Why the idea of improving regional air connectivity is fraught with risks

India has seen a rush of regional airlines in the past two years. By the end of 2014, aviation turbine fuel (ATF) prices began to fall, which helped domestic carriers in a big way. Many airlines that were bleeding started to generate profits. The low ATF prices also lured people to start regional carriers. Airlines such as Trujet, Air Pegasus, and Air Costa have started operating in the past three years.

The new civil aviation policy talks about improving the regional connectivity by developing regional airports, and capping the fares for one hour (regional) flights at Rs 2,500 per passenger. Making fares affordable and face-lifting airports are important steps to give the initial boost, but the whole push of regional connectivity has to be backed by consistency in services. Apparently, most of the regional carriers are facing financial problems. Air Costa, for instance, cancelled all its flights on August 3 due to payment issues with its lessor. A month earlier, Air Pegasus did a similar thing after its planes were reportedly repossessed by its lessor over non-payment. It seems Air Costa is still operating while Air Pegasus is taking online bookings.

The weak financial performance reflects on the operations side as well. The data shows consistently poor performance of regional carriers on several fronts. Take the case of cancellations. Airlines such as Air Costa, Trujet and Air Pegasus have consistently topped the charts in cancelling flights. In July, for instance, Air Pegasus cancelled 29.67 per cent of its flghts. That's roughly one in every three scheduled flights. The corresponding figure for Trujet was 17.38 per cent. Things were much worse in March when cancellation rates for Air Pegasus and Air Costa stood at 40.34 per cent and 18.28 per cent, respectively.

The route selection is also crucial. Private airports in India have high airport charges that can go up to Rs 1,000 per passenger. When AirAsia India started operations, it shunned cities like Delhi and Mumbai due to high airport charges. However, it had to start flghts in these two cities later on. That's because an airline cannot restrict its operations to a few cities beyond a point. The demand for regional travel tends to grow slowly. As large carriers increase their regional connectivity, and more regional airlines launch, existing regional airlines struggle to fill up their seats, leading to a cash crunch. The government's plans to financially support regional carriers is expected to reduce their pressure to grow beyond smaller cities and deal with high airport charges.

Another problem with regional airlines is their inability to grow fleet. Airlines like IndiGo, SpiceJet and GoAir have done well because they were able to grow their fleet. Each airline has two cost components: variable and fixed. Variable cost largely includes ATF whereas fixed costs include staff expenses, operating airport stations, etc. As fleet size increases, the fixed costs remain almost the same, and the airline could fly more passengers.

The regional aviation market will see some more action. There are reports that three more regional airlines - Fly Easy, EasyAir and Air Kerala - are planning to start operations, and another airline - Air Carnival - has started off this year. However, it is going to take some time before the government's policy is implemented.  Till then, regional airlines are expected to be on a wing and a prayer.