India may have a large untapped market for regional air travel, but turning that demand into a viable airline business will require more than government subsidies. Franco-Italian firm ATR, world’s largest maker of small commercial aircraft, says India needs financially viable regional airlines, backed by more airports, lower airport costs and taxes, and incentives beyond the government’s flagship Udan (Ude Desh ka Aam Nagrik) scheme, if it is to turn the vast market for travel between smaller cities into a sustainable aviation business.
“I don't know if India needs more regional airlines. What I know is India needs profitable regional airlines for sure,” ATR chief executive Nathalie Tarnaud Laude told Mint in an interview. “Because it can only be a success if you are profitable in this business.”
ATR is a joint venture between Airbus and Leonardo, and specializes in turboprop aircraft for regional routes. Turboprops are smaller planes, with a 70-odd seating capacity, capable of accessing smaller airports with limited runway space.
Beyond Udan
Laude said the regional air connectivity scheme played an important role in developing the sector in the world’s fastest-growing commercial aviation market. “Udan has been very helpful to increase connectivity in India,” she said, adding that the scheme had allowed ATR and its customers to enter the Indian market. But the chief said Udan alone will not be enough to achieve the scale of connectivity the plane-maker envisages: 200-300 turboprops in 20-odd years.
“In the future, will this (Udan) be enough to increase that connectivity to the numbers that I was mentioning? Maybe not,” she said. “And maybe we will need other incentives while maintaining, of course, the scheme.”
“It could be more airports - building more airports, support to manufacturing, giving the right conditions to manufacture aircraft at the right cost-effective price,” Laude said. “It can be some incentives... tax incentives. (Lower) airport taxes, for example."
Udan was launched in October 2016, with 663 routes getting operationalized. However, nearly half, or 327 are non-operational. Routes are discontinued for reasons such as poor visibility, runway restrictions, aircraft shortage, low passenger count and financial failure of airline companies.
The Udan 2.0 scheme, launched earlier this year, has increased focus on airport infrastructure and commercial viability of routes. It now has an outlay of ₹28,000 crore, almost six times the previous scheme’s disbursals of ₹4,600 crore.
Huge regional opportunity
ATR’s India thesis is based on the size of the country’s existing ground-transport market. The company estimates that about 4.6 billion trips take place annually between tier-2 and -3 cities, but only 3% are made by air. An increase of less than one percentage-point in aviation’s share could add more passengers a year and require more planes.
The opportunity is particularly strong on journeys that take 8-12 hours by road or rail. ATR believes a 70-seat turboprop can serve such routes. On a 400-nautical-mile route, a turboprop costs about 45% less in fuel to operate than a jet, said Laude.
The plane-maker currently has about 70 aircraft operating in India, which includes those of IndiGo, Alliance Air and Fly91.
The aircraft maker has secured a firm order for 40 ATR 72-600 aircraft from Fly91, valued at $1 billion, with deliveries scheduled to begin in the second half of 2027 and continue through 2032. This is ATR’s largest order from a regional carrier. Goa-headquartered Fly91 was launched only in 2024.
The airline's order takes ATR’s global backlog from about 160 aircraft to close to 200, Laude said. The company is targeting a minimum 20% increase in deliveries this year, after 32 done last year.
Capacity, costs and viability
She said supply-chain conditions are now seeing an improvement after the pandemic-related disruptions, and the stronger inflows of structures and engines are giving ATR greater confidence in meeting delivery commitments over the next 18-24 months.
ATR’s European production capacity would not be sufficient if the 200-plane plan materializes. India could, therefore, be considered for additional capacity, although that would not necessarily mean setting up a final assembly line here. “The benefit of the aircraft is now that it's quite cost-effective,” Laude said, adding that manufacturing in India would also need to remain cost-effective.
The question, however, is whether aircraft economics can translate into sustainable airline operations.
“Sustainability for regional connectivity at an optimal capacity has been proven in India. Specific smaller airlines like Q400 (made by De Havilland Canada) have not been successful as a replacement to jets. The dependability now shifts to having a substantial ATR fleet that can connect ultra-short regional routes,” said Mark D. Martin, founder and chief executive at consultancy firm, Martin Consultancy.
To be sure, India has had a history of failure of smaller regional aircraft operators like TruJet or FlyBig, and also of larger players such as GoAir and Jet Airways.
ATR’s closest rival in the turboprop segment is De Havilland Canada’s Q400, while regional jets from manufacturers such as Embraer could compete for larger or longer regional routes.