Short-haul is the new long-haul’ in civil aviation as more players rush into the regional connectivity space considering the huge potential and space for growth. The decision by public sector units like Hindustan Aeronautics Limited (HAL), which is primarily a military aircraft-maker, and chopper-maker Pawan Hans to pursue a fixed wing development programme is indication of the growth opportunities available, despite the current slump in the sector.
Currently the ninth-largest aviation market, handling 121 million domestic and 41 million international passengers annually, India is touted to become the third-largest civil aviation market by 2020. And with large parts of the country still unconnected by air, it is clear that India—with its 1.2-billion population and giant size—is a bandwagon that everyone wants to hop on to. With large industries cropping up in remote regions due to easy availability of land, the concept of regional connectivity has gained special significance.
In 2000, India had just 225 aircraft. This number bloated to 735 by 2010. Currently, the country has 1,187 aircraft of scheduled as well as non-scheduled operators, according to aviation regulator Directorate-General of Civil Aviation (DGCA).
“The civil aviation business in India indicates emerging requirements for 19-seater, 30-seater, 50-seater and 70-seater aircraft as the traffic grows on regional routes. The company (HAL) has a strategy to address not only the requirements of this emerging market but also the MRO (maintenance, repair and overhaul) opportunities offered by trunk route operators,” says RK Tyagi, chairman of the state-owned aviation company. The PSU intends to pursue new opportunities in the National Civil Aircraft Development (NCAD) Programme for which the Planning Commission has designated it as the lead development agency.
The market becomes even more attractive when you consider that the Union Government has engaged an international consultancy firm to identify connectivity opportunities in remote and interior areas, the North-eastern region and Tier-II and Tier-III cities. Adding impetus to this is the fact that operation in the domestic sector has been deregulated and airlines are free to operate anywhere in the country subject to compliance with route dispersal guidelines.
“Regional connectivity is on top of our agenda. We have identified 90 towns that we want to get on the aviation map of the country. We are working on schemes whereby we will provide subsidy support to those operators who operate on loss-making routes so that they can operate without fear,” says KN Srivastava, secretary for civil aviation. The government is working on a policy for regional connectivity that should be out soon, he adds.
Of the total expected investments of $12.1 billion for airport infrastructure in the 12th Five Year Plan, private sector contribution is pegged at around $9.3 billion. Some 35 airports will be modernized while 15 greenfield projects have been approved, according to the ministry.
“The Indian economy is on the low now. But it has all the fundamentals to grow. That will add to the air traffic,” says Kiran Rao, senior vice-president (sales and marketing), Airbus. According to the company, the Indian market requires over 1,000 aircraft (valued at over $145 billion) in the next 20 years.
State governments are not holding back in exploring opportunities in the sector either. Madhya Pradesh has already started offering air taxi services run by Ventura Air Connect. Says Vishrut Acharya, director, Aviation Development, Government of MP: “We have started intra-state operations with two nine-seater Cessna Grand Caravans. The operator connects nine cities in the state. The special advantage of these aircraft is that they can land on even very small airfields apart from regular runways.”
The state government, since then, is attracting more operators with tax benefits such as 100 per cent exemption of VAT on aviation turbine fuel. The government is also ready to compensate the operator for three seats if six of the nine seats are filled. “The load factors are phenomenal, in fact they are 100 per cent on sectors like Bhopal-Indore, Bhopal-Jabalpur and Indore-Bandhavgarh,” says Acharya, adding that regional connectivity will provide growth impetus to tourism, industry and the state to a large extent.
In Kerala, Seaplane Services are running short-haul flights tapping into the state’s vast resources of lakes. “We connect to four airports (including Mangalore) and five water drops in Kerala. We plan to scale up to 21 identified locations in the state,” says Umesh Kamath, MD of Kerala Seaplane Services. With fares ranging from `3,500 to `4,000 for a half-hour flight, Kamath says the model ensures faster connectivity at the same cost as road travel. “It takes 20-25 minutes for a 100- to 130-km journey. Also, we can connect to places such as north Kerala that are not connected by any airline.” With the water drop, infrastructure costs are also much lower. “We have a floating jetty for embarking and disembarking,” he says. The company currently has two 10-seater Cessna 208s and plans to get an 18-seater by October.
Efforts by the government-owned National Aerospace Laboratories (NAL) and the Council of Scientific and Industrial Research (CSIR) to develop regional transport aircraft (RTAs) with a 70- to 100-seat capacity have hit a snag by way of delays in design development. The RTAs were to compete with the Franco-Italian ATR, which is the preferred choice for short-haul flights by big operators.
Still, consulting firm AT Kearney states that India’s regional aircraft fleet will grow from 55 in 2011 to 261 by 2025 at a CAGR of 12-13 per cent, compared to the projected 9 per cent growth in total fleet.
But what about airstrips, of which only 100 of the total 450 are usable? Asked about airport infrastructure, Jayanth Pooviah, director and CEO of Deccan Charters, says: “According to policy, operations can only conventionally be done with a proper building, departures and arrivals and so on. Many places (abroad) have only airstrips of grass but are still operational.” His company, which was started by low-cost pioneer Capt. G R Gopinath, operates short-haul flights between Bangalore and small cities in Karnataka and Andhra Pradesh, and helicopter services for Vaishno Devi pilgrims in Jammu. It also tried its luck with intrastate connectivity in Gujarat. “We had shuttle services with nine-seater Grand Caravans as there is not much intra-state connectivity there. The company, however, had to close operations as it was not economically feasible. Such models cannot be viable without assistance from the state,”
Due to the low volumes in this line, profit is something short-haul operators need to be patient about. As Nafees Siddique, head (S&M) at Ventura Airconnect, which connects Bhopal with Jabalpur, Gwalior, Rewa, Satna and Khajuraho, says: “Because we operate small planes, we will take more time to break even.”