Will regional airlines ever thrive in India? Yes, provided airport infrastructure is improved and a unique business model introduced. Group Captain (Retd) Joseph Noronha studies the strengths and shortfalls of the current scenario.

August will mark two years since a new regional airline policy was introduced in India. Against the current woeful backdrop, it is incredible that between 2004 and 2007, the market grew at a scorching pace—a staggering 120 per cent. The launch of low-fare carriers had significantly expanded the domestic market and transformed the industry almost beyond recognition. However, most of the traffic was concentrated between the metros and emerging mini-metros, such as Ahmedabad and Pune, leaving tier-2 and tier-3 cities to fight over the crumbs. Several players saw an untapped market in smaller cities and applied for short-distance operations, prompting the Civil Aviation Ministry to encourage new regional airlines, to fill the gaps and bring in much-needed competition. The stage was set for a deluge of applications for grant of permits.

Two years on, the ground situation has turned grim. Of the several companies that had procured regional airline licences, only two—MDLR Airlines and Jagson Airlines—actually commenced operations. Jagson Airlines has since converted from a scheduled regional airline to a non-scheduled operator, leaving MDLR as the sole player. Why did a prospect that seemed so promising practically fizzle out in such a short period?

Policy Planning
According to Directorate General of Civil Aviation guidelines, a regional airline is a scheduled airline that operates primarily in a designated region. The country has been divided into four regions for the purpose. The guidelines specify one metro airport in each region except for the south where Bangalore, Chennai and Hyderabad are co-designated. A regional airline can begin with just one aircraft, but should operate with three aircraft within one year and five aircraft by the end of two years.

In December 2007, Star Aviation was among the first to be granted a permit as a regional airline (south) and operations were expected to commence in April 2008. However, the launch date was steadily postponed, mainly because of delay in purchasing aircraft. The latest projection is July this year, but the company has obtained an extension of its licence until end-December. ZAV Airways was granted a licence in February 2008 as a regional airline (east) and planned to operate from April 2008. However, its licence is due to lapse in August this year without any tangible signs of operations commencing. King Air seems somewhat better placed—since its licence as a regional carrier (north) was granted in January this year, it has till July 2010 to begin, by which time the current slowdown should be well and truly over. Many other carriers either shelved plans or deferred commencement as fuel prices peaked last year and the plight of existing airlines imposed caution on the prospective aspirants to regional aviation.

MDLR is the only regional airline that appears to have attained critical mass. Based in Gurgaon, it now flies between Delhi and perhaps a dozen tier-2 and tier-3 cities, including Chandigarh, Goa, Ranchi and Lucknow. The lowfare airline plans to add another 12 destinations in northern India to its network this year. There are reports that MDLR Airlines could align with a low-cost carrier on specific routes in north India for the purpose of route rationalisation or interline arrangement. Interlining is the facility for passengers to fly different legs of a journey, on two or more airlines, on a single ticket.

Paramount Airways is sometimes mistaken for a regional airline. But even without the benefits granted to regional airlines it enjoys considerable success thanks to its Embraer 170 aircraft and unique all-business-class model. It probably finds it easier to achieve profitable load factors on the Embraer than it might have with the A320 or B737.

Unleashing Regional Potential
After decades of neglect, many of India’s airports are suddenly being forced to operate well above design capacity. Potential carriers intending to launch flights to smaller cities find the facilities primitive to say the least. Some airports do not even have a proper runway that can safely take aircraft of 40,000 kg. Several smaller airports are Indian Air Force (IAF) stations additionally designated to accommodate civil flights. These come with their own riders, like flight timing restrictions, priority to IAF flights and so on.

Metros themselves are sometimes reluctant to permit extra flights from regional carriers. This leaves regional airlines with little option but to operate between the smaller cities, where demand may be limited and even small aircraft forced to operate with low load factors. Airport infrastructure limitations also increase costs because carriers are unable to schedule quick turnarounds, resulting in reduced aircraft utilisation. The ongoing programme to upgrade 35 non-metro airports, when completed in three to four years, should remove a major irritant to regional airline operations.

Another current area of weakness is the limited investment that has taken place in infrastructure for air traffic management. This too results in expensive aircraft holding patterns, indirect flight paths and sub-optimal use of runways. It is no coincidence that in May MDLR Airlines was at the bottom of the punctuality list with a 49.3 per cent ontime record. Then there are competitive pressures. Regional airlines are at inherent disadvantage vis-à-vis national carriers. National airlines have first-mover advantage. They enjoy all the concessions that regional airlines do if they fly smaller aircraft, plus the additional benefit of flying anywhere in the country. Many national carriers already have strong regional operations. Air India has 20 regional aircraft in its 154-aircraft fleet, while Jet Airways has 21 in its 111-aircraft fleet. Nearly half of Kingfisher’s domestic fleet of 71 aircraft consists of ATRs. Most passengers given the choice between a national airline and a regional carrier flying the same route would probably choose the former.