Civil Aviation: Regional Carriers Propel Domestic Travel Expansion
Come March 18, Goa-based airline FLY91, the newest regional carrier, will take to the skies and start its commercial services with flights connecting Goa to Bengaluru and Hyderabad. It will also operate flights to Sindhudurg on the western coast in Maharashtra from Bengaluru and Hyderabad. FLY91 will join a fast-growing elite club of regional carriers like Star Air, operated by Bengaluru-based Ghodawat Enterprises, and Zooom, run by Gurugram-based Zexus Air Services.
Then, there are other players waiting in the wings to cash in on the fast-growing domestic air travel business in India. Very soon, JettWings Airways, the first airline operator from the country’s northeast, will begin its operations. It has received the government’s clearance to operate scheduled commuter air transport services in the country. It has announced that it has been awarded 12 sectors under the UDAN (Ude Desh ka Aam Nagrik) RCS (Regional Connectivity Scheme) 5.3 to serve airports in the Northeast, West Bengal, Uttar Pradesh and Bihar amidst fierce competition from full-service and budget carriers including IndiGo, SpiceJet, Vistara, Air India Express and Air India, among others.
FLY91 received its air operator permit from Director General of Civil Aviation, the aviation regulator, on March 6. It takes to the skies from March 18 with two aircraft, and expand its fleet to six ATR 72-600 planes in six months. "We aim to connect Bharat. Initially, we will connect 13 city pairs. We will also start flights to Lakshadweep from April," said Manoj Chacko, CEO and MD, FLY91. In the next five years, FLY91 plans to have around 35 planes, connect 50 cities and 6 bases, Chacko said. The carrier, operated by Just Udo Aviation, seeks to enhance air connectivity across Tier 2 and Tier 3 cities. Chacko said the airline's first base Goa is a huge attraction for pilots.
Advantage Regional
Is there some distinct advantage to a regional operator compared to the full-service and budget airlines? The answer to this is to be found in the way Jettwings Airways plans to operate. Being the first airline from the Northeast region, and scheduled to operate its fixed wing aircrafts on commercial routes from this year, it plans to have a modern deck turbo fan regional jets, supported by a robust business plan to acquire and operate 42 aircraft in the first five years. To serve the RCS routes under the UDAN scheme, the airline recently revised its fleet plan to additionally include and operate the Cessna Grand Caravan 9-seater aircraft in addition to its proposed 88-seater Embraer fleet. The selection of this aircraft is based on their efficiency and suitability for regional operations, ensuring a balance between passenger comfort and operational economics.
“Leasing ATR, Cessna, and Embraer fleets can provide regional airlines in India with significant cost advantages, including lower capital outlay, flexible fleet management, reduced maintenance costs, access to newer and fuel-efficient aircraft, easier fleet upgradation, and potential tax benefits,” a senior aviation expert told BW Businessworld.
While the Cessna aircraft is well-suited for short-haul regional flights and is an ideal choice for connecting smaller towns and cities, the Embraer shall provide a higher seating capacity with premium travel experience for passengers. This is exactly why JettWings Airways plans to deploy the Cessna Caravan on shorter, low-density routes, connecting remote destinations with limited infrastructure, and utilise the Embraer E Jets on medium-haul routes with higher passenger demand.
“By strategically deploying these aircraft types, Jettwings Airways aims to enhance regional connectivity, promote economic development, and enrich the travel experience for passengers,” said Sanjay Aditya Singh, CEO & MD, Jettwings Airways.
Jettwings wants to bolster connectivity and the accessibility challenges prevalent in India, with a focused objective. “The UDAN RCS 5.3 will currently help us in connecting significant locations that are tourism and religious hotspots in the Northeast, West Bengal, Uttar Pradesh and Bihar,” Singh added.
Growing Demand
Rating agency ICRA in its latest outlook for the Indian aviation sector has maintained a ‘stable’ rating amidst the continued recovery in domestic and international air passenger traffic, and relatively stable cost environment.
Building on the fast-paced recovery in FY23, ICRA estimates the domestic air passenger traffic to grow 8-13 per cent in FY24, reaching 150-155 million passengers, surpassing the pre-Covid levels of 141.2 million seen in FY20.
For the 11-month April-February 2024 period, the domestic air passenger traffic stood at ~1,40.4 million, reflecting a YoY growth of 14 per cent over the previous year’s corresponding period.
The momentum is expected to continue in FY25 as well, with a similar estimated YoY growth aided by rising demand for both leisure and business travel and improving airport infrastructure, it states.
“The industry has witnessed improved pricing power, as reflected in the increase in yields and thus the spread between revenue per available seat kilometre-cost per available seat kilometre (RASK-CASK) for the airlines. The same is expected to remain favourable, aided by a decline in aviation turbine fuel (ATF) prices and the relatively stable foreign exchange rates,” explained Suprio Banerjee, Vice President and Sector Head – Corporate Ratings, ICRA.
The industry is thus estimated to report a significantly lower net loss of ~Rs 3,000-Rs 4,000 crore in FY24 and FY25 compared to ~Rs 17,000-17,500 crore in FY23, Banerjee added.
Common Challenges
Whether it’s a full-service/budget carrier or a fleet of smaller aircraft by the regional operators, the ATF prices and the rupee-dollar movement have a major bearing on an airline’s cost structure. The average ATF price stood at Rs 103,547/KL in the 11 months of FY24, declining 15 per cent YoY compared to Rs 120,978/KL in FY23. However, this was 60 per cent higher compared to an average of Rs 64,715/KL during FY20. As is well known, fuel accounts for ~30-40 per cent of an airline’s expenses, while ~35-50 per cent of an airline’s operating expenses – including aircraft lease payments, fuel expenses, and a significant portion of aircraft and engine maintenance expenses – are denominated in dollar terms. Furthermore, some airlines have foreign currency debt. While domestic airlines also have a partial natural hedge to the extent of earnings from their international operations, overall, they have net payables in foreign currency.
At present, the Indian aviation industry has a total order book of nearly 1,700 aircraft, which is more than double the size of the current fleet. The deliveries, however, are likely to be gradual, spanning over the next decade, and will also be impacted by the current supply chain challenges encountered by engine and aircraft original equipment manufacturers (OEMs).
“More recently, the Indian aviation industry has been affected by engine failures and supply chain challenges. This has resulted in grounding of aircraft by select airlines, thus impacting overall industry capacity (as measured by available seat kilometer or ASKM), with nearly 20-22 per cent of the total industry fleet grounded as on September 30, 2023,” said Banerjee.
However, healthy yields, high passenger load factor, and partial compensation available from engine OEMs would help absorb the impact to an extent, according to Banerjee. And that is a big positive for the growth of aviation in India. And this may be the reason why more regional operators are seeing business potential in connecting the smaller towns in the next 60 months as opposed to starting a full-service operation.
In the last few years, established airlines like Jet Airways and Go First have been grounded, while SpiceJet has been facing challenges and finding it hard to keep up with its financial commitments to lessors and creditors. Seen against this backdrop, the rise of new regional airlines comes as boon.
