Regional airline business development in recent years has quite frequently become topics of discussion, particularly in Indonesia where many of the air operator found that it is a promising business but mostly ended up with difficulties. Re-collecting from several references and data base owned by CSE Aviation, the materials obtained are reviewed and presented in this brief market study.
Regional airline operators provide flight services between small cities within a country and also to small cities in the neighboring countries where it should also have a strong relationship with one of the region’s major airlines as a complement for the base network. However, there are also regional point to point services provided by the mainline carriers themselves that blur the distinction between regional and mainline aircraft.
The regional operations in Indonesia are diverse, they fly mix between turboprops and regional jets, and generally most of them serve niche markets where profitability can only be achieved through strong financial discipline. The keys success in the typical niche markets operation for regional airline business are the efficient connectivity, the right capacity and the right cost.
- 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”
All statement contained in this Market Outlook are statements of opinion from CSE Aviation experts and are not to be taken as implying statements of representation of fact. Every effort has been made to ensure the correctness of the information contained in this Market Outlook, it can only reflect the position at the time of our assessment and its accuracy cannot be guaranteed. CSE Aviation and its employees bear no responsibility or liability for any inaccuracy.