Copying US model can benefit Indian carriers

Copying US model can benefit Indian carriers

Mumbai: India’s national airlines and new regional carriers will do well to cooperate on ferrying passengers travelling from small towns to large cities or international destinations as also share engineering and ground handling resources, copying the business model in the aviation industry in the US, the world’s biggest market for airline services, say industry executives and experts.

Ten national airlines, six less than five-years old, made an estimated loss of nearly Rs2,000 crore in fiscal 2007 as seat capacity exceeded demand for air tickets. Just as the supply-demand gap seems to be easing up this fiscal year with fewer additions to fleets and robust passenger growth, aviation firms are readying to be buffeted by a set of regional airline entrants.

At least 10 regional players are waiting in the wings following a policy by the Union government to create a new category of airline firms to connect small cities. Four of these firms are likely to be granted approval by the ministry of civil aviation soon.

“There are lot of positive things to learn from the US in terms of cooperating with national airlines," says Ramachandran Iyer, executive director of regional airline start-up Air Dravida. “We could cooperate with them by the way of code-sharing and interline agreements." The business practice of “interlining" refers to flying international and domestic passengers to a small city on one ticket by flying different legs on two or more airlines.

Other areas of cooperation could include joint marketing and sales agreements, or what is called code-sharing.

“We could pool resources of engineering, maintenance, staff and ground handling (too)," adds Iyer, apart from ferrying staff from one destination to another for free.

Muhamin Saidu, chief executive of Emric Aviation Pvt. Ltd, another regional carrier, says he, too, is exploring options to work “hand-in-hand with national carriers".

The US has two categories of airlines, national and regional, each represented by trade bodies Air Transport Association of America, better known as ATA, and Regional Airline Association or RAA respectively. Regional carriers in India could form an association on the lines of the national airlines’ Federation of Indian Airlines, says Iyer.

Admitting it is difficult to predict a business model for India, RAA president Roger Cohen says; “In the US, the competition among airlines is only for passengers. They co-operate in all remaining sectors." His reference is to engineering, maintenance, staff and ground handling. One out of four US domestic passengers flies on a regional airline and “they represent half of the total US domestic flights", says Cohen in a phone interview from Washington, DC.

Demand for regional airline capacity remains strong as main carriers continued to align capacity more closely with demand, ATA said in its latest annual report.

In the 1980s, some years after the 1978 deregulation of US aviation, the regional airline industry went through a “cowboy period", says an industry consultant. “Then later, they did deals with major airlines," says Craig Jenks, president of Airline/Aircraft Projects Inc., a leading New York-based air transport consulting and advisory services firm, in an email interview. And, today, “many of the regional operations are actually subsidiaries or risk-sharing partners of major airlines," adds Jenks.

“In the US, majority of the regional carriers work in partnership with one or more of larger, typically full-service airlines," says Bruce Ashby, president and chief executive officer of InterGlobe Aviation Pvt. Ltd, which runs New Delhi-based low-fare carrier IndiGo.

Examples of this type of carriers include Mesa Airlines, Republic Airways, TransStates Airlines and Air Wisconsin. Some others—for instance, Alaska Airlines, Eos Airlines, Midwest Airlines and Spirit Airlines—focus on fixed routes and service such as all-business class.

Under a typical agreement, regional carriers are paid by the major airlines to bring passengers into the hub at low cost; these passengers then connect onto flights operated by the major carriers.

The small players are paid a fee to cover costs, including fuel, maintenance, aircraft ownership and other expenses.

A regional carrier might carry a passenger from Lancaster, Pennsylvania, to Philadelphia, and the major carrier would carry the same passenger from Philadelphia to Paris, all on one ticket.

But a stumbling block for the Indian aviation industry copying the US model on a large scale could be the paucity of airport infrastructure and the way traffic is distributed here. “The ‘partnership’ regional carrier model is widespread in the US because the major carriers there operate hub-and-spoke networks. It is hard to see how this model would work on a large scale here in India, since there are no real hubs and airports are already congested," says Ashby.

RAA’s Cohen says the US has nearly 700 airports, of which more than 450 are exclusively used by regional carriers. In comparison, India has just 81 operative airports with plans to increase this number to 120 in three years.

Still, on a small scale, it might work in India. For example, a regional airline could operate turboprop planes from, say, Guwahati to small nearby airports, and “feed" passengers collected from those cities into the larger plane flown into Guwahati by a larger airline, Ashby says.