Regional Connectivity: Aviation's next big frontier

This article was first published on Mukherjee's LinkedIn profile.

With big metro airports getting increasingly saturated, it pose a threat to derail the hyper growth (above 20%) that the Indian airline industry currently experiencing. For long air travel in India has remained restricted primarily between metro cities with few key inter-metro routes occupying the lion-share of airlines capacity for example the Delhi-Mumbai and it is the world's sixth largest domestic sector in terms of deployed capacity in 2016. This time government is right in its emphasis on tier-2, tier-3 cities where the next round of growth would come from. India's smaller cities have so far remained neglected with very little connectivity that too mostly to nearby state capitals, now with new unconventional routes between tier-2 and tier-3 cities being opened up it would write a new chapter in India's aviation growth story.

Airports in small cities or towns like Kanpur in UP, Cooch Behar in Bengal, Nasik in Maharashtra, Mysuru in Karnataka along with Puducherry are only few among the list of airports that are currently out of country's air-map. Ghost airports on the likes of Nasik, Jaisalmer where huge public money spent to develop state of the art infrastructure but lying idle with no air service. By promoting airlines to fly on these underserved or virgin routes government plans to provide affordable air-connectivity to people in the tier-2 and tier-3 cities while offering a sustainable operating model to airlines by providing viability gap funding (VGF). But flying on 'regional' under developed routes has not been so far proved to be lucrative business as many operators like MDLR Airlines, Paramount Airways had already forced to shut their shops. Bengaluru based regional carrier Air Pegasus being the latest which grounded in July this year. The Ministry of Civil Aviation (MoCA) now plans to focus on regional connectivity scheme (RCS) for the next 10 years to promote air services in to India's vast hinterland which are often inaccessible due to poor rail/road infrastructure and therefore leading economic prosperity through connectivity. And at the same time this would help to lead the next round of growth in aviation. MoCA is expecting the first flight under RCS to start as early as January next year.

Air India has served India's first private sector green-field airport in Durgapur between April 2015 to May this year starting with Kolkata flight on ATR-42 to Airbus A319 all the way to Delhi but had to withdraw the service due to poor response. A small turbo-prop aircraft on Kolkata-Durgapur route would be ideal with VGF support if required. The other private sector airport in Kadapa, Andhra Pradesh has faced a similar fate as its first operator Air Pegasus grounded and TruJet too decided to withdraw its service in late October. Air India being a state run airline, has been subjected to in the past to fly on loss making routes as a social responsibility where the demands are in single digits. 

On 21 October, MoCA launched the regional connectivity scheme called UDAN, acronym for "Ude Desh Ka Aam Naagrik" (Let country's common man fly). Regional connectivity was a key feature in the National Civil Aviation Policy 2016 (NCAP) released four months back in June. According to proposals of UDAN scheme launched by MoCA, the project will be implemented with active supports from airport operator and governments at the center and state. While waiver on landing, parking and other charges will be covered by airport operator, center will facilitate by reducing service tax, excise duty and others. Government in states interested in improving air-connectivity in its interior region will have to play a large role in attracting airline operators. states have to bear 20% of the VGF (10% for Northeastern states), reduce VAT on aviation fuel to 1% or less and provide security and other amenities to the airport. Routes will be allocated to single designated airlines quoting minimum VGF through auction. VGF will be provided to operate a minimum three to maximum seven weekly frequency for a period of three years only and after the route is expected to become regular one. An airline securing UDAN rights on a particular route has to reserve 9 to 40 seats (on fixed-wing aircraft) under restricted fare of not more than ₹ 2,500 for a 500 km distance depending on the size of the aircraft operating. But major incumbent airlines seem not so happy over UDAN's model to build a regional connectivity fund which would go for funding VGF on unpopular RCS routes. MoCA proposes to charge a levy on the fares on popular domestic routes which would increase the average fares on the trunk routes.

Interestingly under the RCS scheme, government to allow a liberal code sharing regime so airlines not participating directly on UDAN can benefit from passengers carried by 'regional' player through code share and get good amount of traffic feed from those tier-2, tier-3 cities. And in a game changing manner, MoCA indicates that it would allow airlines to trade excess capacity (ASKM) of airline operating on UDAN route with non-UDAN airlines. The proposal was first mooted as a possible replacement of 5/20 rule. The ASKM trade among the airlines might help major full-service carriers to maintain MoCA's route dispersal guidelines without flying its own metal on such thin routes.

Among the major pan-India airlines, Air India, Jet Airways and SpiceJet have sub 100 seater small turbo-prop aircraft suitable for 'regional routes'. South India based Air Carnival and TruJet both of which operate under regional permit also possess such aircraft. Air Costa which was recently upgraded from regional to pan-India carrier operates 110 seater Embraer regional jets. But it has been seen that airlines struggle to feel even 40 seater aircraft on thin routes so smaller planes ideally are better suited for these routes but then the issue of economy of scale arises as several state governments have tried on their part with aircraft like Beechcraft King Air but mostly failed. So it needs a fine balancing between scale and demand.

Air India which operates turbo-prop aircraft (ATR-72 & 42) and regional jets (CRJ-700) under its regional wing (erstwhile Alliance Air), has indicated intentions to fly 19 seater Dornier Do 228 turbo-prop on these thin regional routes. The now defunct Vayudoot used to operate the same aircraft on routes like Delhi-Raebareli-Lucknow both routes remain unserved today, Jagson Airlines too had operated non-scheduled chartered flights to small hill towns from Delhi using Dornier Do 228. Hindustan Aeronautics (HAL) has manufacturing rights for Dornier Do 228 as it supplies to Indian Navy and Coast Guard although does not have the civilian version certification as of today. Earlier Indian Airlines (now Air India) and Vayudoot used to operate HS-748 (Avra) 50 seater turbo-prop aircraft manufactured by HAL under license-production. So if Air India really goes for the HAL built Do 228 that will also boost government's Make In India campaign where an Indian airline will again operate made in India passenger aircraft (even if license produced).

Ironically the logo of UDAN scheme uses a silhouette image of Boeing 747 "jumbo jet", one of the largest aircraft in passenger service. This underlines the lack of understanding of a highly technical flied like aviation. Though at the beginning the intentions are looking good but we have to wait to watch how efficiently and transparently the program been implemented ahead. And since it involves public money being used for subsidizing corporate airline entities, government must observe caution as potential charges of corruption and nepotism can kill a rather positive initiative.

The cover picture of Dornier Do 228 on Air India Regional livery is prepared by Visakhapatnam based aviation entrepreneur Gunadeep Narendrapuram.