Travel |Update|
Issue 225
1. Too Spicy A Flight
Even as the country's airline industry is cutting costs to fly through the turbulence triggered by the rising cost of fuel, liquor baron Vijay Mallya may precipitate another round of consolidation in the sector if he picks up a strategic stake in Delhi-based budget carrier, Spicejet. Both the airline and analyst communities appear divided over the deal, as they find "no immediate compelling reason" for two debt-laden carriers with different fleet types to join forces. That too when Kingfisher is yet to fully consummate its marriage with Air Deccan, more than a year after picking up equity in the country's first budget carrier. The rationale behind the deal could be to buy Spicejet's 10% market share to be a market leader with a 40% share. But the timing may not be right, as most carriers are shedding capacity to cut losses. Also, this comes at a time when Kingfisher is all set to fly international on Deccan's wings by this year end. "This is not a buyer-led activity, but more the outcome of seller-side pressure to sell or raise resources," points out a Mumbai-based analyst. So, one does not expect sellers to get a premium in this round, while parting with their equity. "Only if Spicejet is available at bargain-basement value should one go for the deal," adds another analyst. That may not go down well with Spicejet's existing stakeholders, most of whom want to exit at a high. Strategic compulsions to keep away predators looking for distressed assets could be another reason for Mallya to keep a vigil at the gate. Given the cost stress and revenue pressures in the industry, analysts expect upsides from the deal such as market share, wider network and overseas flying rights to kick in only in the long run. "The industry is unlikely to get into the black before 2012. One has to be ready to bear losses until then. But the upside would be huge for those who survive," says an analyst. Industry experts say airline losses are likely to double to Rs 8,000 crore in 2008-09. For 2007-08, Spicejet reported a loss of Rs 134 crore, while Deccan's loss stood at Rs 640 crore for the nine months to March; Kingfisher had Rs 575 crore for 2006-07 (the last available). Most analysts feel the deal may not have a large impact on the industry in terms of rationalisation of capacity. Only if the new troika announces large-scale grounding of planes would the current excess capacity be rectified. However, most agree that any Kingfisher-Spicejet deal will kill the Deccan brand, as the budget arms are likely to carry Kingfisher-prefixed branding.
Source: Thursday, July 17, 2008, Outlook Business
2. SpiceJet deal may revive hopes of budget airlines
Global Private equity investor Wilbur Ross's move to pump Rs 345 crore into SpiceJet has given rise to hopes that India's budget airlines, plagued by mounting losses, could stay alive and keep providing air tickets at comparatively cheap prices. Three budget airlines---IndiGo, SpiceJet and Go Air---which together control a market share of 25 per cent, can counter the three other airlines--Jet-JetLite, Kingfisher-Deccan and Air India---that are taking airfares northwards to deal with rising oil prices. A paucity of funds had caused concern over the future of some standalone carriers and now that Wilbur Ross has committed an investment of Rs 345 crore into SpiceJet, the sense of insecurity is over for the time being, according to aviation industry analysts. IndiGo's management said the airline was adequately funded and the Wadias-the promoters of Go Air---had recently reaffirmed their commitment to the airline. Though the budget airlines are increasing fuel surcharges, they can still offer fares Rs 1,000-2,000 cheaper than full service airlines on major routes. "If fares rise by 10 per cent to help offset fuel prices, they are still 60-75 per cent less than in the recent past (four years ago)," said Bruce Ashby, President & CEO, IndiGo. As airlines innovate to sell unsold seats to improve yields (revenue), one can get tickets even cheaper, say experts. "Despite the reduction in capacity, budget airlines are still flying with 70 per cent occupied seats. They will embark on aggressive marketing to sell the 30 per cent empty seats and flyers can expect better deals in early bookings and last-minute bargaining," said Kapil Kaul, CEO (India), Centre for Asia Pacific Aviation (CAPA), a global aviation consultancy . Kaul said the presence of powerful investors like Wilbur Ross sent out a clear signal that the budget airline model was here to stay . "Budget airlines will dominate the Indian sky due to the long-term robust demand. SpiceJet and IndiGo could emerge as regional international low-cost carriers providing affordable air travel," Kaul added. Ajay Singh, director, SpiceJet, feels the fund infusion will strengthen the airline. "We can still keep fares low by cutting costs and increasing the cash flow. There will always be demand for low-cost travel," Singh said. "A large number of corporates are moving to low-cost travel to cut costs. (The airline) that is able to create demand can excel," said Edgrado Badiali, CEO, Go Air.
Source: Thursday, July 17, 2008, Hindustan Times
3. TV advertising by domestic airlines drops 27%
TV advertising of domestic airlines dropped by 27 per cent during January-May 2008 compared with January-May 2007, according to a study by AdEx. The Gurgaon-headquartered MDLR Airlines led in the advertising of domestic airlines on TV during January-May this year. It was followed by Kingfisher Airlines Ltd and Jet Airways, the study said. The advertising of domestic airlines was skewed towards the national channels, with advertising on the national and regional channels being in the ratio of 67:33 during the first five months of this year. Though advertising on TV dropped by 27 per cent, there was a 28 per cent rise in the average ads/day of domestic airlines during the period. The advertising of international and domestic airlines on TV was in the ratio of 89:11.TV advertising of domestic airlines dropped by 21 per cent during 2007 compared with that in 2006. During 2007, TV advertising of domestic airlines was more during the second-half compared with the first-half of the same year. In 2006, the first and last quarters had an equal advertising share of domestic airlines on TV, the study added.
Source: Thursday, July 17, 2008, The Hindu Business Line
4. US set to toughen jet fuel-tank rules’
US federal regulators
are expected to adopt contentious and potentially costly rules to prevent
fuel-tank explosions on commercial airliners, the Wall Street Journal said on
Wednesday, citing government and industry officials familiar with the matter.
The rules would require new airliners to be equipped within two years with
systems that use nitrogen to prevent sparks, or electrical short circuits, from
igniting hot vapors inside the tanks, the paper said citing the officials.
Airlines will have as long as nine years to retrofit some older planes with the
nitrogen devices, which will cost roughly $1,00,000 a plane to install, the
newspaper said on its Web site. The rules, which are expected to be announced on
Wednesday, come after the Federal Aviation Administration was pressured by
Congress and other critics to get tougher on safety issues after recent
airline-oversight lapses, the paper said.
Source: Thursday,
July 17, 2008, The Hindu Business Line
5. Jetlite CEO to quit
Three months after joining the budget carrier JetLite, Finnish CEO Maunu von Lueders plans to quit the organization at a time when its parent Jet Airways intends to merge the back-end operations to cut costs. Lueders took charge of the wholly-owned subsidiary on April 5 this year after the contract of its CEO of three years Garry Kingshott came to an end. The exact date of his departure is, however, not known. Its not clear whether JetLite would have another expat as a CEO or continue with the chief operating officer Rajeev Gupta for the time-being. Jet Airways and JetLite are merging their backend operations in an attempt to achieve synergy, make the organisation leaner and save costs.JetLite are preparing to relaunch itself as a hybrid-airline model. It is attempting to move at least 300 of its 2,200 personnel to other operations and feeding into Jets network as a conscious management move, according to sources. The airline has pulled out a total of 26 flights, including some flight operations to metros such as Delhi and Mumbai. It has also postponed the launch of its international operations due to the high fuel costs. Lueders may have found this management move not exactly to his liking after spending 40 years in the aviation business and taking on the challenge of establishing a low-cost carrier in Scandinavia, insiders say. In a text reply to a query, Lueders confirmed his exit from the airline and said, "There is not much to comment. The date when I will leave has not been confirmed yet. My assignment is coming to an end. I will not be leaving because of some other jobs. The integration between JetLite and Jet Airways is almost complete, which means that my job is done." It is not clear whether the management decided to do away with two heavyweights to operate JetLite on its own terms as a merged entity, though the airline would still have a different face on the front end. "The airline is in a cost-cutting mode and as it is, the operations of the two entities are almost merged. In that case, this might be a move by the management to do away with dual heads," said a Jet executive, not wanting to be identified.
Source: Thursday, July 17, 2008, Business Standard
6. Jet to end AI monopoly over Dubai route
When full service carrier Jet Airways starts its flights to Dubai next month, it will find the India-Dubai sector almost deserted by national carrier Air India (AJ), which had ruled the route in the last decade. According to sources, Air India, which used to operate close to forty direct flights weekly to Dubai, has already brought it down to around 15.Jet Airways and its subsidiary JetLite recently got government approval to fly to Dubai, thus ending Air India's monopoly on that route. According to company sources, Jet is going to start its Dubai flights from Mum-bai, Delhi and Chennai next month. The airline has also sought permission to start flights from Thiruvanantha-puram, Kochi and Bangalore during the winter schedule next year. However, JetLite is not using its flying rights to Dubai for now.
Source: Thursday, July 17, 2008, Business Standard
7. Branson predicts ‘spectacular’ airline casualties
There will be “spectacular casualties” in the airline industry over the next 12 months, billionaire Richard Branson, the owner of Britain’s No 2 long-haul airline Virgin Atlantic (VA.UL), was quoted as saying on Saturday. The US airline industry including Virgin America —has been battered by soaring fuel costs that are pinching even the healthiest airlines. “The financial state of the world is just about the worst Ive ever known it,” Branson told The Times newspaper in an interview. “Its getting perilously close to being worse than the 1990s. You have the perfect storm you’ve not only got the banking crisis and the housing crisis, you’ve got the soaring fuel prices as well. One of the big American carriers will almost definitely go.” Branson confirmed Virgin was interested in buying British airline bmi, 50 per cent plus one share owned by entrepreneur Sir Michael Bishop. The carrier has long been expected to change ownership in 2009 due to a private agreement between Bishop and 30 per cent minus one share co-owner Lufthansa (LHAG.DE: Quote, Profile, Research, Stock Buzz). Despite barely making a profit in 2007 and with the outlook far worse for 2008 bmi value is in its control of 11 per cent of the highly prized airline slots at Heathrow. The billionaire also called for an end to BAAs monopoly of Britain’s major airports. Part of Spain’s Ferrovial (FER.MC: Quote, Profile, Research, Stock Buzz) since 2006, BAA has owned the three main airports serving London Heathrow, Gatwick and Stansted as well as Scotland’s Edinburgh and Glasgow airports since it floated over 20 years ago. “Its been embarrassing to be British looking at foreigners queuing up to come into the country,” said Branson. “I certainly think that BAA should be broken up. Each individual terminal at Heathrow should be privatized so they can compete against each other. BAA just creams off more and more every year.” Britain’s Competition Commission is investigating whether problems faced by airline travelers through Britain, as highlighted by the chequered opening of Heathrow’s Terminal 5, are caused or exacerbated by BAAs monopoly.
Source: Monday, July 14, 2008, Business Standard
8. No more freebies on JetLite
Spiralling costs and mounting losses have forced Jet Airways chairman Naresh Goyal to change his long cherished belief that a passenger is like a guest at home who can’t be charged for the food served on board. From August 8, Jet’s low-cost subsidiary JetLite will stop serving free water, toffees and snacks on its flights. While other LCCs (low-cost carriers) like IndiGo, SpiceJet and Deccan have long been selling snacks on their flights, JetLite will join this list now. Last month, Spice-Jet and AI (domestic) had stopped giving free toffees. ‘‘Our annual expense on snack boxes was over Rs 2 crore. We were only able to give cold snacks and water while there was a great demand for hot beverages and food. Now we will be able to offer a choice of hot snacks for a price of Rs 70 Rs 100,” JetLite COO Rajeev Gupta said. Clearly, high losses have left airlines with no option but to look at every cost very carefully. The Jet Airways Group including JetLite had reported a loss of Rs 654 crore in 2007-08, in which Jet Air’s share was Rs 253 crore. JetLite’s loss for this fiscal is estimated to be in range of Rs 550-600 crore. The airline has already cut several flights and is also giving up expensive airport office spaces in some places where that work can be done at Jet’s available offices. Indian carriers expect to lose up to Rs 10,000 crore this fiscal as oil is showing no sings of cooling off and hovering around $146-147. With jet fuel now accounting for over half of airlines’ operating cost, many are struggling for survival. As a result, they are taking cost cutting steps like grounding planes and canceling flights. Some airlines are now looking at sending their expat pilots back and replace them with desi ones. Nearly 70 to 75% of an airline's total salary bill is on cockpit crew. ‘‘On an average, an expat commander gets a net salary of Rs 4 lakh along with expensive accommodation. He or she works for six weeks and then gets two weeks off. An Indian captain has a gross salary of Rs 4 lakh with no accommodation. All airlines will have to look at reducing expats,” said an airline CEO.
Source: Monday, July 14, 2008, The Times Of India
9. Software firms offer cost-cutting solutions to anxious carriers
As India’s ailing airlines run out of options to cut costs, technology firms are pulling out travel software that could help these carriers save some more. Air transport technology services firm SITA says mobile phones can be used as passenger tracking devices to cut flight delays, saving about $600 million (Rs2,580 crore) collectively, for airlines globally. Mumbai-based travel software firm Kale Consultants Ltd says it can help airlines cut 30% of their revenue accounting costs with effective use of technology. Because nearly 80% of their operational costs are fixed, airlines are seeking other options to save on costs. Domestic airlines are expected to post a combined loss of $2 billion in fiscal 2009 because of spiralling aviation fuel costs that have almost doubled in a year, while international carriers are facing an estimated loss of $6.1 billion for the year. “We are willing to experiment with IT (information technology) if it helps us,” said Partha Sarathi Basu, chief financial officer of low-fare carrier SpiceJet Ltd. “IT is the backbone of any airline, and can help minimize costs to a decent level,” he added. SpiceJet recently implemented a monitoring software to arrest credit-card fraud, cutting down on staffing, and is now looking for cargo management software as well. The UK’s second largest carrier, British Midland Airways Ltd, which does business as bmi, has reduced at least 30% of its revenue accounting costs by outsourcing to Kale Consultants, said bmi chief financial officer Robert Palmer. “According to our old revenue accounting system, we had to have at least 150 people to manage our airline’s revenue management system and revenue leakage monitoring. Now we save all that personnel cost by outsourcing,” said Palmer, who was in India to meet Kale Consultants executives. India’s largest private airline Jet Airways (India) Ltd recently said the industry is losing at least $20 per passenger, signifying a 20% oversupply, or imbalance. “The estimated fuel cost per passenger carried is $85 while average yield per passenger is only $150,” it said. Globally, airlines are increasingly relying on technology to streamline operations and save costs in the process. In June, airlines all over the world stopped issuing paper tickets with multiple layers and colours in favour of e-ticketing. “The IT revolution is well on the way to saving airlines $6.5 billion annually,” Giovanni Bisignani, director general and chief executive of the International Air Transport Association (IATA), an international body for airlines, said on its website. “On 1 June, we delivered 100% e-ticketing. Alone, that will save $3 billion.” Mint could not independently ascertain the total potential cost savings for airlines from using new travel software. Travel software firm the Bird Group’s executive director Ankur Bhatia said airlines can use software to manage seat occupancy and departure control systems. Bird Group controls Spain based Amadeus IT Group SA’s Indian operations. SITA has also suggested using mobile phones to hold boarding passes, baggage tracking information and payment data. Advances in mobile technology open the door to new cost saving avenues as 90% of airline passengers use mobile phones, SITA said on its website. “These ‘digital travellers’ will have on-demand access to a range of mobile-enabled services such as real-time flight updates, self-service booking, check-in and boarding, as well as mobile payments,” said Jim Peters, chief technology officer at SITA.
Source: Monday, July 14, 2008, Mint
10. Greener jets set to fly high
Canada's aviation giant Bombardier could unveil its CSeries, a fuel-sipping "greener" rival to smaller aircraft made by industry leaders Airibus;and Boeing, on Sunday in Britain, local media said on Saturday. Bombardier, a leading manufacturer in railway equipment and the third largest global builder of air-planes, is looking to deliver a model that consumes 20 per cent less fuel, thanks to a new motor style and lighter composite materials, Canada's La Presse report-ed. The CSeries twin-engine aircraft seats 110-130 people, and would compete with Airbus' A319 (125 seats) and Boeing's B737-600 and 700 (HOBO seats)."The Farnborough (Britain) air show officially does not open until Monday but Bombardier is in the habit of making its big announcements on the eve of a show opening," the Montreal paper's aeronau-tics expert wrote. The company put the CSeries project on hold in May 2006, after it had been in the works for a decade, but relaunched the process once it appeared that rising fuel costs would ignite demand for a more fuel-efficient aircraft.
Source: Monday, July 14, 2008, The Asian Age
Prepared by
Jennifer Kumar, BBA (NAU) Alumni
Skyline Business School
Hauz Khas Enclave, New Delhi 110 016
Tel: 2686 4848, 2652 4399
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