Embraer sees opportunity in India

Brazilian aircraft maker says its aircraft will fill market gap

Embraer, a Brazilian civil aircraft maker says there is a "gap" in the Indian domestic civilian airline market, which its 50-70 seater jet aircraft are well suited to fill. The gap is both in terms of the type of aircraft and the routes being serviced, Embraer says.

In a new report, Embraer says there has been a continuous decline in the average number of passengers embarking a plane, from almost 110 in 1997, the peak, to 68 in fiscal 2004. This and other developments in the Indian domestic market has created in growth in exactly the segment where Embraer wants to sell aircraft in the region "" the 60-90 seater flights on those non-metro routes where volumes exist, uncatered to.

There are some 311 scheduled airline routes in the country with 167 "city-pair" markets and an average sector distance of 416 nautical miles or 771 km. In fiscal 2004, there were close to 1.6 crore passengers over a "vast geographical and cultural spread", the report says.

Among the growth drivers are, India has the world's 4th largest GNP on a purchasing power parity term; India's 300 million middle class is potentially the world's most powerful consumer block, spending more than $100 billion per year; Travel ranks high on discretionary spending; India is undergoing profound civil aviation reform; Market liberalisation and regulatory reform; Reduction in air travel related taxes; privatisation; and airport modernisation.

The 25-year growth average in domestic market is close to 5 per cent, while in the eight years to fiscal 2004, it has been growing at a faster 7 per cent.

The market is expected to double in the next 10 years. The opportunity is, domestic traffic is concentrated on metro markets: The top five airports represent 67.6 per cent of total traffic, but 72 per cent of airports handle less than 500 passengers per day.

On passenger "emplanements", 79.5 per cent of flights departed with less than 80 passengers on board and the "network average" was 68.1 passengers per flight. From a peak of almost 110 per flight in 1997, on a "national carrier" to the Indian average of 68.1, including (Indian average) in 2004. All carriers have followed the same trend in the country.

The region where most passengers are to be had, under the bell curve of passenger emplanement, is the 60-90 seats per flight. Some 51 per cent of all flights fall in this category. About 9 per cent of the flights carry less than 30 passengers, 21 per cent carry between 31 and 60 passengers, 18 per cent carry between 91 and 120 passengers and 1 per cent carry more than 120 passengers.

Here's the gap that Embraer wants to exploit: Over 77 per cent of aircraft in India have more than 120 seats and some 56 per cent of the aircraft are jets with seating capacity of between 121 and 200. Over 21.4 of the aircraft are jets with capacity of seats over 200.

At the other end, there are turbo props with 31 to 90 seats, which make up over 12 per cent of the aircraft, jets with 31 to 60 seats, 4.1 per cent and jets with 91 to 120 seats are 6.4 per cent.

Embraer has already made an entry into this market, with Air One, a feeder airline that plans to connect up tier II cities using some 25 Embraer ERJ 145 family aircraft.

J W Lobo, Air One's chairman and managing director told reporters here last month, the airline will start with two used 50 seater jet aircraft, dry leased from Swiss International, to be delivered in August and September.

Subsequent aircraft will be new and will be bought outright, over a five year period. By mid-2007, "we aim to have five aircraft, 50 and 70 seat aircraft".

Air One was targetting revenues of Rs 72 crore in its first year of operation with direct flights connecting cities like Thiruvananthapuram, Bhubaneswar, Pune and Vizag.

The airline aims to offer fares between a fifth and a third lower than competitors by making up its margins through volumes.

"There are cities which are not connected by direct flights, and we expect there will be enough passengers for us to do business profitably," Lobo had said.

Embraer will "support Air One with significant enhancement of our infrastructure to deliver spares and maintenance" J Bruce Peddle, managing director of Embraer's civil aircraft market in the Asia Pacific had said.