Without flyers, India's regional airlines are still waiting for their UDAN

Ill-planned business strategy and inadequate infrastructure have plagued regional airlines with mounting losses, threatening the government's ambitious regional connectivity plan

Kaustav Dhar was on a high in the winter of 2017. As CEO of Zoom Air, he was back on the aviation circuit. Dhar has been at the helm of an airline earlier too. Not once but thrice — one was shut down, another sold, and the third failed to take off.

This time he expected to do better. The Modi government was rolling out the ambitious Regional Connectivity Scheme (popularly known as UDAN) and Dhar latched on to it like a lifeline. 

One year later, the three aircraft of Zoom remain parked on the tarmac of Delhi Airport. Zoom hasn’t operated a single flight in the last 60 days as the Directorate General of Civil Aviation (DGCA) has suspended the airline’s permit, citing safety concerns.

It is unlikely that Zoom would fly again, making Jaideep Mirchandani,  the Dubai-based businessman who pumped money into the venture lured by UDAN, nervous. This comes at a time when the government is pushing to make regional aviation popular through waiver on airport charges and fuel tax. It also pays the airlines to sell half the seats at Rs 2,500. 

Zoom is not the only one. Start-up airlines such as Air Deccan and Air Odisha, which took to the skies when UDAN was launched, are facing a similar fate. Together the two airlines have been able to start operations in only 10 of the 84 routes allotted to them. Losses are spiralling and promoters are looking to cash out. 

But, established airlines like SpiceJet & Truejet have been able to use the policy to their advantage. Their aircraft are running full—a sure sign of commercial success. “UDAN has been successful for us. We have made the routes work very well. Almost all our UDAN flights are 85 to 90 per cent full daily,” SpiceJet CMD Ajay Singh said.

Caught in the air pocket    

Experts blame poor business strategy and inadequate infrastructure for the failure of airlines on the UDAN route. The government reduced the entry barrier but it did nothing to improve the eco-system, making it difficult for the new airlines to sustain business, analysts argued.
 

Start-up airline operators in India, without any credible background, pay around 10 months of lease as security deposit. Then their aircraft remain grounded for at least two more months waiting for the DGCA and other clearances. It’s a hard run as Zoom Air found. “I waited for five months for clearance while paying lease rentals for aircraft which were not allowed to fly. 

The cash outflow due to lease alone before starting operations was Rs 60 million,” Dhar, CEO of Zoom, says. 

“If you look at the major airlines in India, all of them planned for years before starting operations. The owners were either large conglomerates or people who knew the travel business by heart. There should be an expansion plan, a good team ready and the owner should be ready to commit a capital of at least Rs 1 billion at the start, or you get stuck midway,” says Vivek Choudhary, who worked as CFO of Air Costa, a Hyderabad-based airline which shut shop last year.

Too expensive 

Without much capital available, Air Deccan & Air Odisha leased four 19-seater Beechkraft 1900-D from now defunct Air Mantra. They came cheap but not without problems.
 

The smaller the plane, the more expensive it is to operate. Cost of pilot, crew — everything remains the same. If you divide that over a lower number of seats, it becomes more expensive. “Even a large airline like IndiGo is losing money on its regional operations with the 72 seater ATR, but it is well funded,” says a former Air Deccan official.

Out of production since 2002, maintenance of Beechkraft 1900 is very complex. Spare parts are hard to find, there is no adequate support system available as engine manufacturers don’t have the incentive to create the eco system with a handful of aircraft flying.

There’s hardly any career prospect for engineers and pilots to train for an aircraft as they are not much in use. “Almost all pilots are expats. They have to be hired at a much higher cost. Then there is a waiting period of sometimes up to a month for security clearance. Also, as they are not interested in cities other than metros, they quit frequently,” the official says.

Without pilots and spare parts, planes are frequently grounded leading to a high rate of cancellation. 

Flying with zero passengers 

Promoters also blame poor airport infrastructure for weak operations. “We were not given parking at Mumbai airport and therefore had to fly the extra leg to Nashik with one, two or even zero passengers. It's not even an RCS route. This is really bleeding our financials as the economics of RCS goes for a toss,” according to Shah.

Data from aviation regulator DGCA, for instance, shows that the two airlines (Air Deccan and Air Odisha) had an average cancellation rate over 50 per cent since the start of operations.

“The airline has to have a huge pull factor over road and rail on shorter routes. Regional airlines often falter on the reliability aspect. Hence, passengers avoid them,” says Choudhary of Air Costa.

“In this way operations will not even break even in next five years, the promoter needs to have a large heart and keep pouring money without expecting anything. Trickling down money will not help. Investment has to come in large amount. That’s difficult,” the Air Deccan official said.  

Shah admits that business has been challenging but maintains that he’s in for a long haul. He says he is in talks to buy 72-seater turbo prop. That he says will help check the cost. “Funding will not be an issue. There is adequate capital available.

That should be music to the ears of the government aiming to connect 100 airports before next election.