The major factor impinging on the economics of regional aviation is policy framework relevant to civil aviation. While the lure of attractive metro-to-metro routes has overcome the inhibiting effects of policy, the less lucrative regional aviation has remained stunted.

The last decade commencing 2003 when Air Deccan enticed the common man with a dream, appears, with the benefit of hindsight, to have been a wasted opportunity for Indian civil aviation. Airlines, irrespective of size, model and ownership, have bled and continue to bleed, while airports and supporting infrastructure for growth of aviation have been tardy in encouraging growth of civil aviation. For various reasons, aviation has compellingly gravitated towards metros and large cities, and so has the policy framework; witness the Airports Economic Regulatory Authority of India Act, 2008, Section 13 of which limits its jurisdiction only to “major airports” i.e. currently defined in Section 2 of the Act as those having an annual passenger throughput of 1.5 million, with no authority or concern for smaller (read regional) airports. Regional aviation in India has remained a stepchild sired by arbitrary policies, some inadequately pondered over and others inefficiently executed. As investment in airlines is directed at reaping returns, economics dictate the tenor and texture of an airline including the proportion of their total available capacity on regional routes.

Current State of Regional Aviation

The story of airlines falling under the definition of regional airlines is quite sordid. As this point in time, there is no operational regional airline in India. In the past, MDLR Airlines did start operations in the Northern region, only to shut down after two years. In the recent past, Air Mantra, launched by Religare Voyages, failed to establish itself in the market, losing its tenuous hold as a start-up regional airline in a very short period of time. Air Costa appears closest to an actual take-off in the near future, while some others including Volk and Kairali Airlines wait in the wings. AirAsia India has also been talking about avoiding metros and favouring non-metros, but its network is yet to crystallise. It is hard to imagine a network that is “regional” in nature, i.e., a network that touches metros in only one region. Moreover, AirAsia has not announced any plans to acquire aircraft smaller than the A320s it plans to lease. Thus the economics of flying to smaller airports do not permit a positive prognosis for regional aviation.

The major factor impinging on the economics of regional aviation is policy framework relevant to civil aviation. According to the Centre for Asia Pacific Aviation (CAPA), “India has made no serious attempt to address the industry’s core structural challenges, particularly the fiscal and cost environment, which is particularly hostile now due to stubbornly high fuel prices compounded by a sharp depreciation of the rupee and a punitive ad valorem sales tax.” The remarkable and disquieting aspect of the government’s apathy towards civil aviation is that, despite constant plaintive refrains from all stakeholders, think-tanks and experts, the lack of concern has remained unyielding. While the lure of attractive metro-to-metro routes has overcome the inhibiting effects of policy, the less lucrative regional aviation has remained stunted. SpiceJet’s overture towards regional aviation by way of introducing smaller aircraft for Tier-II and Tier-III airports does not seem to have had the desired effect, at least not to a level of delight for SpiceJet. The experience of Alliance Air has also not been too encouraging or inspiring for airlines aspiring to launch routes connecting smaller airports. Earlier, Kingfisher Airlines had also suffered much and for long, due to having committed to routes to the Northeast from which government policies make withdrawal near impossible. There have been some plans by the government to sweeten the regional experience for airlines by way of subsidies and sops. But their effect is yet to manifest itself. Meanwhile, the Ministry of Civil Aviation (MoCA) plans to convene a meeting of ministers and secretaries of all state governments to discuss steps to enhance regional connectivity. The idea is to hammer out a new policy on regional connectivity so as to render regional aviation more economically attractive to all stakeholders.

Upgrading Infrastructure

To increase the number of airports that an airline could fly to, the government has plans to invest in the development of some inactive airports while upgrading some others so that regional aviation could take-off. A figure of $120 billion is sometimes bandied about in this context. However, the Airports Authority of India (AAI), which should have been at the forefront of this initiative appears, too financially feeble to bear the burden. The publicprivate partnership (PPP) model has become the walking stick of the frail AAI. However, those airports that have already been improved using this model have not met with unmitigated success. The cost of operations of airlines has increased wherever this model has been used; the direct consequence has, of course, been an increase in the cost of travel for the passenger. Readers must have no doubt heard about the user development fee (UDF) and the airport development fee (ADF). However, what is not commonly known is that some airlines charge a common user terminal equipment (CUTE) fee which is installed by a private airport to replace an airline’s existing check-in computer equipment. While airlines insist they do not need the CUTE system, airports insist it is better than the airlines’ individual systems and have made it mandatory that airlines use it. In weary desperation, airlines have passed on the burden to the passenger. The recent decision of the government to privatise the management of six more airports is thus a mixed blessing. While more airports would be upgraded, which is good news for regional aviation, the cost of operating those airports is all set to travel upwards.

In a connected but disparate move, there have been iterations in recent weeks by the Civil Aviation Secretary K.N. Srivastava about government plans to set up 100 low-cost airports in smaller cities over the next two years. One of the peculiar features of lowcost carrier operations in India has been that there have been no low-cost airports so far and hence, the low-cost operators have had to cut costs in ways other than by reducing airport charges. This announcement, made at an international conference on ‘Civil Aviation and Tourism’ organised by ASSOCHAM in Delhi in August 2013 sounds improbable given the past record of AAI. However, the fact that the government is thinking on these lines, bodes well for the economics of regional airlines.

Foreign direct investment (FDI) in Indian carriers by foreign airlines was a long-standing demand of the industry; but this major step towards liberalisation also was not executed by the various ministries involved in a manner that inspired any ecstatic sentiment. While enhancement of the FDI limits would not have been a direct attributor towards bolstering regional aviation in India, its desirable effect of rejuvenating Indian airlines could have had the indirect consequence of empowering and emboldening domestic airlines to become more adventurous towards regional sectors. However, the ongoing trials and tribulations of the Jet-Etihad deal have cast a shadow over the future dividends of this policy. Any hope that might have been fancied in the FDI liberalisation being a positive contributory factor for regional aviation lies inert at the moment.

Aircraft for Regional Aviation

The economics of regional aviation are also predicated to the choice of aircraft. While the most popular and convenient choice of aircraft for Indian domestic operations is the Airbus A320 or the Boeing 737, these two types are not ideal for flying to smaller airports. Firstly, this is so because in comparison to the metroto-metro routes, the sector lengths are smaller. Besides, these two types are not economical to run on such short sectors both from the point of view of short-term and the life-cycle costs. Secondly, some of the smaller airports are not suitable for these types on account of inadequate runway length, runway surface strength, etc. Thus, the choice of smaller airports that these two types can fly to becomes restricted. The airlines do have an alternative, i.e., to induct aircraft more suitable for smaller sectors. However, this choice means higher cost of operation of the airline as it moves away from economy of scale to acquire varied equipment and manpower skills to cater to two types of aircraft. The choices are hard to make and their consequences tough to predict. SpiceJet’s valiant foray into regional aviation has not been an unadulterated success story. AirAsia India is, even before commencing operations, making noises about improvements at some of the smaller airports.

If only the Indian public sector investment into aircraft manufacturing had fructified into a tangible result, it is possible that a realistic solution would have been thrown up by way of an inexpensive, indigenous small aircraft suited to regional aviation requirements. Our neighbour and arch rival, China, is in the process of developing a 90-seater and a 168-seater aircraft. Needless to say that when those enter service, they would be available to domestic users at a much lower price than their foreign equivalents. However, we are yet to produce any transport aircraft; the only prototype produced by the National Aeronautics Limited and the Hindustan Aeronautics Limited was a 14-seater. After the second prototype crashed, the programme is yet to recover. It could be argued that a reasonably priced, indigenously produced and maintained small transport aircraft may have provided appropriate impetus to regional aviation.

Hopes Still

Regional aviation in India is afflicted by the same problems that affect Indian civil aviation as a whole; but the lack of adequate attention to infrastructure for regional aviation has led to a pitiable state of this segment of the industry. The replacement of the Directorate General of Civil Aviation (DGCA) by the Civil Aviation Authority (CAA) is a step that may bring a fresh approach by the establishment towards civil aviation in general. One hopes that CAA’s policies will alter the economics of regional aviation adequately to permit full exploitation of its immense potential.