Small is beautiful

When Singapore Airlines recently announced the launch of its low-cost avatar Scoot in India, one of the two places it chose for initial operations surprised many. While it’s a no-brainer that a Southeast Asian airline will have a flight to Chennai, Scoot’s second destination — Amritsar — left even some experts stumped.    

“Why Amritsar? What is the thinking behind the choice? Why not one of the other bigger metros?” were just some of the questions bandied about as the news broke. Adding to the debate was Scoot’s third destination, Jaipur, where the low-cost carrier will begin operations in October. The Pink City decision poses the same set of questions that Amritsar did.        And it was not as if the airline was flying the smaller aircraft to Jaipur and Amritsar.  In an interview to  BusinessLine , Bharath Mahadevan, Head of Scoot India, said the airline would operate the 335-seater Boeing Dreamliner 787-800 to Chennai and Jaipur, while it would deploy the 375-seater 787-900 to Amritsar.

Clearly the so-called Tier-II and Tier-III cities are where the action is these days.  “There is a huge pent-up demand in Tier-II and III cities, especially State capitals and places of industrial as well as tourist interest,” said Amber Dubey, Partner and India Head (Aerospace and Defence) at KPMG. “Any airline that provides convenient global connections at reasonable prices will see growing demand, as travelling first to metro airports is not convenient to many, especially to those with family and luggage.”

Dubey says that Amritsar could have been chosen for two reasons. One, as a holy city, it is a big attraction for the Sikh diaspora. Two, it is a convenient international gateway for those living in western Punjab, who otherwise have to travel all the way to Delhi.

Scoot can connect Amritsar to other destinations in ASEAN, the Far East and Australia-New Zealand, through Singapore, said Dubey, adding that passengers now reach these destinations through Delhi or Kuala Lumpur.

He pointed out that Malaysian carrier Malindo Air had started a direct flight between Amritsar and Kuala Lumpur in the last quarter of 2015. The flights have shown a healthy start so far.

Airports in Tier-II and III cities are showing a steady increase in passengers travelling international. Airports Authority of India (AAI) data show that during 2015-2016 (April-February), international traffic from Amritsar has gone up by 6.4 per cent year-on-year. During the same time, it grew 6.5 per cent in Jaipur and 24.6 per cent in Lucknow. Delhi (4.1), Chennai (3.3) and Mumbai (1.8) saw more modest growth.

flydubai, which entered India in 2010, began operations from Lucknow. Sudhir Sreedharan, Senior Vice-President — Commercial (GCC, Indian Sub-continent, Africa) of flydubai, said the airline has created a network of 89 destinations across 43 countries.

The airline, he said, has connected 59 destinations that previously had no direct link to the UAE. Doing so, it has opened up scope for travel beyond the UAE to other cities.

In addition, the airline has connected India to Tblisi in Georgia, which wasn't accessible directly earlier.

Sajid Khan, Country Manager (India) of South African Airways, pointed out that developing infrastructure and integration of terminals in metro cities (T-2 in Mumbai; T-3 in New Delhi) has reduced transit time, making connections to smaller cities easier. Khan said the airline earlier had a code-share agreement with Jet Airways, and has not yet planned to venture into smaller cities itself.

“We have to look at numbers and keep in mind the final destination of passengers. In case of Gulf carriers, their strategic location gives them the opportunity to take passengers onwards to Europe and North America. However, we are limited to Africa.”

An aviation industry expert with over two decades experience with international airlines said that carriers target smaller cities as traffic primarily originates from them.

“Labour comes from Rajasthan, UP, Odisha, interiors of Andhra Pradesh and Maharashtra; international connectivity from these airports makes accessibility greater,” he said, adding that Gulf carriers are likely to have a passenger load factor of above 95 per cent from airports in these states.

Although in-bound passenger load is usually 80-85 per cent, it shoots up during the peak season. Such airlines primarily target labourers and those on pilgrimage — labour and religious tourism are the primary drivers of the market.

The expert quoted above said big events such as Dubai Expo 2020 and FIFA World Cup 2022 in Qatar are likely to generate close to 5 million jobs.

“These jobs, mostly in the services sector, will attract people from UP, Odisha and even the North-East. However, the reason why foreign carriers are not able to expand operations to these places, is because of the restrictions in place due to bilateral agreements,” he said.

For carriers in Southeast Asia and the Far East, it is a mix of labour, tourism as well as the huge numbers of Indian expats living abroad.

Indian carriers are also benefitting. Shilpa Bhatia, SpiceJet’s Senior Vice-President of Sales, said it's not the geography but market demand that determines how operations are finalised. She said while small cities do offer potential, it is not feasible to start flying there without the assurance of considerable returns.

A senior official of an international airline, who did not wish to be named, echoed similar views, saying that the carrier operates from most airports in Tamil Nadu to South-East Asia, with flights running full capacity. “This is due to the huge number of expats in South-East Asia, and maximum demand coming from these airports,” he said.

Unlike South African Airways, flydubai does not have code-sharing with any other carrier, but 20 interline agreements, which enables transfer of luggage for passengers, travelling on two different airlines, from the point of origin to the final destination.

With Air Asia X re-entering India in February, the carrier plans a tie-up with Air Asia India to use the domestic operations as feeder flights for international ones. In an earlier interview to  BusinessLine , Air Asia X CEO Benyamin Ismail had said passengers could travel from Pune to Bengaluru or Vizag to Delhi, via Air Asia India, and fly onwards to Kuala Lumpur without exiting the airport.