New Delhi: More than a year after the government announced a new policy allowing small players to launch short-hop, regional flight operations, some firms that have been issued licences are cautiously gearing up to start operations despite slowing commercial air passenger traffic in an all-encompassing economic slowdown.

In 2007, the civil aviation ministry introduced a policy for small start-ups to connect small towns, complementing national operators, including National Aviation Co. of India Ltd-run Air India, Jet Airways (India) Ltd, Kingfisher Airlines Ltd, SpiceJet Ltd, Go Airlines India Pvt. Ltd, InterGlobe Aviation Pvt. Ltd-run IndiGo and Paramount Airways Pvt. Ltd.

In business: Of the start-ups that got permission from the aviation ministry in 2007 to fly, only MDLR Airlines (above), with two Avro 146-RJ70 aircraft, and Jagson Airlines, with two helicopters, have taken off.

A regional carrier from New Delhi was allowed to connect any other city, but not a metro of the other region. The only easing of this rule was that carriers starting operations from Bangalore, Hyderabad and Chennai were allowed to connect one another.

Civil aviation minister Praful Patel had then said: “Regional (aviation) is the future because there is a lot of opportunity connecting tier II and tier III cities with smaller airlines. ATF (aviation turbine fuel) is cheaper and landing and navigation charges are waived for 80-seater and smaller planes."

Since 2007, the aviation ministry has given permission to several start-ups, including ZAV Airways Pvt. Ltd, Star Aviation Pvt. Ltd, MDLR Airlines Pvt. Ltd, Jagson Airlines Ltd, and more recently, King Air Pvt. Ltd.

Except for MDLR Airlines with its two Avro 146-RJ70 aircraft connecting Chandigarh, Kullu, Ranchi, Kolkata and Goa with New Delhi, and Jagson Airlines, which flies two helicopters, the others are yet to take off. “When the (regional airlines) policy came in, there was an obsession for metro routes," says Mark Martin, an analyst with KPMG’s India offices, who believes that this could be a good time to start regional operations, depending on the demands of a particular region. “You can have a blend of routings now. You can do pick-and-drop service on key routes."

Analysts such as consulting firm Centre for Asia Pacific Aviation’s India chief executive Kapil Kaul are sceptical, pointing out that a regional airline might cost less than a national carrier but expenses could still tote up to Rs300 crore.

The cost seems to have little effect on the ambitions of regional carriers. Some are ready to take deliveries of new aircraft ahead of operations. Chennai-based Star Aviation, which has an aircraft purchase deal estimated at $220 million (Rs1,071 crore) with Brazil’s Empresa SA, will take delivery of the first of its Embraer 170LR jets in April.

“The reservations are opening from 15 March" on the company’s site, says T.V. Dorairaj, a director at Star Aviation, of its initial operations planned between Chennai, Thiruvananthapuram and Hyderabad. Star has not made any changes in plans announced last year and the airline will have five aircraft running in its fleet by the end of fiscal 2010.

“We are a regional airline in (the) southern region, we are not going to touch Delhi or Mumbai initially. It will be southern India and then southern cities with other cities," Dorairaj adds.

In New Delhi, King Air, which is the new avatar of the erstwhile UP Air, said it is preparing too. The airline has sought permission to import five ATR 42-500 turboprop aircraft and two Bell 412 helicopters. “If we get all the permission, flight slots, we hope to start services by 15 August," says Subhash Gulati, owner, King Air. The regional carrier plans to fly sectors such as Delhi-Lucknow and Delhi-Kullu, to start with.

ZAV Airways in Kolkata has scrapped plans of using ATR turboprop aircraft and will instead fly Bombardier-made CRJs. ZAV chairman Kishor Zavery said they were likely to launch services before the end of this year. It has taken, according to the ministry, import permission for one CRJ-700 aircraft and two CRJ-900 aircraft in January, replacing the earlier approvals for three ATRs.

Each of the new entrants has plans to differentiate its service from national peers, almost all of whom have strong regional services. Air India alone has 20 short-haul aircraft in its 154-aircraft fleet, while Jet Airways has 21 in its 111-aircraft fleet. Nearly half of Kingfisher’s domestic fleet of 71 aircraft has 35 ATRs.

King Air, for example, says it will have eight business class seats in each of its ATR aircraft designed to attract passengers from large national players, which mostly have a single class configuration on their fleet of ATR aircraft. Star Aviation is “going to be a full-service carrier, with meals, in-flight entertainment from Thales on board",says Dorairaj. “There will be 76 seats."

Such business plans enjoy the benefit of lower costs. Regional airlines with relatively smaller aircraft such as ATRs, Embraers and CRJs, which seat fewer than 80 passengers and weigh less than 40,000kg, for instance, enjoy waivers of navigation, parking, landing charges at airports and use jet fuel billed at lower sales tax rates (4% compared with, say, 30% for large aircraft such as A320).

Such savings will bring down break-even ticket prices in King Air to Rs4,000 per economy seat per hour and Rs8,000 for its bussiness class seats, according to Gulati.

KPMG’s Martin predicts a significant first-mover advantage in the business. “The second guy (regional airline) is left with other transport modes—railways and road travel—to compete with," he said.