Regional Aircraft in India

Poised for Takeoff

A combination of factors in Indias airline industry
makes a strong case for expanding fleets with the
new generation of smaller, faster, more fuel-efficient
passenger aircraft.

Regional Aircraft in India Poised for Takeoff

Indias airline industry has enjoyed tremendous growth in recent years, with its revenue
passenger kilometers (RPK) boasting a compound annual growth rate (CAGR) of more than 20
percent from 2004 to 2011. This rapid growth has been evident across all distance categories:
Growth rates of short-route traffic of up to 1,000 kilometers are very comparable to those of
long-route traffic covering more than 1,000 kilometers. More importantly, India is poised for
significant growth in air traffic: Analysts predict a 10 percent CAGR over the next 15 years.
If Indias airlines are to make the most of this growing demand, they will need to expand their
fleets. And while fleet growth is likely to occur across all aircraft categories, we believe aircraft
designed for regional service (60120 seats) will grow fastest.
To date, the French-Italian ATR 72 turboprop has been the regional workhorse of choice for
Indian airlines such as Air India and Jet Airways. SpiceJet, however, recently purchased a fleet of
Canadian-built Bombardier Q400 turboprops, and other airlines are also evaluating different
short-haul aircraft options.
Overall, we expect Indias regional aircraft fleet to grow from 55 in 2011 to as many as 261 by
2025a CAGR of 12 to 13 percent, compared to the projected 9 percent CAGR for total fleet
growth (see figure 1). This growth mirrors the trends seen in other markets, especially the
European Union, where the share of regional available seat kilometers (ASKs) has grown to about
14 percent. Regional ASK has grown by about 2 percent worldwide in the past five years, a rate we
expect Indias airline industry to experience over the next decade.

Figure 1
Demand for Indias regional aircraft will rocket over the next 1015 years
Number of aircraft

Total fleet
261
221
189
155
123
97

74

55
9

77

51

28

144

106
3

222

182

46

46

46

46

46

3
42

39

39

2011

2013

2015

2017

2019

2021

2023

2025

2011

2013

2015

2017

2019

2021

2023

2025

Regional aircraft
deliveries

10

13

13

16

19

17

21

Regional aircraft
RPK (billion)

3.7

5.1

6.8

8.8

11

13.5

16.3

19.4

Regional ASK
(%)

7.1

7.6

8.1

8.5

9.4

9.9

10.4

Growth demand

Replacement demand

Retained fleet

Note: RPK is revenue passenger kilometers or total number of kilometers travelled by all passengers; ASK is available seat kilometers.
Source: A.T. Kearney analysis

Regional Aircraft in India Poised for Takeoff

Why Demand Will Soar

Five key factors will drive the demand for regional aircraft in India over the next 15 years:
1. Increased demand for travel between regional hubs and tier 2 and 3 towns. Air traffic has
been driven mostly by travel between Indias metro areas, which accounts for 60 percent of
the countrys total ASK. Naturally, Indias airport infrastructure development has also been
concentrated in the metros. With increased hub congestion and a logical leveling of demand
for metro-to-metro routes, Indias aviation industry is poised for a substantial increase in
traffic between regional hubs and tier 2 and tier 3 towns (see figure 2).

Figure 2
Expected evolution of air traffic patterns in India 20122030
Stage 1:
Metro-to-metro routes
(tier 1 to tier 1 cities)

Stage 2:
Hub-feeder routes
(regional hubs to tier
2 and 3 towns)

Delhi

Stage 3:
Long-thin routes
(tier 2 and 3
towns to metros)

Delhi

Kolkata

Kolkata
Mumbai

Delhi

Mumbai

Hyderabad

Kolkata
Mumbai

Hyderabad

Bangalore

Chennai

Bangalore

Chennai

Bangalore

Chennai

Source: A.T. Kearney analysis

These short-haul routes are covered by full-service carriers using ATR 72s and low-cost carriers
aggregating demand in narrow-bodied craft on hop-over flights. With 75 to 90 new airport pairs
expected to come online over the next five years, airlines will have to evaluate dedicated,
short-haul aircraft services between hubs and tier 2 and 3 towns.
2. Limited aircraft handling capability at smaller airports. There are more than 450 airstrips
in India, but fewer than 100 of them are equipped to handle scheduled services. And among
these few, only a third can receive narrow-body Airbus or Boeing aircraft because of short
runways and a lack of high-speed runway exits. For example, the towns of Mysore, Kolhapur,
and Jamshedpur have potentially high-traffic airports that are hampered by inadequate flight
accommodations. Although airstrips are undergoing some modernization, many would
only be capable of handling regional aircraft in the medium term because of runway length
restrictions. Even after modernization, demand out of such airports would be ideally served
by a mix of regional and narrow-body aircraft. In the medium term, we expect new airstrips
to be developed in the smaller tier 2 and 3 towns to support regional aircraft.
Regional Aircraft in India Poised for Takeoff

3. Connectivity on long-thin routes. In industry parlance, long-thin routes are limiteddemand long-distance routes between metros and tier 1 and 2 towns, routes typically used by
business travelers and tourists. These routes represent a mature state of air-traffic evolution,
such as in the United States and Europe. In India, though, we expect parallel development of
long-thin routes because of business travel requirements between dispersed industry hubs,
such as the Chennai-Ahmedabad and Chennai-Aurangabad auto-industry hubs and the
Mumbai-Coimbatore textile hubs.
Indias long-thin routes are served today by hop-over flightsa metro 1 to metro 2 to tier 1 or 2
town, for example. However, this increases flying time and passenger inconvenience because of
hub-congestion delays. Over the past two years, carriers have been increasing direct connectivity
on routes such as Delhi-Pune and Mumbai-Coimbatore to tap into existing business demand. The
next logical step will be the preferred use of regional aircraft over narrow bodies on long-thin
routes, much as in other countries, to improve load factors and operating flexibility.

India is poised for significant growth in air

traffic: Analysts predict a 10 percent
CAGR over the next 15 years.
International travel will spur further demand on long-thin routes, as passengers will increasingly
prefer traveling directly from their base location to international hubs. For example, as Mumbai
and Delhi emerge as international hubs, passengers from tier 2 and 3 towns in southern and
eastern India will want to fly directly rather than hopping to them via regional metro routes.
4. Emergence of new short-haul aircraft. The 1990s brought a wave of consolidation in the
regional-aircraft segment, and now new entrants are lining up again to tap the market, as reflected
by the 14 percent CAGR in global aircraft deliveries over the past five years. Until recently, the lions
share of the market was cornered by Brazilian manufacturer Embraers ERJ series, Bombardiers
CRJ series, and the ATR 72s. Now, new players such as Sukhoi (Russia), Mitsubishi (Japan), and
Aviation Industry Corporation of China (AVIC) will increase segment competitiveness. Attempts
are even being made to revive veteran regional aircraft manufacturer Fokker.
Heres how we see the short-haul aircraft segment breaking down in India: The ATR 72 and
Bombardier Q400, both 60 to 90-seat turboprops, will continue to dominate the shorter
routes of 500 kilometers or less because of their superior cost efficiencies and ability to land
on shorter runways.
With improved jet-engine technology boosting cost effectiveness, regional jets will become
a viable alternative to turboprops in the 500- to 1,000-kilometer distance segment, which will
continue to exhibit the highest growth rate19 percent over the past decadeof all traffic
segments in India. Regional jets will also dominate the 1,000 to 1,500 long-thin routes
between metro areas and tier 2 and 3 towns. We see the Embraer ERJ190/195, Bombardier
CRJ900/1000 and CSeries, AVIC ARJ21, Mitsubishi Regional Jet, and Sukhoi Superjet, all
90- to 120-seat craft, as being the most popular models for this distance.
The key to effective fleet diversity is choosing the right aircraft for each route. An important
element by which airline companies evaluate their efforts in this area is a comparison of total cost
Regional Aircraft in India Poised for Takeoff

of ownership (TCO). With greater seating capacity, larger aircraft tend to be more cost efficient on
a TCO basis. On shorter routes, that advantage is neutralized because fuel burn is suboptimal.
New jet-engine technologies are in various stages of development, examples being CFM
Internationals advanced turbofan, Rolls-Royces three-shaft engine, GEs open-rotor concept,
and Pratt & Whitneys geared turbofan. Of these, the geared turbofan is the closest to
deployment and is expected to burn 10 to 15 percent less fuel than traditional jet engines.
Because of the technological limitations of making a larger engine, the current generation of
geared turbofans is appropriate only for smaller aircraft, making it a perfect fit for regional aircraft.
5. Favorable regulations. Indias aviation regulations favor smaller aircraft. For instance, the
Directorate General of Civil Aviation (DGCA) has issued route-dispersal guidelines mandating
Indian carriers to deploy at least 10 percent of their category 1 (largely metro routes) capacity on
category 2 (loss-making routes connecting remote regions or difficult terrains) and at least 50
percent on remaining routes (category 3), with the stated goal of improving connections among
smaller towns and cities. The guidelines will certainly drive carriers to deploy smaller regional
aircraft that can land on short runways.
In addition, airport charges are lower for smaller aircraft. Landing fees are waived for aircraft
with fewer than 80 seats in all airports other than Delhi, and other charges are proportional to
aircraft weight. The Airport Authority of India is, however, looking at levying landing and parking
charges on such aircraft to bolster revenuesa move that could dampen sales of regional
aircraft. Sales tax on fuel for aircraft lighter than 40 tons maximum takeoff weight (MTOW) is as
low as 4 percent, while it can go as high as 30 percent for heavier aircraft in certain states.

Regional Travel Will Rule

To sum up, the next 10 to 15 years are likely to see significant growth in regional aircraft, which
will provide Indian carriers with a superior alternative to narrow bodies on short-haul routes.
Increased urbanization and prosperity in tier 2 and 3 towns will spur demand for regional air
travel. Forward-thinking airline companies will evaluate which regional aircraft are the most
appropriate for their fleet. Faster, more comfortable, more fuel-efficient planes will challenge
the dominance of the ATR 72 as Indias preferred regional aircraft.
Finally, short runways and regulations that favor smaller aircraft will continue to support
deployment of regional aircraft, especially to serve tier 2 and 3 towns. Although the development
of highways and rail networks may lessen demand for air travel on routes shorter than 250
kilometers, flying will remain the preferred mode for longer distances.
The combination of these factors leaves little doubt that the concept of regional routes flown
by a new generation of short-haul regional aircraft is poised to take off in India.

Authors
Manish Mathur, partner, New Delhi
manish.mathur@atkearney.com

Nithin Chandra, consultant, Mumbai

nithin.chandra@atkearney.com

The authors wish to thank Anshuman Sinha and Kaushik Sriram for their valuable contributions to this paper.
Regional Aircraft in India Poised for Takeoff

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