs.

Aviation Fuel Costs

Very high aviation fuel costs (60 per cent over the global average) have been a factor afflicting civil aviation in India in general. However, as sales tax/value added tax (VAT) is a state subject; the cost of aviation fuel has a differentiation between states—the spectrum spanning 4-30 per cent. Thus the states charging higher sales tax/VAT on aviation fuel are axing their own interests in the long run. Chhattisgarh, at the lowest end of the continuum, holds out the enticement of low cost of operations and AirAsia is seriously considering making Raipur (one of the 35 airports being modernised by AAI) its hub in India. If a longstanding demand by the airlines industry for placing aviation fuel under the “declared goods” category is acceded to, this differentiation might disappear and bring about an overall positive effect of rendering regional aviation more attractive across the board.

The International Lure

Bhubaneswar and Imphal have recently been declared international airports and have joined an ever growing list of nonmetro airports with international status. Small airports are increasingly reaching out to international destinations. As an illustration, Pune is now connected to four airports outside India: Dubai, Frankfurt, Sharjah and Bangkok. The charm and significance of being able to fly out from a Tier-II/III (regional) airport directly to destinations abroad will definitely encourage more and more small towns and cities to clamour for developing their own airports. A growth in regional aviation could be expected as a result.

The Future is Low Cost

As far as airlines are concerned, low cost is the future; the majority of Indian airlines are wholly or partly low cost in their offered services. According to a report by Centre for Asia Pacific Aviation (CAPA), “Domestic aviation has shifted to an almost 100 per cent low fares market. While India’s LCCs have a domestic market share of 63 per cent, passengers flying on full service airlines (Air India and Jet) pay close to LCC fares in economy class. As a result, India is virtually a 100 per cent low fares market.” In quantitative terms, all indicators display a trend towards the low cost share increasing in the future. However, the low-cost soubriquet is not really justified inasmuch as there are no low-cost terminals to operate from. Costs are being cut by other means than the simple expedient of Spartan terminals which impose low usage charges to the airlines operating from them (with resultant low cost of air travel for passengers). The ongoing infrastructural investment needs to take into account this simple factor and plan for low-cost terminals in the Tier II/III airports now being developed. The existence of low-cost terminals would have the cascading effect of attracting more airlines and passengers due to the lower cost of travel to and from those airports. Regional aviation would receive a tremendous boost as a result. This fact is realised by the establishment too. Speaking at a meet organised by the World Travel and Tourism Council (WTTC) in Hyderabad recently, Arun Mishra, Director General of Civil Aviation (DGCA), said: “The Indian aviation sector is not only facing turbulence in the skies but also on the ground,” and went on to suggest some steps to expand and sustain aviation industry in India; significantly, one of the steps he suggested was the establishment of low-cost airports with no parking charges across smaller cities.

Future Programmes

The government has been mulling over several initiatives (albeit at an agonisingly slow pace) to promote regional aviation. The Route Dispersal Guidelines regulating a minimum proportion of total air seat kilometres flown by an airline to be flown towards regional aviation are also under review. Plans for the development of around 100 more airports are under way (again at a laborious pace). In short, there is no apparent sense of urgency to exploit this segment of civil aviation. If one were to summarise the prospects for regional aviation in India, one could state that it is still warming up but is yet to take off.