Regional Jets & India – An untapped opportunity: Part 2

The first part of this article can be found here

Regional jets in India Why airlines in India will do wonders with a Regional Jet

There have not been many regional jet operators in the country.

Air Sahara, which was later acquired by Jet Airways operated a fleet of 7 CRJ-200 aircraft. The aircraft were soon termed gas guzzlers and replaced by ATR-72s post Jet Airways acquisition. Thus routes which were then short / thin and operated by CRJ-200s like Delhi – Gorakhpur or Kolkata – Bhubaneshwar saw the ATR-72s operate. While Delhi – Gorakhpur is still operated and is a monopoly route, Jet Airways pulled out entirely from Bhubaneshwar few seasons ago.

The most notable of the operators was Madurai based Paramount Airways which operated 5 ERJs ( 2 ERJ 170 and ERJ 175). The airline was the first operator of the Embraer jet in the country and made tall claims about profits for a long period of time till it stopped operations in 2010.

While airlines are moving to a philosophy of filling up seats, led by Spicejet – the highest cost for any airline is the cost of an empty seat. Its time airlines focus on RPK (Revenue Passenger Kilometres) and not ASK (Available Seat Kilometres).

Airlines in India have constraints on ancillary revenues, which includes pre-permission from regulator and limited unbundling of services. In conditions like these, the focus cannot shift away from higher average revenue.

India is a cost conscious market – where there are fewer passengers who are willing to pay more and majority passengers who wish to pay less for the same seat. Revenue Management tricks would help increase the total revenue as well as unit revenue by optimising the fare classes such that the sale of seat starts in the middle and upper brackets of what competition with A320 or B737 would sell. During lean season when the competition could tend to sell cheaper, the lower trip cost will help plug losses for a regional jet carrier in general or E-190 carrier in particular.

Routes where regional jets are will work wonders in India

India is a complex country when it comes to aviation. Globally analysts have been quoting how big the potential is with just 2% of the population flying, but the ground realities are different. India has a large population but not all can afford air travel. Majority of the air travel is concentrated in metros. Non-metros (Tier II and Tier III cities) have limited connectivity and most of the times, only to the nearest metro. The airports in smaller cities either do not have runways which can handle A320 or B737 – the mainstays of airlines in India, or have just one or two flights a day making the ticket very expensive.

The first route that comes to my mind for a regional jet in India is Patna – Mumbai, Patna – Bengaluru, both of which currently cannot be operated non-stop due to runway length restrictions at Patna. While airlines have wanted to fly non-stop, their current equipment – A320 or B737 cannot complete the mission due to the very short runway at Patna which doesn’t allow the jets lift off with requisite fuel for the mission. However the 1950 mtr runway is more than sufficient for the E-190s which require 1600 mtrs and has sufficient range to fly to Mumbai or Bengaluru with full load. A similar case is that of Dibrugarh where market leader IndiGo flies nonstop from Delhi but returns via Guwahati, partially the reason being clubbing of loads and the other reason being short runway at Dibrugarh – both these reasons could be answered with a regional jet.

It has only been recently and only for a month that the regulator has released data between city pairs and that too for cities which have same flight number direct or one/multiple stop connection. However a mix of data sources and this data throws up some interesting results.

Sector Chart - Regional Jets

On the international side, a lot of Central Asian countries are in the range of a regional jet and these include Almaty & Asghabad as well as flights on sectors like Ahmedabad – Bangkok, Gaya – Bangkok, Goa – Dubai, Varanasi – Kathmandu and Chennai – Dhaka.

Challenges for Regional Jet in India

  • While over 60% of capacity in Indian market is now LCC driven, there still is demand for premium traffic in India and with lower seats on the E-190, it will be difficult to play the game of revenue and yields till the airline gets a critical mass in the market.
  • Attracting talent and getting trained talent since the crew is generally trained for A320 or the B737.
  • Certification with different authorities for type of aircraft, cabin crew, cockpit crew, ground handling
  • Failure of Paramount & Not so rapid growth of Air Costa
  • Onslaught from existing carriers willing to dump capacity in the market
  • Limited slots at metro airports – pushing the airlines to operate higher frequency aircraft

Future

The future of Regional jets looks bright. Over 500 MD-80 series aircraft will be replaced over the next few years in the United States alone but there is a large market to be tapped in India.

The regional jets could see a market of 150 – 225 aircraft in India over a period of 10-15 years which include replacement aircraft. With a seating configuration between 90 – 120, there will be minimal reduction in crew costs as well since the aircraft would require 3 cabin crew as compared to 4 of A320 or B737.

There will be routes which will open up and see demand, the metros will be saturated and airlines will have to move towards tier II and tier III cities where demand follows capacity and a regional jet in the 80-120 seater range like the E-190 will help airlines play the game of frequency over capacity. Deploying a 100 seater aircraft twice a day will get more traction and pull larger crowds than a single frequency of 186 seats. If the market is not sustainable the larger jet cannot sustain two frequencies helping the regional jet operator sustain and grow profitably.

Fly Easy – the proposed E-190 operator to be based out of Bengaluru, India is one carrier to look for with its planned network doing exactly what a regional jet is supposed to do – operate non-stop to places offered as one-stop by competition currently and utilize the aircraft for medium to long thin routes.

The last question probably is if an airline can sustain the onslaught of A320s and B737s and a classic case is of Brazilian carrier Azul, which has been successfully clocking profits while competing with players operating A320 and B737s. Data released in 2012 shows that Azul had 26% lower trip costs compared to Gol (all B737 operator) and that helped the airline play the game of frequency over capacity and resulted in higher yields.

Key cost parameters used by airlines

Airlines have been using some key cost parameters over the years. Some of them are listed below and help understand the metrics on which airline profitability rests

CASK – Cost per Available Seat Kilometre, which is a sum of airlines operating expenditure divided by total number of available kilometres.

ASK – Available Seat Kilometre, which is multiplication of seats available for sale and number of kilometres flown.

RASK – Revenue per Available Seat Kilometre, which is division of airline revenue by all available seat Kilometres.

RPKM – Revenue Passenger Kilometres, Number of passengers multiplies by miles covered.

ASKM – Available Seat Kilometres, multiplication of number of seats in an aircraft by distance flown in kilometres.

PLF – Passenger Load Factor, Ratio of RPKM to ASKM and denoted in percentage.

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4 thoughts on “Regional Jets & India – An untapped opportunity: Part 2

  1. Pingback: Regional Jets & India – An untapped opportunity: Part 1 | Network Thoughts

  2. Abhishek

    Hi, amazing article. Just want to add something. On BLR GAU BLR route the average load is misleading as per reports coz the nonstop flight flies HYD BLR GAU IXA CCU. On BLR GAU BLR & IXA CCU IXA, the occupancy is more than 90% almost daily as per an employee. On a few occasion it clocks 100% on BLR GAU BLR. Spicejet has reintroduced BLR CCU GAU & vice versa. Jet flies PNQ BLR CCU GAU IMF 4x weekly & JRH 3x. If any non stop standalone is launched on BLR GAU BLR, it can definitely sustain A320 or B737.

    1. Ameya Post author

      Thanks. The loads are seasonal in nature show a lot of sources. The loads considered here are from multiple data points and an average over a longer period.

      1. Abhishek

        As per DGCA, AirAsia’s 7th aircraft to be based out of Bangalore. It will increase frequency on BLR GOI & BLR DEL route. It will offer a new connection on BLR GAU route. Hope it’s true. Also, AirAsia is currently sponsoring Notheast Football team in ISL. Augers well for Guwahati & northeast. Also, with its launch AIrAsia will become 3rd largest carrier ex GAU after Indigo (12) & Jet (11) ahead of old players like AirIndia, SpiceJet & GoAir.

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