A tale of two airlines

It’s never easy to operate an airline. What’s more, when it's a regional airline, things become all the more difficult. The recent suspension of operations by two regional airlines within a span of seven days amplifies this point. Air Pegasus and Air Costa nearly went belly up, suspending their operations till such time they could cough up more money.

While Air Costa, the Vijayawada-based airline, has partially restarted operations, the Bengaluru-based Air Pegasus, at the time of going to press, was yet to do so. The troubles at both airlines are far from over.

As per industry sources, two other regional airlines, all based out of the South, are facing a tough situation with one incurring a loss of ₹2 crore per month. For the regional airlines, it’s turning out to be a regular feature – a constant battle between keeping their operations running and at the same time pouring money to keep the lessors at bay.

Unfortunately, these temporary band-aids if allowed for some more period can only lead to dwindling passenger numbers and eventually closure.

For regional airlines, the battle of survival is all the more difficult compared with that of national carriers because they bank on convenience and less on speed and cost of travel. A majority of Indians don’t mind putting up with some inconvenience as long as they reach their destinations paying as less as possible. Also, as most of the Tier-two cities can be reached within six or seven hours, the time has not been a factor for most of the passengers.

The regional airlines are also up against a host of issues not of their own making. The airport charges for the regional airlines are similar to those of the national carriers. A private airport charges as much as ₹750 per passenger and if one adds up landing and parking charges, the total charges can go up to ₹1,000 per passenger which is about 40 per cent of the total fare.

“After all these charges, where is the money for fuel,” asks Vivek Choudhary, the CEO of Air Costa.

Choudhary points out that when Air Costa commenced operations, the airport charges were at ₹220. But after a private airport won a court case, it increased the charges to ₹750. While the fuel costs are dynamic and not under control of either the airports or the airlines, the parking, landing and other charges are.

It needs the intervention of the regulator as well as the civil aviation ministry to get the stakeholders to talk to each other so that all benefit.

“Airports need to be firmly told that they cannot charge higher rates for regional airlines. It is in their own interest as well,” Air Pegasus CMD, Shyson Thomas told this paper in an earlier interview.

But all the blame cannot be placed at the hands of the airport promoters.

Most regional airlines are not well-funded as the promoters believe that it is good enough to start an airline with a couple of aircraft, and once the companies start making profits they can add more to the fleet.

“Unless the standalone regional airlines are well capitalised and have strong management capability, they are unlikely to survive,” says Kapil Kaul, the CEO and Director for South Asia at aviation consultancy firm, Centre for Asia Pacific Aviation.

Choudhary also believes that it is important to keep expanding the fleet. “No airline can sustain its operations with a limited fleet. It is something we have learnt over the years,” says Air Costa’s CEO.

Air Pegasus was bogged down by rising cost right from the start. It struggled with safety issues as well. Its safety chief was removed and five pilots were suspended by the regulator, DGCA in June this year following charges of violations.

It was also not able to raise resources on time and this eventually lead to the airline's operations being suspended.

The choice of aircraft is important. Most airline analysts and a few airline managements have looked down upon Air Costa for taking lease of Brazilian-made Embraer, claiming that turbo prop ATRs are ideal for flying short distance.

But Air Costa has managed to correct its strategy. Though the 78-seater E170 was a bad choice because of poor seat configuration, Air Costa was able to return it to the manufacturer as quickly as possible. The three E190s, which it has now, have been leased from the US-based GECAS.

Sources in the industry say that as much as Air Costa , Embraer too wanted to keep its aircraft in operation in India, as the airline is the only one in the country to fly these planes.

“We have come to a sort of understanding with GECAS,” says Choudhary. This has allowed the airline to resume its operations. Kaul is quite clear that unless promoters commit about $50-$60 million as capital right at the start, it will always be a struggle for their airlines.

He believes that most times, business strategies of the airlines are neither realistic nor well-structured. He also points to the fact that the RCS or the regional connectivity scheme of the National Civil Aviation Policy must get a reality check because of the current crisis facing the regional airlines.

“The government’s RCS policy is fundamentally flawed with no commercial logic... don’t think the Ministry understands regional airline business model and they often confuse it with building more regional airports,” Kaul says.

In many ways, suspension of operations by regional airlines is a wake-up call for all the stakeholders: regional airlines, the ministry and private airports.

Without each of them bailing out the other, regional connectivity in India will continue to be elusive.