Regional Connectivity

AIBM

January-March 2017

Developed and upgraded to attaract tourism, certain regional airports have seen significant investments in recent years. Puduchery airport is one in the list

One of the focus areas of the government has been to push air connectivity across the country, especially to Tier II and Tier III cities as India currently uses only a third of its 456 airports, government’s initiatives such as modernisation of airports, the introduction of regional airlines and the National Civil Aviation policy, released earlier in 2016, could be the solution for improved air connectivity to hinterlands.

Tucked away at a corner in the southern state of Tamil Nadu, Tiruchirapalli International Airport (or Trichy), occupying a fraction of area of the airports in Delhi and Mumbai, was overlooked by the international carriers until 2012 when it became one of the fastest growing international airports in the country. In 2012, the airport at Trichy was declared an international airport along with those at Lucknow, Varanasi, Coimbatore and Mangalore. Trichy had merited the upgrade as its international passenger traffic had grown by a sharp 382 pc between 2006-07 and 2012-13, almost three times as much as the growth in relatively bigger airports such as Goa, Lucknow and Amritsar. With a total of 2,899 tonnes, its cargo terminal also ranked first amongst the non-metro airports managed by the Airports Authority of India (AAI) in 2013.

Tiruchirapalli was amongst the 35 non-metro airports selected by the AAI for development and modernisation in 2008. The others on the list included mainly state capitals and key Tier II cities such as Ahmedabad, Amritsar, Aurangabad, Agatti, Bhopal, Bhubaneswar, Chandigarh, Dehradun, Goa, Jaipur, Lucknow, Indore, Khajuraho, Madurai, Mangalore, Port Blair, Ranchi, Raipur, Rajkot, Trivandrum, Udaipur, Varanasi and Visakhapatnam.

Modernisation of these non-metros included features such as new terminal building with modular design; structured steel with toughened glass glazing; vertical air-conditioning system; aerobridges with glass walls; walkways; in-line baggage screening for check-in; escalators; improved signage; integrated building management system; intelligent terminals; and improved traffic management on city side.

Yet, of the 456 airports in India, only 33 pc are functional and most of them have lost money. AAI plans to add another 100 to the list of working airports in the next five years and modernise all existing airports. The AAI has upgraded 35 regional airports so far, keeping aside INR 175 billion (USD 2.6 billion) for the purpose. The objective is to increase connectivity and passenger traffic.

Laying a strong foundation

As Indian states vie for more airports, in order to boost business and tourism, the AAI has sought free land and tax exemption amongst other incentives for construction of the airports. Many states have already agreed to provide free land for developing or extending the runway and exemption on municipal taxes. The union government also instructed the state or local authorities to ensure water and power supply and proper roads to enhance the air connectivity in Tier II and III cities.

To boost air connectivity further in the remote areas, notably the hilly states as well as northeastern India, the civil aviation ministry proposed to waive off the landing, parking and navigation charges at 20-25 specified airports in 2014. In its revised Route Dispersal Guidelines (RDG), the ministry also recalibrated the capacity that the scheduled air operators need to deploy to connect the Tier II and III cities. In order to make the new airports appealing to the airlines, the ministry also identified 50 towns where it would offer 50 pc discount on night parking charges at the airports. This incentive is for the airports in the states that levy five pc or less Value Added Tax (VAT) on Aviation Turbine Fuel (ATF).

Another step taken by the ministry, interestingly, allows the carriers or nonscheduled companies to purchase or sell miles (credits) to one another on regional routes. As the services on shorter routes within these regions are unviable for the large carriers, due to competition from other modes of transport such as road and railways, this policy would allow the large carriers to purchase miles from the regional operators on these routes.

The government has also proposed a cess, additionally, on passengers flying to metro routes to support the Essential Air Services Fund (EASF), meant to promote air connectivity in regional areas. This fund is supported by the government with the help of the state governments and the AAI that proposes to pitch in from the profits of the PPP (Public-Private Partnership) model airports. The fund may require a provision of INR 2.5-3 billion (USD 37-45 million) to support the connectivity in 40 Tier II and Tier III areas.

Continuing its mission of modernising the regional airports, the AAI has also set aside INR 4.5 billion (USD 67 million) to upgrade the Agartala airport, in the capital of the northeastern state of Tripura, to international standards, as part of India’s Look East policy. This would also push trade with Bangladesh. It will be the third international airport in the region after Guwahati (Assam) and Imphal (Manipur) and will be able to handle about 1,000 passengers per hour.

Bringing new carriers aboard

An important aspect in development of regional connectivity is getting more airlines to service a greater number of airports and especially those in the focus areas. In order to attract more airlines, domestic and international, to link more airports in the country, the AAI also showcased 29 metro and non-metro airports to attract domestic and international airlines at global aviation events such as the World Routes Development Forum in Chicago, held in September 2014. Amongst the airports that the AAI focused on were Amritsar, Chandigarh, Jaipur, Lucknow, Leh, Srinagar, Varanasi, Bhubaneswar, Gaya, Kolkata, Port Blair and Ranchi.

Additionally, with the introduction of new regional airlines such as Air Pegasus, Air Costa and TruJet in recent years, the AAI also announced 50 low cost-no frills airport with a modular concept in September 2014. These airports will have basic and only essential infrastructure, thereby reducing the overall service and operational cost of the airlines. One such airport, built at a cost of INR 420 million (USD 6.2 million), was inaugurated in Kadapa in Andhra Pradesh last year. The compact prefabricated terminal building of airport can handle 100 peak hour passengers. The first phase of the project include Tezu (Arunachal Pradesh), Jharsuguda (Odisha), Hubli and Belgaum (Karnataka) and Kishangarh (Rajasthan).

No Mean Task

However, the plan to add 50 idle airports to 60 operational airports should be thought through more, says a recent report by aviation consultancy firm, Centre for Asia Pacific Aviation (CAPA). Especially when in recent years significant investments in rehabilitations of airports at locations such as Mysore, Puducherry and Kanpur have failed to secure airline services.

Marginal connectivity has affected the use of these airports that have been developed and upgraded to attract tourism. Puducherry, for instance returned to aviation map in April 2015 with Alliance Air, a subsidiary of Air India that would connect Puducherry to Bengaluru. Alliance Air agreed to operate ATR type aircraft in this circuit that will accommodate up to 48 passengers by plane all through the week except Wednesday. The airport that was upgraded in 2013 with the construction of a new terminal was connected to Bengaluru through SpiceJet that provided its service from January 2013 to January 2014 after which the airport was left idle.

Similarly, Mysore airport, which was developed by the AAI at a cost of USD 12 million, started its commercial operations in 2010. Since Kingfisher Airlines, which was the sole carrier connecting the airport, withdrew its operation in 2012, the airport was barren. In January 2014, Mysore saw a resumption of airlink, when SpiceJet launched flights connecting Mysore with Bengaluru, Chennai, Delhi and Mumbai. However, the celebration did not last long as the carrier withdrew its services in October the same year and today both Mysore and Puducherry remain idle.

“The state government’s approach of developing big airports with huge investments in Tier II cities is a flawed approach to promote intra-state connectivity. What we need is small airports with 20-seater aircraft operating from it. This would be feasible not only for the airlines but also the airport operators,” says aviation and aerospace consultant TJ Master.

Woes of the Regional Airlines

Some of the early regional airlines – Air Pegasus, Air Costa and TruJet – which have been now operational for nearly three years have received a boost, after initial years of losses and difficulty. While Vijayawada based Air Costa has added new destinations to its map, Bengaluru-based Air Pegasus and Hyderabad based TruJet have been making inroads in the Indian skies. Yet, although the government actively supports and want to promote airlines that connect the hinterland of the country, many are losing money, piling up debts and paying the salaries in installments. The capital for the regional airlines, according to the policy, is INR 300 million (USD 4.5 million) as opposed to INR 500 million (USD 7.5 million) for national carriers for five aircrafts. Even for adding aircraft, the regional airlines invest INR 100 million (USD 1.5 million), half the sum their bigger peers cough up.

However, analyst firms such as CAPA feel that the low entry barriers have enabled ‘not-so-serious operators’ into the industry. According to CAPA, most of the airlines are under-capitalised and often choose inappropriate aircraft models. Air Costa, for instance, was losing INR 30 million (USD 0.45 million) per month by the third quarter of the last fiscal, courtesy to the poor choice of aircraft. It is now switching from 78-seater Embraer E170s to more fuel efficient 112-seater E190s.

In addition to contending with bigger players such as SpiceJet and Jet Airways on short and thin regional routes, the regional airlines also get tough competition from more economic and preferred transportation such as trains and buses. The industry, therefore, also feels the necessity of capping the airfares to make it affordable.

As more regional airlines such as Air Carnival and FlyEasy launch their operations the National Civil Aviation Policy (NCAP) 2016 addresses the issues of regional connectivity through proposals such as providing viability gap funding for airlines, tax sops, capping of airfares at INR 2500 (USD 37) for one-hour flight and setting up of no frill airports. These measures should help the regional airlines to take off and have a smooth flight.