Mumbai: National carrier Air India is moving to revive its defunct low-cost unit Alliance Air with a different brand name starting next March to connect smaller cities in the country, said two airline executives familiar with the plan.
The board of Air India, run by National Aviation Co. of India Ltd (Nacil), has given in-principle approval for the project, code-named India Hopper, said the persons, who declined to be named because they aren’t authorized to speak to the media.
The airline will connect so-called tier II and tier III cities with the 45 small 40- and 80-seater planes that Air India plans to have in its fleet over the next three years. The national airline, which has 11 such aircraft now, is looking at turboprop planes manufactured by ATR, a subsidiary of European firm Airbus SAS.
“Air India would not be in a position to buy planes, but we will be looking at leasing more smaller planes to intensify regional operations,” said one Air India executive.
“We cannot ignore the growing market in tier II and tier III cities. We have already conducted surveys on the potential of such markets and identified at least 120 routes linking small towns,” the executive said.
A renewed thrust on regional operations is part of a new turnaround plan unveiled by Air India in July that envisages the airline reaching operational break-even and wiping out by 2014-15 the Rs14,000 crore of losses it piled up in the last four fiscal years and Rs18,000 crore of debt it has.
“Air India is considering to have a different brand name for this regional services. We will enhance the fleet and services step-by-step,” said the official cited above.
According to the second Air India executive, the carrier would be able feed into mainline services. For instance, a Madurai-Chennai flight will be planned in a way that it connects Chennai-Delhi or Chennai-Mumbai flights. This will expand a market that is largely underserved.
When it takes off, the new airline will have to contend with competition from Jet Airways (India) Ltd and Kingfisher Airlines Ltd that have already started to connect tier II and tier III cities through low-fare units.
Regional airlines, which are not allowed to fly crowded routes connecting large cities, took wing after the civil aviation ministry unveiled the concept with the aim of connecting smaller cities and towns.
The concept flopped, but with economic growth accelerating, passenger traffic increasing by 20% year-on year during April-August, and small-town India expanding rapidly, regional airlines are back in the limelight.
For example, Religare Voyages Ltd, a subsidiary of Malvinder Singh-promoted Religare Enterprises Ltd, has applied for government approval to start a regional airline and more are in the queue for licences.
“Operating to secondary cities with smaller planes of less than 80 seats is a viable business case,” said Kapil Arora, partner (aviation practice) with audit and consulting firm Ernst and Young.
“But it will take some time to develop these markets for two reasons,” he added. “At present, the bulk of the traffic is handled by major five or six metros and infrastructure bottlenecks at these airports are also dampening the potential of such markets.”
Arora said airlines need to increasingly penetrate secondary cities for markets as well as optimal usage of their fleet.
“The demand for air travel is back with the disposable income of the country increasing and better profitability prospects of corporates. Due to this, leisure traffic is also picking up,” he said.
Air India’s erstwhile subsidiary Vayudoot, which was formed in 1981 and shut down in 1993 after running into losses, had the original mandate of connecting small cities, especially in the north-eastern region of India.
Alliance Air was set up in the 1990s to serve small cities and towns and also provide jobs for pilots who had left Indian Airlines and Air India to join private carriers such as Damania Airways and EastWest Airlines that went bankrupt, leaving the pilots unemployed.
Although it was never formally shut down, Alliance Air has remained largely defunct.
“Regional operations as a business approach looks difficult at this stage. Lot of routes are being covered by existing airlines,” said Rishikesha T. Krishnan, professor of corporate strategy at the Indian Institute of Management-Bangalore, who follows the Indian aviation sector closely.
“Paramount Airways (Ltd) from Chennai was the best example for a national airline covering regional routes,” he said. “Though it was profitable during initial years, now it is not operational. Air India needs to have a unique selling proposition to sell such a product.”