India’s much hyped policy to boost regional connectivity and make flying affordable for the masses will come into effect this month, generating a wave of optimism surrounding the industry as it prepares for its next growth chapter. However, the rose comes with thorny issues that the country has yet to resolve.

Simply named the Regional Connectivity Scheme (RCS), five airlines were selected by the civil aviation ministry to operate 128 new routes that will connect to 45 under-served or un-served airports in the first phase of the 10-year programme.

The airlines are: Air India Regional, SpiceJet, TruJet, Air Deccan and Air Odisha.

Of the carriers, Air Deccan and Air Odisha have yet to begin services as they do not have an air operators' permit (AOP). Air Deccan is the reincarnation of an airline brand swallowed by Kingfisher Air in 2008.

Air India Regional will operate six routes from its Delhi base: Bhatinda, Shimla, Bikaner, Gwalior, Ludhiana and Pathankot. It will also operate Jaipur-Agra and Indore-Gwalior.

SpiceJet will also operate six routes:Delhi-Adampur, Delhi-Kanpur, Mumbai-Kandla, Mumbai-Porbandar, Hyderabad-Pondicherry and Jaipur-Jaisalmer.

TruJet will operate 11 routes, while Air Deccan and Air Odisha will make up the bulk.

Assistant vice-president and associate head at ICRA, Anand Kulkarni, believes "there is a possibility that more new airlines may emerge out of the RCS, as more players could be waiting to assess the performance of the RCS' first phase".

On whether there are risks in giving RCS licenses to new, untested carriers who do not have AOPs yet, Kulkarni is confident that the Director General of Civil Aviation (DGCA) would have already validated the operational capability of the airlines before awarding the routes.


Besides the three-year exclusivity on the RCS routes, airlines need only pay 1-3% for value-added tax on air turbine fuel (ATF) and receive exemptions from landing and parking charges at the new destinations.

Under the programme, carriers are required to sell 50% of the seats offered on an RCS flight under a fare cap of Rs2,500 ($39). This applies for flights up to one hour to-and-from regional airports. These airlines are to operate a minimum of three-weekly flights and a maximum of seven-weekly flights.

The price cap will be supported by what New Delhi describes as a Viability Gap Funding (VGF), which will be provided for three years – a timeframe Kulkarni believes should be extended in order to allow the routes to stand a better chance of being self-sustaining in the long term.

"The potential of the routes to generate demand for these non-RCS seats would determine the pricing and hence profitability," says Kulkarni.

Flight Ascend Consultancy’s head of advisory Asia, Joanna Lu, expresses doubt about the viability of a fixed price cap set for "different routes with potentially different market opportunities with different operating models". As such, there is need for New Delhi to be flexible in scrapping some badly performing routes and for operators to review the route performance in detail and adjust accordingly.

"Everything depends on timely payment [of the VGF]. If this does not happen, the airlines running these routes may see their cashflow decimated, thus bringing the sustainability of the routes into question," she adds.

In a recent televised interview, chief executive of Air Deccan, Sanjay Saihgal, lauds the subsidies: “The government has rightly thought the scheme through with state government support. The airlines and the kind of aircraft that are coming in are different. That is why the initial push is needed to boost the connectivity of these regions.”

The subsidies will not last forever. “The idea is to really jump start the market. And once it has developed and is mature, then there will be no need for the subsidies any longer,” says Jayant Sinha minister of state for civil aviation in a separate interview.

In what appeared to be a move to get into the government’s good books, SpiceJet chairman and managing director Ajay Singh announced that the low-cost carrier will give up the subsidies. “We are going ahead [without the subsidies], there are other benefits to the scheme and we believe all of the six routes are commercially viable.”

Flight Ascend's Lu also notes that it is unclear if New Delhi conducted market demand analysis before approving the RCS routes. She says it may also spur operators to apply for routes only to earn the subsidy, or to obtain an expensive slot at a busy airport.


It is widely expected that turboprop aircraft will be deployed on the RCS routes – which Air India Regional, SpiceJet and TruJet currently have as part of their fleet. Such aircraft represent a safer bet against overcapacity and empty seats when launching a new route to third tier destinations.

While it is too early to say how profitable each route may be – or if it will indeed be profitable – one needs only read between the lines of SpiceJet's decision to forgo the subsidies. Singh's confidence in the RCS destinations providing strong demand is evident. In a previous interview with FlightGlobal, he explained that such "small towns... have a population of more than 2 million people… [and] connect to the metros".

However, delving deeper into the type of turboprops, Kulkarni says the industry cannot generalise the suitability of aircraft size for the RCS.

"On comparatively higher potential routes, 80-seater aircraft would be more suitable. For less attractive routes, where demand is steady but not high, lower capacity aircraft of less than 20-seats would be suitable. Moreover, such lower capacity aircraft would also be eligible for higher VGF."

Lu, on the other hand, says that the operational costs of 19/20-seaters such as the Dornier 228s are too high, and those routes may be better served by lower seat mile costs from the 50-70 seaters. This is because at least one of the origin or destination points, which is an RCS airport, connects to a busier airport.

Regional turboprops in service in India, April 201

Flight Fleets Analyzer

Flight Fleets Analzyer shows that there are 51 regional turboprops operated by airlines in India at present. SpiceJet operates the Bombardier Q400s, while Air India Regional operates eight ATR 72-600s and three ATR 42-300s. Jet Airways operates three ATR 72-600s and 15 -500s of the model. TruJet flies three ATR 72-500s and one -600, while Air Carnival flies a sole ATR 72-500.

Nonetheless, concerns remain over slot constraints at the major hubs like Delhi and Mumbai that some RCS flights originate from. Other major airports such as Kolkata and Chennai face similar congestion. However, the civil aviation ministry has repeatedly sought to allay such fears, saying that it will ensure that airports allocate slots for RCS flights.

"[RCS flights] may stimulate more traffic but will also challenge the airport capacity and operational efficiency heavily. It seems around 40 slots at the Delhi and Mumbai airports [are needed] for the operation of RCS flights," elaborates Lu.


The RCS could well prove to be the catalyst for India to remain as the world's fastest growing aviation market, following the removal of the antiquated 5/20 rule that now only requires airlines to operate 20 aircraft – without five years of operational experience – before flying overseas.

In a press conference announcing the awarding of RCS routes, the civil aviation ministry cited that the subcontinent saw 21 consecutive months of growth in passenger numbers. It is confident that the RCS will have a positive impact on the economy, yielding higher employment rates and investments in these regional areas.

With the second phase of RCS bidding slated to begin in six months, Kulkarni expects the programme to be successful, as the aviation market would benefit from an expanding network that increases feeder traffic for metro or international routes. "Airlines can gain a competitive edge if they can expand their network substantially through adding RCS capacity."

Conversely, Lu believes that the scheme should not be a one-off, but rather an on-going programme. "It's essential for authorities to work closely with stakeholders to understand progress, challenges and risks."

Source: Cirium Dashboard