Encouraged by the throngs of travellers, half a dozen prospective regional carriers are planning to begin operations in the first half of this year

How many regional airlines were in operation over India’s vast territory at the beginning of this year? None. Indeed, the results of the country’s regional aviation initiative, two-and-a-half years down the line, have been lacklustre. The policy was designed to encourage airline start-ups link small cities and towns and complement the operations of the national carriers.

Regional airlines are fairly successful in other parts, most notably in the US, where such carriers, operating as part of a “hub-and-spokes” architecture, efficiently ferry travellers to the nearest large airport from where the national airlines convey them speedily to distant destinations. Compared with large jetliners, regional aircraft generally have lower specific fuel consumption, higher power-to-weight ratio and improved short-field performance. Turboprops, or even purely propeller-driven planes—which typically consume a quarter to a third less fuel than equivalent jets—are tailor-made for the role. And since demand may not be enough to fill large aircraft, it makes economic sense to deploy fuel-efficient 50 to 80 seat turboprops.

A Regional Approach

All this fits in nicely with India’s regional airline policy introduced in August 2007. According to Directorate General of Civil Aviation (DGCA) guidelines, a regional airline is a scheduled carrier that can operate within one of five geographical regions—north, south, west, east and the Northeast. It was appreciated that airlines operating off the beaten track need sweeteners to be economically viable. Therefore, the government earlier laid down that landing and airport parking charges would be waived for aircraft with a seating capacity of less than 80 passengers. Aircraft that meet this criterion include the Alenia ATR 72, Embraer E-170, Bombardier CRJ-700 and BAe 146/Avro RJ.

As an additional incentive, small aircraft were charged at reduced rates for route navigation and terminal navigation facilities. But the most attractive concession was a uniform sales tax of just four per cent on aviation fuel, across the country, for aircraft with a take-off mass not exceeding 40,000 kg. Heavier aircraft, in comparison, are taxed at rates which vary by state and can reach the punishing heights of 30 per cent. Considering that fuel constitutes 40 per cent or more of an airline’s operating cost, this lower sales tax is an advantage not to be sneezed at.

There was a flurry of interest in response to the new policy. But then the global economic downturn struck. Several companies that were granted initial NOCs to launch regional airlines did not take adequate steps to obtain the Scheduled Operator’s Permit and commence operations within the stipulated 18 months; hence their permissions lapsed. In the North, Gurgaon-based MDLR Airlines with its three BAe 146/Avro RJ70 aircraft was the only carrier to commence operations as a regional airline. But in October last year it stopped flying until further notice after running up heavy losses. Jagson Airlines, also based in Delhi, acquired a licence to operate as a scheduled regional airline, but in the face of dipping passenger numbers decided to operate as a non-scheduled one. In the South, expectations ran high that Chennai-based Star Aviation would launch scheduled services on its Embraer 170 jets in early 2009; it has yet to get off the ground.

Hope Springs Eternal

However, the airline industry is again beginning to look up after many months in the doldrums. Domestic airlines carried 445.13 lakh passengers in 2009, against 412.71 lakh in 2008, marking a positive growth of 7.86 per cent. After toting up heavy losses, the private domestic airlines are expected to make a combined profit of $250 million to $300 million (Rs 1,160 crore to Rs 1,390 crore) in the fiscal ending March 2011, according to consulting firm Centre for Asia Pacific Aviation (CAPA). It will, however, take them some years to be rid of accumulated losses.

A wave of optimism is beginning to flow through the industry which even Delhi’s dismal winter weather cannot dispel. Encouraged by the throngs of travellers, half a dozen prospective regional carriers are planning to begin operations in the first half of this year. Since the Indian airline industry (with the notable exception of Paramount Airways) now seems firmly ensconced in the low-cost camp, most start-ups will probably emerge as low-cost carriers (LCCs). MDLR Airlines is working out a revival plan and could resume flights shortly. There are reports that Jagson Airlines might commence operations as a scheduled regional airline from February 15. Star Aviation has sought an extension till June to commence operations. In three months, Luan Airways, a full service start-up regional airline, is expected to launch scheduled services ex-Surat. In addition, three regional carriers from Uttarakhand, Orissa and the Northeast are likely to sally forth. The travails of the existing airlines seem to have imposed caution on these new players; hence some may test the waters as non-scheduled operators that do not publish timetables, before going mainline.