News: Air Deccan’s small-town plan works

(DNA 15/09/2006) Bangalore - It was a business trip to Coimbatore that Bangalore-based hotelier Pradhan Ganapathy could not cancel. There was no train ticket available, and a Tatkal booking would have cost him Rs 1,400. He checked up the Air Deccan website, and was able to fly for just Rs 1,200 the same day.

Like Ganapathy, hordes of businessmen and frequent travellers from tier II and remote towns have an option beyond trains and buses as airlines introduce flights on these routes and connect them to major airports in the country.

In turn, these virgin sectors have helped boost the volumes of the carriers. Budget carrier Air Deccan, which currently generates around 40% of its revenue from this segment, is today the second-largest airline in the country with a market share of 21.2% (June, 2006). Traffic on this segment has been growing at 50%, albeit on a smaller base.

“Today, out of the 55 airports that we fly to, 35 are small airports. We intend to tap more small airports with our additional 30 new ATR aircrafts. We plan to connect Kandla, Kullu, Jamshedpur and Pantnagar in the near future,” says Air Deccan managing director Capt G R Gopinath.

Indeed, as Gopinath takes delivery of more ATRs (which are ideal for servicing small towns because of their smaller capacity - 48 seats) more flight paths on feeder routes are likely to appear on the aviation map.

Kapil Kaul, CEO - Indian subcontinent and Middle East, Centre for Asia Pacific Aviation, expects traffic on these sectors to grow further. “With the economy growing at 8%, we should expect the aviation sector to grow at least at 15-20%. Irrespective of whether there are low fares or not, new capacity on these sectors will stimulate growth. This is where the future of aviation lies. The growth in the aviation sector is moving from tier I to tier II to feeder routes. Initially, however, there would be the cost of developing these routes,” says Kaul.

At present, besides Air Deccan, Jagson Airlines Ltd is the only other carrier tapping this market. Coimbatore-based Paramount Airways operates all-business class flights to small-town destinations with its 50-seater Embraer regional jet ERJ 145. Kingfisher Airlines, which will soon be taking deliveries of ATRs, is also eyeing this sector.

However, SpiceJet wants to keep out of this market because of the hassles involved in maintaining two types of aircraft. “It is very difficult to manage a two-type-aircraft fleet. We will continue to serve routes where we can operate our Boeing 737s,” says SpiceJet CEO and chairman Siddhanta Sharma.

So, for the moment, Air Deccan literally has the entire market to itself as Jagson is an insignificant player.

“Our only competitors are the smaller regional airlines like Jagson and of course, largely the Indian Railways,” says Gopinath. And he is aggressively growing this market by introducing more flights. “We opened up Hulbli airport three years back. Now, we connect it to Belgaum and Bangalore. Shortly it will be connected to Mumbai, too. Similarly, we opened up Jabalpur to Delhi and now we will connect it to Mumbai and are looking for other such intra-state connectivity,” says Gopinath.

The average capacity utilisation on these routes is comparatively higher. For instance, Air Deccan utilises an aircraft for close to 13 hours per day with an average load factor in excess of 70%. Even the operational costs on these sectors tend to be lower with a host of incentives offered by the government to attract regional connectivity. “Free landing, lower airport fees and aviation turbine fuel taxes give us the cost advantage to service regional airports,” says Gopinath.

Also, with no congestion, there is lesser fuel-burn as the holding time (circling over the airport) is nil, adds M Thiagarajan, managing director, Paramount Airways.

The only daunting task, like Kaul says, is the cost of developing the sector.

All the same, the small town aviation boom sure appears set for a take off.