Are airlines in India moving in step with the trend to smaller aircraft? Embraer’s Alexandre Glock explains why it is the right time for the airlines to review how they are flying their large jets have.

Japan ese and German airlines have discovered it. British carriers too. In some 40 countries around the world and on virtually every continent, the power of right sizing fleets with 70 to 120-seat equipment is transforming the way airlines view the supply-demand equation. From the top end of Australia to the remote north of Canada, aircraft that fit between regional jets and larger Boeing and Airbus capacity are delivering better operating efficiencies and building stronger networks for the airlines that fly them.

In the seven years since airplanes designed for that capacity segment first came on the market, the industry has broken with traditional thinking and realised the enormous potential of flying airplanes with fewer than 150 seats. A decade ago, few would have thought that the low-cost airline model would work with anything other than a single airplane type. Yet there are successful low-cost carriers in the USA, Europe and South America that operate smaller-capacity aircraft, mixed fleets of large and small jets and even turboprops.

It is not just the low-cost model that has discovered the 70 to 120-seat segment. Some of the most recognisable airlines in the world have added aircraft that are optimized for routes where larger jets are less profitable. “Until there were new airplanes specifically designed for this capacity segment, airlines were forced to serve lower-density markets with capacity that was shoe-horned to fit the daily demand” according to Alexandre Glock, Embraer’s Asia-Pacific Vice President for the commercial airline segment. “Carriers didn’t really have many choices if they wanted a share of that traffic.”

Why are Indian carriers slow to embrace the segment?

Airline networks in India have evolved differently from those in North America and Europe where small regional aircraft account for some 25 per cent of the commercial aircraft fleets. A large number of regional jets and turboprops on those continents created a capacity gap between 50-seat aircraft and larger Boeing and Airbus types. The magnitude of the gap is not as prevalent in India. “There are a number of reasons why the Indian market hasn’t adopted smaller airplanes yet,” says Glock. “Years of strict regulation, huge barriers for new entrants, growth in personal disposable income and the nation’s GDP, and the sudden boom in domestic demand after deregulation created a kind of build-it-andthey-will-come mentality among airlines.” He adds, “This is classic free market behaviour after a heavily regulated industry finally opens up. When the doors opened, every one wanted a piece of the pie. The next thing you knew, carriers were buying big airplanes and flooding the top city pairs with capacity and selling it at unsustainably low prices. Eventually, you reach a point of equilibrium where only the strongest survive. The process can take years. Your longevity depends on how fast you burn through your cash if you’re not generating a positive return. And who goes into business to intentionally lose money?”

The 2010 IATA statistics confirm Glock’s perspective on ticket prices. Of nine domestic Asian travel markets, India ranks lowest in revenue per passenger kilometre (RPK). At $0.064 per RPK yields are on average, almost half those of each of the other eight countries. Embraer cites the Mumbai-Delhi route as an example of how low prices are on routes with surplus capacity. “A two-week, round-trip advancepurchase ticket costs $23.00 excluding taxes and fees. An airline nets $11.5 each way without adding commission expense, CRS segment distribution fees, catering and airport passenger handling costs. After those deductions, there’s no revenue left. I can understand a handful of these loss-leader seats on every flight, but the average domestic yield statistics suggest more than just a few seats are sold at this price.”