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Green Light for Growth

Issue: 07-2012By Joseph Noronha, GoaPhoto(s): By Anoop Kamath

Judiciously chosen regional airports can translate to increased revenue since connectivity itself generates demand. What is needed is a regional carrier bold enough to move in.

India’s airports handled an all-time high of 162.30 million passengers during the Financial Year 2011-12. That’s cause for celebration, dispelling some of the gloom over the current state of the airline industry. However, although the government-owned Airports Authority of India (AAI) has 84 operational airports, the six metros alone corner almost 70 per cent of the traffic. Do these numbers reflect the true demand and vindicate the airlines’ marked preference for the inter-metro routes?

Not really. A survey of the thousands of travellers who make their way to Delhi airport every day, for instance, would reveal where they come from and what their intended destinations are. It would probably show that large numbers are not citizens of the metro. They have been forced to travel by relatively slow and uncomfortable modes of surface transport from outlying cities and towns that either lack an airport or do not have a convenient flight. Ignoring passengers who reside within 150 km of Delhi (since they can find their way to the airport anyway) a list could be made of the main cities of origin of the passengers. The process could be repeated at the other metros. This would provide a useful start point to identify cities where new regional services might be introduced or new airports built to expand the regional aviation industry. And a fast-growing industry it certainly is—according to AAI estimates, traffic from non-metro airports may surge to 45 per cent of the total within just five years.

Force or Freedom?

After a long period of inaction, the government seems to be in a hurry to kick-start regional aviation. There are stray signs that it may try to coerce airlines to operate feeder flights into the metros and large cities from nearby smaller towns and cities. Minister for Civil Aviation Ajit Singh reportedly said, “The idea is to have regional connectivity to the local hub. For example, there is a huge market around Delhi that would like to fly into the capital and then take connecting flights. We are planning to make it a must for airlines to have such flights.” SpiceJet, which earlier had only Boeing B737 jets, is the main carrier currently championing the cause of air connectivity to Tier-II and Tier-III cities, with the help of 15 Bombardier Q400 turboprop aircraft already being acquired. Jet Airways is doing its bit with 20 ATR 72-500 turboprops suitable for regional operations, although not all are deployed on strictly regional routes. But IndiGo and GoAir have all-Airbus A320-200 fleets which prevent them from using shorter regional runways while Air India and Kingfisher Airlines are pale shadows of their former selves. How then will compulsion work?

The airlines are unsurprisingly reluctant to operate lowdensity routes that may take many years to break even. The much-reviled route dispersal guidelines (RDG) already oblige the major carriers to operate to the Northeast and Kashmir, but these have met with mixed results. Making additional unattractive destinations mandatory is not the answer. A far better proposal is the creation of an Essential Air Services Fund (EASF) for subsidising loss-making routes connecting smaller airports. The aim would be to auction commercially unviable routes that attract lower passenger numbers for three to five years till they reach some level of maturity. A transparent process of competitive bidding would culminate in the airline bidding for the lowest subsidy being offered the route. Basically, smaller cities would be serviced using smaller planes which do not pay parking and landing charges and lift aviation fuel at a discounted VAT of four per cent, compared to as much as 30 per cent for larger aircraft.

Taking the EASF scheme to its logical conclusion, the next step should be complete abolition of the RDGs—a hangover from India’s erstwhile command economy. This would help major airlines focus their energies on the main routes and encourage the emergence of small specialised regional airlines to operate regional, short-haul and feeder routes. Any measure that increases passenger numbers and aircraft movements through the smaller airports will be welcomed by AAI since only 14 of its airports are currently profitable. AAI statistics (see table) can help to identify promising cities for the next spurt of regional growth. For instance, domestic passenger numbers at various airports for 2011-12 vis-à-vis 2010-11, showed a remarkable increase of over 50 per cent year-on-year at airports like Amritsar, Srinagar, Raipur and Aurangabad. Similarly, domestic aircraft movements surged over 40 per cent at Tiruchirapalli, Leh and Trivandrum.


A large number of institutional clearances are necessary for new airport projects and hence the active involvement and support of state governments is crucial. Beginning with planning and land acquisition in the case of Greenfield airports or expansion of existing ones, unless the state government is committed to the project, it is likely to flounder. State level facilitation measures include multi-modal connectivity, provision of utilities and other services, adequate security and reduced VAT on aviation fuel. Given the inescapable fixed costs and lower traffic, the financial viability of smaller airports is a matter of concern. The state governments, inevitably, need to extend financial support and incentives to the developers and airlines serving Tier-II and Tier-III cities, otherwise they are unlikely to take off.

In a commendable move aiming to operationalise 225 airports across the country by 2020, AAI recently asked state governments to prepare plans for airports, helipads and unused airstrips which they want to develop or upgrade. Depending on the traffic density forecast, connectivity with state capitals and possibility of generating non-aeronautical revenue by using surplus land, AAI would develop these airports. AAI should also formulate a viable ‘no-frills’ airport model without compromising on the safety and security. State governments can help by promoting non-aeronautical revenue measures.

Many progressive state governments are getting into the act. In Madhya Pradesh, for instance, the government has offered to pay for three seats on an average for 16-seat turboprop aircraft flying between selected airports, including Bhopal, Gwalior, Indore and Khajuraho. Gujarat is following suit, offering to subsidise private players who are interested in providing regional air services in the state. It feels that diamond merchants would be keen on flights from Surat to Saurashtra areas. In Andhra Pradesh, on the request of the government and after evaluation by the AAI, Kurnool, Nellore, Ongole, Nizamabad and other cities have been assessed as feasible for regional airports. In Karnataka, airports at Gulbarga, Shimoga, Hassan, Bijapur and Bellary are in various stages of development. These and other projects where the state government is supportive should be fast-tracked. It is clear that regional operations have a long gestation period and require patience. SpiceJet, for instance, estimates it will take at least two years for its Q400 operations to turn profitable.