Evolving with the times, regional carriers are adopting ways to compensate the lack of deep pockets with intimate knowledge of local conditions and nimble-footed strategies

While large carriers regularly grab headlines, regional airlines play a crucial role behind the scenes. Regional aviation is that portion of the industry which operates scheduled commercial flights confined by rules to within a region or between metros and smaller cities in the same region. The aim is to provide easy connectivity for passengers from the surrounding areas to a major airline’s hub for onward flights to national or international destinations-—a hub-and-spokes arrangement. For a decade or more, regional airlines have been among the most successful operators in many parts of the world, particularly in North America.

Most passengers display a marked preference for large jetliners, but regional aviation fleets historically consisted of low capacity aircraft—rather cramped affairs with few amenities. However, many regional airlines worldwide now operate or plan to induct aircraft that are larger and faster and capable of flying longer ranges. The planes, usually jetliners, are also getting more comfortable, further blurring the distinction between regional and national airlines. But the all-pervasive economic gloom and falling passenger traffic mean that smaller jets and turboprops are seeing a remarkable resurgence in demand. When off the beaten track, isn’t it wiser to put up a 100-seat plane and achieve high load factors than operate a 200-seat airliner which flies with nearly half the seats unsold?

India is a late entrant on the regional aviation scene, probably because the cost-conscious Indian prefers surface mode for travel over short distances. In August 2007, the Civil Aviation Ministry introduced a policy for small startup airlines to link small towns, complementing the national carriers. Regional airlines were required to operate within one of five specified regions—North, South, West and East and the North-East region—and offered incentives by way of lower operating costs. Regional airlines with aircraft like the Alenia ATR 72, Embraer 170 and Bombardier CRJ700, which seats less than 80 passengers, for instance, could lift fuel at cheaper rates than large aircraft. They are not charged for navigation, landing and parking at airports. A modest beginning has been made. In the north, Gurgaonbased MDLR Airlines with its two Avro 146-RJ70 planes has commenced operations as a regional airline. In the south, Chennai-based Star Aviation is expected to begin operating scheduled flights on its Embraer 170 jets in April/May.

Economy Is Paramount
What is the financial outlook for regional aviation in India? Within the space of nine months, the input costs of operating airlines have fallen to half or less. The steep drop in fuel price accounts for a major portion of this decline while another important factor is the reduced cost of human resource. In a recession hit environment, job security seems uppermost in staff priorities and many are even prepared to accept salary cuts to avoid being laid off. Prices would have come down more sharply but for the fall in the rupee against the US dollar. Airlines are paying more in rupees for items like aircraft lease rentals and most maintenance costs as both these are generally quoted in US dollars. Airlines have slashed schedules, cut jobs and reduced overheads to contain losses. Yet they cannot break even—blame it on falling demand and low ticket prices.

Paradoxically, some regional airlines worldwide hardly seem affected and are, in fact, in the expansion mode. Perhaps the small is beautiful principle applies—their strategies can be finetuned for their market niche. Their costs are competitive, and their service is sometimes targeted at relatively price-insensitive customers, producing a healthy profit. In many cases, regional airlines achieve higher load factors than narrowbodies, illustrating why regional jets are ubiquitous today. Regional carriers survive by concentrating on high-yield traffic in low-density markets. Although they have fewer seats and higher seat costs, they fly higher loads and often charge significantly higher fares than national carriers.

Paramount Airways, expected to have a fleet strength of 27 by the end of the year, could well serve as a model. Though not operating under official regional aviation rules, it currently meets many of the criteria of a regional airline. What is more, it is one of the few Indian carriers seemingly unaffected by the woes besetting the industry. It is the first in India to launch the new generation Embraer 170/190 series aircraft. When no frills was the flavour of the season, the airline stuck to the top end—business and first class. It was the only airline to offer full business class service at prices only marginally higher than economy class of other full-service airlines. At the same time, it preferred steady growth to rapid expansion. This seems to have enabled it to weather the storm that many airlines are facing due to huge losses consequent to reckless expansion. Strongly positive in approach, it has been rewarded by increasing market share as rivals have slashed capacity due to mounting losses.

The Future Beckons
Improved engine design will, perhaps, be the key to even better regional airline performance in future. The twin pressures of environmental concerns and fuel costs are likely to make the clamour for more fuel-efficient engines louder. The primary target of most greens is the short- haul flight for which either alternatives exist or can be created by way of high speed rail, luxury buses etc. Many conscientious travellers seem convinced that in the interest of saving the planet they need to shun short air journeys even if they cannot avoid long-distance ones. As for the price of oil, savage production cuts coupled with a rebound in flagging demand, are more than likely to send prices sharply northward again. The only question is when.

Important requirements for regional airliners include a 20 per cent reduction in specific fuel consumption, a higher power-to-weight ratio, better fuel flow and lower emissions. Noise levels should be below ICAO Stage 4 limits. The current revival of propeller-driven planes—which typically consume a quarter to a third less fuel than equivalent jets—marks a significant trend. Until recently, many regional airlines seemed determined to consign turboprops to history in favour of all-jet fleets, since the latter offer far greater passenger comfort. Although the latest generation of turboprops has addressed some of the comfort issues by flying above turbulence and providing quieter cabins, analysts say the airlines’ worries about their bottom lines now outweigh passenger preferences. As demand decreases because of the current slowdown, it no longer makes sense to fly larger aircraft—hence the renewed interest in fuel-efficient 50- and 70-seat turboprops.