As people shuttle between cities to their hometowns for long weekends, festivals and smaller businesses move across the country, Tier II and Tier III cities have come into focus. Darbhanga airport. File Photo.
The domestic aviation market in India closed January with 77.34 lakh passengers. While the numbers are a far cry from what they were in the same month last year, they certainly are decent given the current circumstances. What has characterised this growth is traffic originating or terminating at Tier II and Tier III cities. These are also the cities that have seen growth return to normal levels or in some cases surpass pre-Covid numbers.
But with multiple restrictions in place across the country, who is benefiting the most? A clue to the answer can be obtained from the Route Dispersal Guidelines (RDG) adherence released by regulator DGCA.
The RDGs are unique to India, which mandates that airlines have to operate a certain percentage of their capacity by Available Seat Kilometres (ASK) on routes classified as category II, IIA and III. This is a percentage of the capacity deployed on Category I routes, which are routes with a flying distance of over 700 km, average seat factor of over 70 percent and annual traffic of 5 lakh passengers over two full schedules.
What happened to growth in Tier I cities
While traditionally the links between Mumbai-Delhi, Mumbai-Bengaluru and Delhi-Bengaluru have seen the strongest traffic, since the Covid outbreak, States have imposed restrictions on flights and in some cases on travellers arriving from a particular State. These cover most major airports, including Mumbai, Kolkata and Chennai. Maharashtra continues to have restrictions in place and need of a negative RT-PCR. The cities also became hotspots for Covid-19 infections leading to reduced travel.
Why is there growth in Tier II and Tier III cities?
The reasons for growth in Tier II and Tier III cities are two-fold. While the government has put a cap on capacity of flights, the cap does not apply on routes that are operated under the Regional Connectivity Scheme (RCS)–UDAN (Ude Desh ka Aam Nagrik). The scheme has been criticised for its poor success rate in the past and the ministry has been pushing for additional sectors being started at the earliest. This led to many new sectors being operationalised across airlines. As most of the RCS routes are to Tier II or III cities, these cities saw a sudden growth in numbers, both in terms of Air Traffic Movement (ATM) and Passengers.
Tier II and III cities are also more reliant on SMEs and MSMEs for economic activity. This is unlike major cities, where the services industry is more prevalent and driven primarily by the Information Technology sector, which is still having most employees working from home with travel in an official capacity yet to begin.
As people shuttle between cities to their hometowns for long weekends, festivals and smaller businesses move across the country, Tier II and Tier III cities have come into focus. In some cases, such as Amritsar or Chandigarh, the agitation on the borders around Delhi has led to a spike in movement, while in the case of Goa and Port Blair, it is due to people wanting to travel for a break as more and more folks get confident about travelling on a holiday.
Which airline is making the most of it?
Data for January 2021 shows that IndiGo deployed 236.8 percent of its ASKs on Category III routes. These are routes that do not fall in the Category I, II or IIA and primarily cover the routes like Bengaluru-Lucknow or Ahmedabad-Nagpur and the like. Route Dispersal Guidelines mandate that only 35 percent of the capacity is to be deployed on such routes and with 236.5 percent, it shows how massively IndiGo is chasing this traffic.
Spicejet and GoAir follow with 156.4 percent and 146.2 percent of their Category I capacity on Category III routes. Air India group, comprising Air India and Alliance Air, operated 104.2 percent on Category I. Vistara and AirAsia India, the airlines from the Tata stable, operated 40.1 percent and 81.7 percent, respectively, showing their lower focus on such routes.
What helps IndiGo is the massive capacity it has at its disposal. The airline can still compete with everybody else on metro sectors by matching frequency and has a fleet available to deploy on the Tier II and III routes, where the current traffic is moving.
While Air India, Vistara and AirAsia India are at levels similar to what they were at a year ago, Spicejet, GoAir and IndiGo have made the most by adjusting networks to cater to the changing demand patterns.
Airline network planners face multiple challenges currently. It is no mean feat to run a network with constraints that include a cap on capacity, adhering to State-specific rules on departures and ensuring that the network adheres to Route Dispersal Guidelines, all with the overall aim of losing the least amount of money.
But a glance at the data shows why IndiGo and its top management have been harping upon starting stations in the hinterland and going to Tier II and III cities with a belief about where the traffic lies. Perhaps ATRs are paying rich dividends for IndiGo.