Jet Trader Magazine - Winter 2015 edition - Official publication of ISTAT
For many decades, regional jets (RJs) have provided worthy support in the aviation industry, enabling flight connections that otherwise would not have been feasible or possible. For their size and operational capabilities, regional jets have been a reliable alternative put to good, profitable use by airlines catering to a combination of long-haul, medium/short-haul and regional routes. North America and Europe have been the hot beds for regional jet operations, owing to advanced infrastructure and consistent passenger demand. But the scene in Middle East, Indian subcontinent and Far East is changing, and there are tell-tale signs, good ones at that, for the regional jets market.
Passenger traffic alone will not be able to fuel the growth, as the infrastructure on the ground — airport facilities, industrial expansion, supporting resources, tax implications, political and financial governance — continue to pose challenges to revenue generation and profitability.
Expanding demands need expanding product lines:
Historically, the regional jets market was clearly demarcated between the turbojets and the turboprops. ATR, Bombardier and Fokker with their ATR 42/72, Q300/ Q400 and Fokker 50 offerings, respectively, have been popular choices in the turboprop markets. Embraer and Bombardier with their ERJ140/145 and CRJ200/700 were market leaders in the turbojet markets. Improvements in economic conditions — especially in India and China — have had a domino effect on the passenger demand and air traffic amongst smaller tier two and three cities in these regions. As the world moves toward advanced narrowbody aircraft that boast of higher passenger capacity, longer range and better fuel efficiency, there is a pressing need for a proportionate advancement in the regional jets technology, as well. The gap between these two market segments needs to be bridged for the regional jets market to co-exist and subsequently, thrive. Taking note of this shift in demand, Embraer’s E-Jet E2 program and Bombardier’s CSeries program, combined with Sukhoi Superjet 100, and the much-anticipated Mitsubishi Regional Jet MRJ 900/1000-series aircraft seem to offer just the right mix of products for operators to choose from. ATR 72-600, the latest offering from their stable, also promises better performance and efficiency.
Niche Opportunity
At a macro level, the regional jets market and the narrowbody/widebody aircraft market in these regions may not seem to be of comparable competition. But at a micro level, there is a large ecosystem of sub-routes that can be served profitably, provided the airlines seize the opportunity and also employ the right equipment. Regional jets offer airlines options to operate routes that attract moderate to low demand and connect sub-routes between tier one and tier two/three cities without having to under utilize the narrowbody assets. Combination of factors like large land mass, number of sub-metro cities, short range operations, infrastructure limitations, lower landing and parking charges for regional jets, etc. make this region conducive for regional jet operations. Many airlines, convinced with the scope of this opportunity, are venturing into the market with a single-minded focus to succeed in this segment. To validate this scope, please refer tables on p. 33, which represent the number of connections possible in and around major metro cities in India, China and Middle East (mainly covering UAE, Oman, Yemen and Saudi Arabia).
Challenges That Lie Ahead
Both Embraer and Bombardier, in their respective 20-year market forecast reports have projected significant demand in Middle East, South Asia (including Indian subcontinent) and China markets for regional jets (60- to 150-seat aircraft) in coming years. These projections are achievable, provided the countries in the region are aligned to this increased demand and engage in improving the infrastructure to accommodate the growth. Passenger traffic alone will not be able to fuel the growth, as the infrastructure on the ground — airport facilities, industrial expansion, supporting resources, tax implications, political and financial governance — continue to pose challenges to revenue generation and profitability. Some steps in this direction have been initiated in India’s National Civil Aviation Policy in form of proposed tax reforms in MRO segment, spare parts import, servicing and stocking, elimination of customs duty for maintenance tools and tool kits, negotiation with state governments to eliminate Value Added Tax on MRO services as well as fiscal support to MROs, ground handling, fuel services and cargo services co-located at the airports. Such reforms will benefit the industry as a whole in the region. Similar initiatives are needed to ensure that the opportunities in the regional jet operations are lucrative enough and enable the operators to thrive and succeed in this segment.
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