MUMBAI // Indeevar Varma, a human resources manager from Ahmedabad in the western state of Gujarat, was put off flying with Air Costa, a small regional budget Indian airline, after he says he “was bounced like a ball” during “a rough landing” when he travelled from Hyderabad to Ahmedabad several months ago.
“That was the worst landing I’ve encountered,” Mr Varma recalls. Apart from that, “there was nothing unique about the airline but the planes were OK”, he says.
Having avoided the carrier for some time, a few weeks ago he decided to give Air Costa another go. He booked a ticket from Ahmedabad to Hyderabad for March 7. A few days before the flight, he received a text message saying the flight had been cancelled.
It was on February 28 that Air Costa, which was founded in 2013 and is based in south India, suspended flights as it faces a cash crisis.
The sudden suspension follows a similar situation eights months ago, when Air Pegasus, a Bangalore-based regional carrier with three 66-seat aircraft, abruptly stopped flying because of financial difficulties, after operating for just over a year.
These events raise questions over the viability of regional carriers in the cut-throat aviation market in India, where a flurry of regional services in the past couple of years launched with high hopes.
Air Costa is desperately trying to raise funds from investors. The airline is owned by LEPL Group, which has interests in property and renewable energy and was founded by the entrepreneur LP Bhaskara Rao.
Kavi Chaurasia, the vice president of marketing, says: “Talks are going on and are at the final stage,” adding that the airline will issue an update this month about when it will resume operations.
The company was flying its three Embraer planes, recently reduced to two, to several cities, including Bangalore and Vizag. In 2014, it placed an order for 50 Embraer planes in a deal worth US$2.94 billion, to be delivered starting next year.
“The situation for Air Costa is very poor and even other small operators are bleeding heavily,” says Archit Gupta, the chief executive of Atom Aviation Services.
“On average, an airline only makes a sustainable operation with at least 10 aircraft in its fleet – anything less that is like self killing.”
He cites high fuel taxes, steep airport charges and a large amount of paperwork demanded by aviation authorities as factors that make it difficult for regional carriers to establish profitable operations. “The small operator cannot compete with large airlines at all,” Mr Gupta says.
Air India, Jet Airways, Indigo, SpiceJet and GoAir are the biggest players in the Indian airline industry. AirAsia India and Vistara are newer entrants with some size to them.
India’s other airlines, which includes Air Costa, have just a 1.2 per cent market share of the country’s aviation market, according to the aviation consultancy Capa.
Still, experts say that despite the challenges, there is huge scope for growth in India’s aviation market. With a population of more than 1.2 billion, expanding middle class and more Indians expected to take to the skies over the coming years, the market has enormous potential.
Last week, for example, Qatar Airways said it was looking at setting up a short-haul airline in India.
The Capa Centre for Aviation says “India’s status as the fastest growing aviation market in the world creates tremendous opportunities”, adding that things have improved for the sector – as airlines in India collectively posted a loss of $80 million last year, its lowest losses in 10 years, helped by lower fuel prices.
The number of people travelling within the country is rising sharply. India has achieved an average annual domestic passenger number increase of 15 per cent each year since 2004 and is on track to surpass 100 million passengers in the current financial year, says Capa.
Other regional airlines include Air Carnival, based in Coimbatore in south India, which began scheduled flights in July last year after starting out in 2013 as a charter airline.
TruJet began flying in 2015 and has three aircraft, travelling to destinations including Goa and Vijayawada. The South Indian actor Ram Charan is a director and co-owner of the airline.
The latest regional airline to join the fold is Zoom Air, which commenced its services last month with a flight from Delhi to Durgapur in West Bengal, via Kolkata. The new carrier has three Bombardier planes.
The people running Zoom Air say the airline has ways to differentiate its offerings.
“Zoom Air shall fill the gap of sectors that are less catered to by other scheduled airlines,” says Koustav Dhar, the chief executive. He says Zoom is “a premium commuter airline” that will have an equal number of female and male pilots.
Satish Modh, who has a background in the aviation sector and is director of the VES Institute of Management Studies and Research in Mumbai, says there could be scope for regional airlines to succeed – if they adopt the right strategy.
Regional airlines can fuel the growth of India’s aviation sector by “feeding trunk routes and international operations” from smaller destinations.
“At present most of the regional players are operating with two or three planes,” he says. “This does not give them operational efficiency and route planning capability. Unless the current regional carriers scale up their fleet they will continue to bleed. They need to have tie up with larger carriers and align their timetable to create synergy.”
He says that “current regional carriers have no future unless they have a focused strategy on each region and dominate a region”. And ultimately, “regional players with financial muscle will succeed”.
For its part, Air Pegasus, which had its licence suspended by India’s aviation authorities in November, still has hopes of returning to India’s skies.
A new planned carrier, Flyeasy, also in Bangalore, is expected to launch flights in May. In January, it agreed to buy a majority stake in Air Pegasus.
“We intend to build a strong network ... operating into long thin routes and Air Pegasus connecting to tier two and three cities concentrating on the south initially,” says Rajesh Ebrahim, Flyeasy’s managing director.
But passengers are still not sold on the merits of the smaller airlines.
Mr Varma, following his recent experience with Air Costa, says he will be more inclined to stick to larger carriers. Although Air Costa promised him a full refund within three weeks, he says he was kept waiting on the phone before he managed to get through to a customer service agent, his travels plans were disrupted, and he had to buy an expensive ticket with another airline at the last minute.
“These smaller airlines, they should be more customer centric – then I would be happy to fly with them,” he says.
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DEFUNCT AIRLINES IN INDIA
Kingfisher Airlines
The carrier was launched by Vijay Mallya, considered to be India’s answer to Richard Branson, with commercial operations starting in 2005. But Mr Mallya’s extravagance and ambition led him to overspend in an effort to create a superior carrier. Faced with stiff competition and high fuel prices, the airline ceased flying in 2012, having amassed US$1 billion in debt.
Air Deccan
Air Deccan, founded by the former Indian army captain GR Gopinath, was India’s first low-cost carrier, starting operations in 2003. The Bangalore-headquartered airline built up a large network of routes across India and had 40 planes, luring the country’s expanding middle class with its cut-price fares. Although it managed to capture a large market share, the carrier ran into high losses and merged with Kingfisher in 2008.
Paramount Airways
This Chennai-based carrier was founded in 2005 and flew to destinations in southern and eastern India until 2010, when it faced a legal battle with the lessors of its aircraft over payments. The lessors seized the planes. It had hoped to resume operations in 2013 but after six banks approached the directorate general of civil aviation, it blocked Paramount from restarting services.
Air Mantra
Based in New Delhi, the airline operated flights for eight months in 2012 and 2013 before its collapse. It was set up by Religare, an Indian financial services group, and it was intended to be a regional carrier to serve northern India. It had two aircraft, operating flights between New Delhi, Dehradun, Amritsar and Chandigarh, but booking numbers never took off.
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