Trend On Regional Airline Business By Edwin Soedarmo - President Director CSE Aviation Some turboprop manufactures already discussing potential New GenerationRegional airline business development in recent years has quite frequently become Turboprop (NGTP), 90topics of discussion, particularly in Indonesia where many of the air operator to 100 seatsfound that it is a promising business but mostly ended up with difficulties. Re- capacity, with regionalcollecting from several references and data base owned by CSE Aviation, the air operatorsmaterials obtained are reviewed and presented in this brief market study.Regional airline operators provide flight services between small cities within acountry and also to small cities in the neighboring countries where it should alsohave a strong relationship with one of the region’s major airlines as a complementfor the base network. However, there are also regional point to point servicesprovided by the mainline carriers themselves that blur the distinction betweenregional and mainline aircraft.
The regional operations in Indonesia are diverse, they fly mix betweenturboprops and regional jets, and generally most of them serve niche marketswhere profitability can only be achieved through strong financial discipline. Thekeys success in the typical niche markets operation for regional airline businessare the efficient connectivity, the right capacity and the right cost.Business Trend • Average aircraft capacity, average stage length and block time have risen in the last decade (global trend) • With fuel price rising and turboprop aircraft’s growth to 60 seats, regional jet sales have decreasing while turboprop sales increases (see chart of Global Regional Aircraft Seats) • Based on the above data, it would be rather logical to predict that the trend of aircraft demand would be for turboprop with 90 to 100 seat capacity • Some turboprop manufactures already discussing potential New Generation Turboprop (NGTP), 90 to 100 seats capacity, with regional air operators • The regional airline business in Indonesia (niche markets, with the biggest regional operators in the region), typically generates low margin. Therefore it is logical to expect that there will be a certain consolidation as to seek for the economic of scale
Business Model (Global)• Typically private held• Tend to be smaller niche player that interline with major carriers• Tied into long-term, fixed fee contract with major carriers. The major airline typically pay for the fuel• Regional carriers can set their own schedule and pricing but take the risk by paying for their own fuel• Some countries may granting Public Service Obligation (PSO) tenders for routes that would not otherwise be commercially viable. The PSO is divided into many smaller tenders and renewed every four (4) to five (5) years. The smaller the tender, the more difficult it is to operate commercially• Other regional operators may operate under “Capacity Purchase Agreement”