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Call to link smaller towns saw ATR’s second coming

ATR planes saw a period of lull in the Indian markets for the last few years as airlines shied away from smaller towns and deployed maximum capacity in metros.

, ET Bureau|
Last Updated: Nov 25, 2017, 11.16 AM IST
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In 2003, ATR’s aircraft sales were down to 6-10 units a year, barely enough to survive. There were frequent meetings wherein the prospects of shutting shop were discussed.
In 2003, ATR’s aircraft sales were down to 6-10 units a year, barely enough to survive. There were frequent meetings wherein the prospects of shutting shop were discussed.
MUMBAI: Close to 15 years ago it was the booming Indian air travel industry that pulled up French-Italian turboprop plane maker ATR out of a spiral spin downwards. In 2003, ATR’s aircraft sales were down to 6-10 units a year, barely enough to survive. There were frequent meetings wherein the prospects of shutting shop were discussed.

Along came GR Gopinath, promoter of India’s first low fare carrier Air Deccan. Gopinath placed an order for 30 planes, a significant shot in the arm to ATR. Months later, an order for another 35 turboprops came from Vijay Mallya’s Kingfisher Airlines decisively pulling out ATR from its state of despair.

ATR planes had been sold in India since 1999. But it was Air Deccan’s turboprops that connected the remotest corners of the country from Hyderabad to Hubli, Rajkot to Rajamundhry, Jaipur to Jammu.

Later, Air Deccan’s own financial problems forced Gopinath to sell it to Kingfisher, which itself folded operations subsequently.

In 2017, responding to the government’s call to connect smaller towns, the country’s biggest airline IndiGo once again turned to the original air connector of small towns. It placed an order for 50 ATR turboprops.

In many ways the order marks ATR’s “second coming” into India, says David Vargas, head of press and editorials at the plane maker. ATR has faced a lull in India in the last few years, with airlines shying away from the smaller towns and dumping capacity in the metro airports. India’s six busiest airports now handle more than 50% of its domestic traffic.

National carrier Air India, the country’s no. 2 airline Jet Airways and regional carrier Trujet together operate about 40 ATR turboprops. Regional aircraft constitute 25% of the global airline fleet but only 12% in India, despite a growing, dynamic middle class and demand for air travel in smaller towns and less-frequented routes in the country.

IndiGo’s order will mean ATR’s capacity in the country more than doubles from the current number. IndiGo’s contract is among the single largest in volume ATR has signed historically. India is currently at the third position — behind Indonesia and Brazil -- in terms of ATR aircraft in operation, said Vargas. With IndiGo’s order, it prospectively jumps to the second position, he added.

Tom Anderson, ATR’s vice president for programs and customer services, told ET that ATR estimates the Indian market would need more than 200 turboprops in ten years. The recent version of the 70-seater ATR 72-600 that IndiGo purchased is customised to have more legroom than the one Air Deccan used. The noise of the aircraft—a fear in customers and regulators with regards to smaller planes — has been reduced to 79 decibels from 86 decibels, said Vargas.

IndiGo’s order is ostensibly in response to the Narendra Modi government’s regional connectivity scheme called UDAN (Ude Desh ka Aam Nagrik), although executives from the airline and the plane maker insist the scheme was “incidental” and buying ATRs was part of the airline’s overall plan of deeper penetration into the Indian market.

Anderson said that while ATR made its first sales pitch to IndiGo five years back, serious talks of buying the planes only started “earlier this year”.

IndiGo is taking delivery of the first 21 planes by December 2018 at the rate of three planes a month. It plans to start its first ATR flight -- Hyderabad-Mangalore -- on December 21, exactly a month from now. It also plans to connect Hyderabad to other destinations such as Tirupati, Rajamundhry and Nagpur. The seats go at prices starting from Rs 1,499, but for the first set of routes the airline isn’t taking the government assistance offered in the form of viability gap funding (VGF) that is part of the regional connectivity scheme.

ATR claims its aircraft is ideal for UDAN. It is 40% more fuel efficient than competitors. It can land on short runways. ATR claims that its operations can break even with low number of passengers with the VGF funding in the short term and even without it in the long term.

For IndiGo, the per seat cost by definition would be higher than the 180 seater-Airbus A320 planes it currently operates, president Aditya Ghosh admitted.

Also, historically, almost none of the ATR operations in India have been profitable. Limited capacity in smaller towns has led to exorbitant pricing on those routes, pushing passengers towards train travel.

Given this, attracting passengers with attractive prices and maintaining yields would be a tough call for IndiGo and its other peers. The pressure on yields, already present in all domestic operations, would be deeper on these remote operations.

The trick, Ghosh said, is working on an overall lower cost structure, like the airline claims to have achieved on its A320 operations. The other is for the ATR operations to efficiently feed into its larger domestic network, which none of the new regional players would have.

For ATR, buoyed by the recent order from IndiGo, the past—Air Deccan’s problems or other Indian operators’ limited success with the ATR aircraft— doesn’t matter.

Anderson said the past “doesn’t change ATR’s motivation for doing business in India.”

“The fundamentals are positive in this market and whatever happened, happened in other parts of the world too”.

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