In this section, we discuss the numbers and challenges for the regional connectivity scheme (RCS). Summary:

1. Clarity on “one hour” in the Ministry’s statement of INR 2,500 per passenger for a one-hour flight. Is one hour flight time or block time?
2. 76 airfields operational, today. Despite 476 airstrips/airports in India, only around 90-100 are in a usable state.
3. Clarity sought if Viability Gap Funding (VGF) only for Scheduled Commuter Airlines. If not, regular scheduled airlines will be double-arm twisted.
4. Since the Ministry is funding the viability gap of flights on certain routes, the definition of ‘Regional Connectivity’ is to be specified whether it is to ‘any airport’, or the nearest state capital, or the closest metro airport. This is to prevent misuse and minimize loopholes.
5. Ministry must explicitly specify airports and routes that come under RCS.
6. Ministry must also specify the minimum seat capacity to be deployed on RCS routes, after a scientific study of the market.
7. 2% charge on all domestic and international tickets does not clarify if it is applicable to all international tickets, including those sold by foreign airlines. However, reference to Aircraft Act 1934 seems to exclude foreign carriers, which then creates fare disparity.
8. With ticketing revenue at CY2015 rates, the RCS Viability Gap Funding may be able to support 30 – 50 ATR 72s, or 40 – 60 ATR 42s, operating more than 160 flights a day.

The Ministry targets an all inclusive fare of INR 2,500 “per passenger, indexed to inflation for a one-hour flight on RCS routes.” However, Clarity on whether the “one hour” is the block time or the “flight time” is wanting.

While it is a fact that currently 76 airports have scheduled operations, the ministry’s number of 476 airstrips/airports in India includes airstrips at places such as Raxaul (Bihar) where the strip is today reduced to a road/path and is used for cattle grazing, Vellore (Tamil Nadu) where the strip is a mud strip of 783 meters (2,570 ft) with no possibility of expansion due to a road on one side and developments on the other. The AAI website lists just 130 airports, including military airfields with commercial flight operations. That number of 130 airports includes the rundown strip at Raxaul, and the mud strip at Vellore. At Muzaffarpur ‘airport’, another rundown strip, there are numerous beaten paths that run through the airfield. A quick look at Google Earth will reveal the condition of such ‘airports’ and ‘airstrips’. It will take time to redevelop / develop such airstrips to airports, which is dependent on political will. An example is the Gulbarga airport at Karnataka which was in construction in April 2013 (when we visited the strip for certain government operations) and is yet to be completed, two and a half years later, due to disputes.

Regional Connectivity Scheme, by definition, will encourage operators to operate to underserved and unserved airports. As part of its definition, the ministry must specify the definition of regional connectivity, whether it is to ‘any airport’, or the nearest state capital, or the closest metro airport. Since the ministry is funding the viability gap, it must make the best use of its funds by scientifically determining and publishing economically important routes. Else, many routes will succumb to the will of the promoters (owners of the airline) or a politician’s whims.

The ministry must also specify the minimum seat capacity to be deployed on such a route, after a scientific study of the market.

Lack of clarity will serve as loopholes for certain startup operators to reduce sales efforts, and use the flights either for crew training or to sell flying credits. An example was Air Ventura, which operated 10 seat single engine turboprop Cessna Grand Caravans from Bhopal to five cities in Madhya Pradesh and Nagpur. Despite the connectivity, and government funding, the commuter airline could not make any meaningful economical impact, and shut its Madhya Pradesh operations before being sold off to a firm in Surat.

Routes to such airports, which are expected to be short and where demand will be small to start with, will prudently need to be opened by right-sized regional aircraft. Proven, in production western turboprops such as the 48 seat ATR 42-500/600, 72 seat ATR 72-500/600, and 78 seat Bombardier Q400s are perhaps best suited for such routes (subject to a scientific market study). Among regional jets, used 50 seat Embraer E145s, 78 seat Embraer E170s, 88 seat Embraer E175s, 70 seat CRJ-700s and 88 seat CRJ 900s are part of the prudent consideration set.

Viability Gap Funding (VGF), discussed later in this piece, is applicable only for Scheduled Commuter Airlines (SCAs), which must have aircraft with 100 seats or less.

The graph below tabulates the take off distance of most western regional aircraft, with an Airbus A320 for reference. Take off distance is usually more limiting than landing distance. It must however be borne in mind that these are performances at maximum take off weights. When the fuel loaded for a typical regional sector distance of 300-500 NM is considered, the take off distance required is smaller. For example, take off distance for an ATR 42 reduces to 1,000 m (14% reduction) when fueled for a 300NM flight, and the Embraer E170 reduces to 1,151 m (22% reduction) when fuelled for a 500NM flight, which is shorter than the ATR 72’s 1,175m when fuelled for a 300NM sector. However, high wing turboprops are better suited to take off from unprepared airstrips.

An ATR 72-500/600 costs a total of between INR 175,500 and INR 195,000 per block hour, to operate at an airline with a fleet size of 5 – 8 aircraft and good average daily fleet utilisation. Even with 72 passengers on board, this works out to between INR 2,400 – INR 2,700 per passenger per block hour. With an average and ambitious seat factor of 80%, this works out to INR 3,000 – INR 3,400 per passenger per block hour.

Other aircraft may, depending on a variety of factors such as lease cost, and age of the airplane, cost either as much as the ATR 72 if not higher, on a per-seat basis, to operate. We have demonstrated earlier that aircraft flying 400NM missions from the four metros of Bengaluru, Hyderabad, Mumbai, Delhi and Kolkata can cover the entire Indian landmass in providing connectivity to any airport in India from the nearest metro.

However, certain routes, such as from a metro in southern India to a non-metro in northern India may be beyond the economical range of a turboprop, in which case a regional jet will be better suited. It will take years for such routes to develop or open.

The ministry states that “Viability Gap Funding (VGF) indexed to ATF prices and inflation will be provided for a particular route, on a competitive bidding basis if necessary, for a period of 10 years from commencement of operation”. Lowest cost regional aircraft, operated in a low cost manner, will be more successful in winning the VGF. Even on an ATR 72, the government may have to fund the gap of more than INR 600 – INR 1000 per passenger.

The government plans to fund this by charging 2% on every domestic and international ticket sold. It is not clear whether it is applicable to all international tickets, including those sold by foreign airlines. However, reference to Aircraft Act 1934 seems to exclude foreign carriers, which then creates fare disparity.

Charging 2% on every domestic ticket, and forcing regular scheduled airlines to deploy a predetermined capacity on CAT II, CAT IIA and CAT III routes is a source of double burden for regular scheduled airlines. Such airlines which fly more than 100 seats per aircraft, such as Air India, Jet Airways, IndiGo, SpiceJet, GoAir, AirAsia India and Vistara will be forced to fly ‘unprofitable’ routes and pay 2% to the ministry to subsidise operations if scheduled commuter airlines.

Calendar year 2015 is expected to end with 80 million domestic passengers and 19 million international passengers, carried by airlines in India. of the 80 Million passengers, only 1.5% are on CAT IIA routes. Tickets on CAT IIA routes are exempted from this 2% levy.

Assuming an average of INR 4,000 per domestic ticket, and INR 10,000 per international ticket, CY 2015 is expected to generate INR 51,000 crore of ticketing revenue. 2% of that is INR 1,000 crore.

With the Ministry and State governments sharing the VGF in a 80:20 ratio, the VGF fun rises to INR 1,250 crore assuming state governments are together able to pitch in the balance 250 crore.

The total cost of every 1 hour block time of operating an ATR 72 is around INR 200,000. Assuming the VGF funds 50% of each flight, INR 1,250 crore can VGF fund 125,000 block hours of an ATR 72. Assuming on average block hours of 1:45 hr (250NM) per flight, this works out to 71,500 flights, or 195 flights a day, with each 1:45 block time ATR 72 flight adding nearly 33,000 available seat-kms (ASKs). At 250NM, each ATR 72 can operate 8 flights a day, but considering limited watch hours, and perhaps longer flights, the number may reduce to 6 or 4 per day. 160 flights a day with 6 flights per aircraft is a fleet size of 30 ATR 72s in India, and at 4 flights a day is 50 ATR 72s. The fleet size with perhaps a more apt airplane, the smaller and higher performance ATR 42, may be 40 – 60 airplanes.

This number may grow with years, as shown in the graph below, assuming the Ministry’s target of 300 million domestic tickets in 2021 is achieved.

When a more realistic growth rate of 10% is assumed, the graph changes to:

The logic is such: Opening flights to unserved or underserved routes will need to start with a small capacity, high performance airplane that can connect to the nearest metro. Once the market grows, airport infrastructure is expected to grow, which can then support regional jets with longer ranges. But the market to grow to support such demand will take years, as the economic multiplier effect builds the local economy.

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