1. Jet Airways in pact with Globus Family of Brands

Jet Airways’ JetPrivilege, the Indian private carrier’s frequent flyer programme, has entered into a partnership with the Globus Family of Brands effective August 01, 2008, said a statement. With this partnership, Jet- Privilege members based in India, UAE, Bahrain, Oman, Sri Lanka and Mauritius will be able to earn one JPMile for every $1 spent on taking a qualifying service with the Globus Family Vacations across Europe, North and South America, Australia, New Zealand, Japan and China. They will also be entitled to an exclusive $75 off for self and companions on any vacation booked from August 1 to 31, 2008, while earning JPMiles on the same, the release said. As per the statement, the Globus Family of Brands is the world’s largest escorted coach tour company which markets vacations under the Cosmos, Globus, Monograms and Avalon Waterways brands.

Source: July 29, 2008, The Hindu Business Line

2. Ryanair warning of possible first loss

Ryanair Holdings said Monday that 2008 was stacking up to be a dismal year for airlines as the company, Europe’s biggest budget carrier, warned that it might post its first loss as a public company this year. ‘‘The outlook for the remainder of the fiscal year, which is entirely dependent on fares and fuel prices, remains poor,’’ Michael O’Leary, Ryanair’s chief executive, said in a statement. ‘‘The emerging economic recession in the U.K. and Ireland caused by the global credit crisis and high oil prices means that consumer confidence is plummeting, and we believe this will have an adverse impact on fares for the rest of the year.’’ O’Leary predicted a spate of European airline bankruptcies this coming winter, calling industry consolidation ‘‘inevitable at these higher oil prices.’’ Ryanair is positioned to take advantage of that turmoil to grow, he said, because the airline has €2.2 billion, or about $3.5 billion, in cash. Stephen Furlong, an analyst at Davy Stockbrokers in Dublin, said in a research note, ‘‘We continue to believe that Ryanair has the strongest business model and balance sheet to withstand and benefit from this cyclical downturn.’’ Based on its assumptions that oil prices will remain high and average fares will fall 5 percent for the full year, he predicted that Ryanair would break even at best this year and at worst post a loss of loss of ¤60million. It would be the first annual loss for the airline since it went public in 1997. Neil Glynn of NCB Stockbrokers in Dublin said, ‘‘It’s largely a function of deteriorating consumer demand.’’ The forecast for a 5 percent decline in average fares this year took the market by surprise, Glynn said. ‘‘To be honest, it’s quite a phenomenal turnaround,’’ he added, considering that on June 3 the airline had predicted that average fares would rise by as much as 5 percent. Ryanair said its profit slid to €21 million in the April-June quarter from €118 million a year earlier as revenue rose 12 percent to €777million. A 19 percent increase in passenger traffic, to 12.6 million, was not enough to compensate for an 8 percent decline in average fares and an 18 percent increase in overall costs. ‘‘Oil prices almost doubled in the first quarter from $61 to $117 per barrel as our fuel bill rose 93 percent to €367 million,’’ O’Leary said in the statement. ‘‘Fuel now represents almost 50 percent of our total operating costs compared to 36 percent last year.’’ Oil prices, he added, ‘‘remain subject to irrational exuberance.’’ He said Ryanair was working hard to cut costs, eliminating jobs, imposing a company-wide pay freeze and introducing new, more efficient aircraft. The carrier’s shares were down 13.5 percent in Monday afternoon trading after initially falling 25 percent. They are down nearly 42 percent over the past 12 months.

Source: July 29, 2008, Financial Chronicle

3. Airlines cut flights to battle lean season blues

Domestic carriers have resorted to ad-hoc measures and last minute cancellations to im­prove loads as a lean season and high input costs have left the Indian aviation industry reeling. For the first time in three years, the number of passen­gers flying in India saw a fall of 4 per cent in June this year. "I have not seen such low load factors ever, even dur­ing the lean season. Nor have I seen such a huge number of ad-hoc cancellations hap­pening everyday at most air­ports," said Kamal Hingorani, vice-president, sales and mar­keting, for low-cost carrier SpiceJet. Agreed an executive of an­other low cost carrier (LCC), "This being a low season, most carriers are getting load fac­tors of around 50 per cent com­pared to 60-70 per cent earli­er. With most of our flights on­ly half occupied, it is a better option to combine two flights, which are closely scheduled." The executive said that on an average, every airline was cancelling around six to eight flights every day. Take the case of Delhi air­port: Around 200 flights were cancelled last week. Interest­ingly, LCCs accounted for as much as 73 per cent of the to­tal last minute cancellations. For instance, IndiGo cancelled 40 flights, while Simplify Dec-can 50. Normally, there are no more than 15-20 cancellations a week. Even though some flights were cancelled due to tech­nical faults, fewer passengers were the sole reason for many of the others, said airport ex­ecutives. According to sources, Mumbai airport also saw around 25-30 ad-hoc cancellations on a daily basis. The ad-hoc cancellations have meant more problems for passengers. For instance if an aircraft is doing A Delhi-Ahmedabad-Mumbai-Delhi flight, the airline will decide to do a direct Delhi-Mumbai-Del-hi flight and transfer the Ahmedabad passengers to the next flight to that destination, which means that the passen­ger has to wait. "If the passengers cannot be shifted to other flights, we try to ensure that they are not stranded by informing them beforehand that their flight has been cancelled. Also, we try to do some last minute re-jigging to our flight schedules so that no aircraft is idled too much," said the executive. The ad hoc cancellations come over and above the air­lines' actually reducing capacity. In the last couple of months, airlines have already reworked the remaining part of their sum­mer schedule ending in Sep­tember by cutting 10 per cent of their capacity. Around 160 of 1600 daily flights have been cancelled for the next two to three months. Besides, no airline other than Kingfisher and Jet Air­ways, have increased the fu­el surcharge for this month be­cause of the lean season. Travel portals were of the view that unlike past low sea­sons, airlines are focusing more on value-added offers than rock-bottom fares. "In a change from the last low season, no airline is touch­ing the fare but giving value added offers like a discount voucher or a transfer from the airport," said Bhavna Aggarwal, co-founder and head of aviation business for travel por­tal . Boeing, in its 2008 mar­ket outlook on the Indian avi­ation industry released last week, estimated that despite the fares having close to dou­bled over the past year, the air­lines can't still realise their to­tal costs. For instance the total fare on the Mumbai-Delhi sector for July is estimated to reach $121 (Rs 5000 approximately) this season, but this will still be around 22 per cent lower than the break even fare of $154 (Rs 6400 approxi­mately).

Source: July 29, 2008, Business Standard

4. Kingfisher plans to fly to Pakistan

Vijay Mallya promoted Kingfisher Airlines, which plans to start its international flights by September this year, is looking to fly to neighboring country Pakistan in the same month. The airline is planning to fly to Lahore from Delhi, apart from a host of other overseas destinations, to start with. “We would start our services to Lahore from Delhi by the end of September,” a senior Kingfisher Airlines official said. The carrier has already applied for approval to the DGCA to start its operations to Pakistan, under the Bilateral Air Services Agreement India signed with the neighboring country, he added.

Source:  July 24, 2008, The Asian Age

5. Aviation Ministry to focus on projects in hand

With less than a year to go before the next general elections, the Ministry of Civil Aviation plans to concentrate on projects in hand including taking steps to reduce the prices of aviation turbine fuel, getting the modernisation of Nagpur airport underway, securing a bail out financial package for cash strapped Air India apart from completing the bidding for the Navi Mumbai airport project in the remaining tenure of the Government, a senior official of the Ministry said on Wednesday. “The remaining period in office for the UPA Government is too short to start any new projects. We plan to concentrate on projects in hand. If there was more time, the modernisation of Chennai and Kolkata airport may have been done differently, if the State Governments also agreed,” a senior Government official said a day after the Manmohan Singh Government won the trust vote in the Lok Sabha. The Ministry plans to request the Cabinet Secretary to not only convene a meeting of the inter-ministerial committee set up to examine various issues relating to the financial crises being faced by the domestic airline industry, but also submit its report by the end of next month. The Committee is expected to suggest long and short term proposals for improving the financial health of the sector including looking at ways that the price of ATF can be reduced. In the last few months the rising ATF costs has affected the bottom line of many airlines and seen the industry increase fares several times to offset the increasing fuel bill.

AIR INDIA PACKAGE

The Ministry will also be approaching the Government to seek a financial package of around Rs 2,300 crore for Air India. “The airline proposal seeking financial help is expected in the next three weeks. The Minister for Civil Aviation has already spoken to the Prime Minister about the issue,” the official said. The Ministry also plans to complete the bidding process for the Navi Mumbai airport by March next year and start the proposal for making Nagpur a cargo hub during the remaining period in Government. The Government is also hopeful of being able to get the Airport Economic Regulatory Authority in place before it demits office, the official added.

Source: July 24, 2008, The Hindu Business Line

6. Air India asked to rationalise routes

National carrier Air India has been asked to save about Rs 1,000 crore by withdrawing or reducing capcity on loss-making routes in the next 12 months, reports Our Bureau from New Delhi. The airline—estimated to have lost about Rs 2,100 crore in the last fiscal—is expected to submit a proposal to the government in a fortnight, seeking a bailout package. “The airline is expected to prepare a formal proposal in the next 15-20 days and give it to us. We have already met the prime minister and the response has been positive. The airline would, in the meantime, save Rs 1,000 crore by route rationalization and withdrawing services from loss-making sectors,” civil aviation minister Praful Patel said on Wednesday. Mr. Patel also said that he would push for reduction in taxes and duties on aviation turbine fuel. Speaking to reporters here, he said the bidding process for the proposed Navi Mumbai airport would be completed by March 2009.

Source: July 24, 2008, The Economic Times

7. Delhi-Mumbai focus puts GoAir in trouble

Wadia Group’s GoAir (India) Pvt. Ltd, which runs low-fare carrier GoAir, could be forced to pull out from some of its most profitable routes because of a near boycott-like decision by peers not to help it meet a regulatory requirement that mandates India’s airlines also connect remote areas. India’s aviation rules mandate domestic airlines fly a certain percentage of their flights to smaller cities and towns that are poorly connected. GoAir had met this requirement by buying seats from other airlines that fly to such regions, while operating its own flights only on the more lucrative routes. But now rival carriers have said they will not be able to continue such transactions any longer as they are also pulling back on such unprofitable routes. “All airlines are making losses and we all need to cut routes,” said a senior executive with a New Delhi-based airline. “We also have to meet the requirements set by the government (on us) and are not in a position to sell excess seats to GoAir.” The executive, who didn’t want to be identified, also said GoAir has crowded the Mumbai- Delhi sector—the most profitable in India and accounting for nearly one-sixth of the country’s air traffic by passengers—by deploying its maximum capacity in route. GoAir runs a fleet of six planes, most of which are deployed on eight flights daily between the two cities. It has minimized the number of flights to other cities. Until June, GoAir had bought seats to smaller destinations from IndiGo, run by InterGlobe Aviation Pvt. Ltd, but the Gurgaon airline, as also others such as Jet Airways (India) Ltd and SpiceJet Ltd, have decided they will no longer sell seats to GoAir. Neeraj Kapoor, GoAir’s vice-president of marketing, declined to comment. “Every airline is cutting down capacity and it is a huge challenge to maintain...obligations. Typically, a mid-size plane on far-flung routes is flying with three-fourth of its seats empty,” the analyst said, asking not to be named. India’s so-called route disbursal rules have divided its domestic routes into three categories: category I, which represents the profitable routes, including major cities such as Mumbai, Delhi, Bangalore, Hyderabad, Kolkata and Chennai. Category II includes the north-eastern region, Jammu and Kashmir and Lakshadweep, while category III represents places such as Coimbatore, Kochi and Pune. Airlines have to deploy in category II regions at least 10% of their capacity deployed on the most profitable routes, and at least 50% in the category III routes. But airlines have the option of buying seats from other operators to provide the prescribed service, with permission from the aviation regulator, the directorate general of civil aviation (DGCA). “It is not unusual for airlines to buy or sell...for complying with the rules. Even we bought seats once when we fell short of numbers to comply with the rule,” said IndiGo’s chief executive Bruce Ashby. “But now we have a small surplus. I am not sure whether we can sell to any airline at this point of time.” Even state-run National Aviation Co. of India Ltd, which had excess seats to sell as it is mandated to fly to smaller regions, now says it won’t be able to enter into such agreements. One other option before GoAir is to buy seats at a premium from full-fare carrier Kingfisher Airlines, India’s second largest private airline. “If we sell to them, it will be on the commercial terms set by us. Certainly, this will be at much higher rate as we are incurring huge losses on these routes,” said a senior executive at Kingfisher Airlines Ltd, who requested anonymity. It is unclear how quickly DGCA will act on this issue and what it will ask GoAir to do. It can potentially even cancel the operating licence of an airline for non-compliance.

Source: July 24, 2008, Mint

8. British Airways completes $54-m L'Avion acquisition

British Airways, Europe’s third-largest airline, completed its £54 million ($107.6 million) purchase of L’Avion, a French business class-only carrier that will be combined with the UK company’s OpenSkies unit. L’Avion, based in Paris, will operate as a subsidiary of British Airways and will be “fully integrated with OpenSkies by early 2009,” the London-based airline said on Friday. The acquisition was announced July 2. Like OpenSkies, L’Avion flies to the US from Paris Orly airport using Boeing 757 jetliners. The British Airways unit began flights last month to New York John F Kennedy airport. L’Avion, which flies to Newark and has been in operation since January 2007, is the last independent business class-only carrier after Silverjet, Eos and MAXJet Airways went bankrupt as record oil prices eroded profit. OpenSkies is the only carrier created specifically to take advantage of the US-European Union treaty of the same name, which allows airlines to fly between the US and any of the bloc’s nations instead of just their home countries.

Source: July 26, 2008, The Economic Times

9. Emphasis on fuel hedging grows in Asia

As a former executive of Shell, Idris Jala probably had little difficulty in recognizing the benefits for an airline of hedging against fluctuations in the price of oil. Since taking the helm of Malaysia Airlines in December 2005, he has not only overseen an impressive turn-round of the national carrier but also applied a hedging strategy that has been both concise and rigorous. Rather than trying to anticipate or beat the oil market, Malaysia Airlines has simply sought to match the hedging levels of its main competitors, including Singapore Airlines, Asia's most profitable carrier. Explaining the strategy, Azmil Zahruddin, chief financial officer of Malaysia Airlines, says that an airline should not consider hedging as a magic wand that can be used to outpace rivals but as an investment tool to concentrate on beating them in "the business of running the airline" rather than on fuel costs over which it has little or no control. If the strategy is applied efficiently, he says, it "means we will all be equally affected by the fuel price, whether it goes up or down. “There is, however, no attempt to collude with others to create such a level playing field. In fact, even though fuel is a common preoccupation, the Malaysian carrier's management sees little scope for developing co-operation along the lines of flight code-sharing or joint frequent-flyer programmes. Instead, the airline simply relies on a dedicated hedging team to compile all the avail able market data, much of which in turn comes from analysts who inquire about hedging when meeting with airline management. "There is sufficient information available in the market place for us to make an educated guess about how much other airlines have hedged. We are not looking for 100 per cent accuracy, just estimates," says the CFO. Assuming that Malaysia Airlines has been accurate in its data analysis, Asian airlines have been cutting back sharply on hedging in the past year, just as oil has soared to record levels. Malaysia Airlines is now hedged at 43 per cent, com pared with about 70 per cent last year. Some, however, are down to about half that level, including the two leading Korean airlines, which are also struggling with a depreciating won. The level of hedging by Korean Air and Asiana is, respectively, 25 and 28 per cent. AirAsia, the Malaysia-based airline that has become south-east Asia's biggest low-cost carrier has entered the second half of the year without any hedging contracts left. With oil now trading close to record high, Tony Fernandes, its chief executive, says it would be "lunacy" to try to alter the situation by investing in a new futures con tract. Qantas of Australia, however, has won plaudits recently for buying contracts even after the oil price breached $110 a barrel. Still, pundits say that reticence to lock into future oil prices has, in Asia, often more to do with shareholder concerns than oil market analysis. In a study published this month, the Centre for Asia Pacific Aviation, a Sydney-based consultancy, under lines the mistrust towards hedging among governments that often control airlines. It notes that airlines have only been allowed to hedge in Thailand and India for the past two years. In the case of India, when the country's flag carrier eventually made a modest foray into hedging, the oil market went in the opposite direction. As a result, no other Indian carrier has since ventured actively into this area. "Fuel hedging is popularly regarded as a sort of macho gambling process, which is why some Asian govern ments have frowned on it," CAP A says. Singapore Airlines is also considered to be ahead of most its peers in terms of hedging strategy. The airline sticks to a loose target of 45 per cent, plus or minus 15 per cent depending on market conditions. As of last May 14, Singapore Airlines had hedged 36 per cent of its fuel needs for the remaining 11 months of its fiscal year. In May of 2007, the level was 42 per cent. Corrine Png, analyst at JPMorgan, now predicts that Singapore will do "less badly than its peers", partly because of its policy of hedging against kerosene at a time when the spread against the price of crude oil has widened. Most rivals opt for crude oil contracts because it is a more liquid market, she says. As for Malaysian Airlines, it has no plans to change what it calls "a good mix" of contracts involving underlying products ranging form crude oil and kerosene to heating oil, which has a high price correlation to jet fuel and crude oil. But like its rivals, Malaysian Airlines does not reveal at which price its most recent hedging contracts have been fixed. CAPA suggests that "it is unlikely that they will be below a crude oil equivalent of $100". With oil now above $130 a barrel, that explains why, as Mr. Jala recently predicted, "more airlines are going to be forced out of business while the majority of us are going to bleed red ink yet again".

Source: July 25, 2008, Financial Times

10. Asian airlines' profit hit by fuel, outlook grim

Asian airlines are facing a massive hit to earnings as soaring fuel costs and dwindling demand for travel create turbulence that has already bankrupted some small carriers. The International Air Transport Association issued a gloomy outlook in June, forecasting a $6.1 billion loss for the industry worldwide in 2008 - a sharp turnaround from the $4.5 billion profit it expected in April - blaming sky-high fuel prices. Cathay Pacific, Asia's third-most valuable carrier, issued a profit warning earlier this month, while Australian flag carrier Qantas plans to fire 1,500 staff and has scrapped its growth plans. Jet fuel traded in Singapore has come off a $181 per barrel peak reached earlier this month, but prices are still 79 percent more expensive compared to a year ago at $158 per barrel, tracking the spike in crude oil. "It's certainly right up there for being one of the more challenging years that this region has ever faced," said Derek Sadubin of the Centre for Asia Pacific Aviation in Sydney . "What we have now is a sustained increase, an extreme increase, in their chief input in fuel, so it's going to be a question of how these airlines can adapt." Nearly all carriers have raised surcharges to cope with the rise in fuel prices, which account for about 40 per cent of costs. While some, such as Singapore Airlines and Qantas, have hedged part of their fuel needs in the futures market, analysts say a recovery of the industry will require fuel costs to drop. But the outlook for jet fuel remains uncertain as despite the recent pull-back in crude oil, jet fuel premiums continue to be supported by demand from Europe. "We see an increasing risk of more airline bankruptcies or consolidation in the next 12 months if oil prices stay at the current level," said Morgan Stanley analyst Chin Lim. IATA, which represents airlines operating 94 percent of the world's commercial flights, says 24 airlines have gone bankrupt or stopped operating in just the first six months of this year. Singapore Air, first among the big Asian carriers to report earnings on July 28, is expected to post a 32 per cent fall in net profit for the three months to June 2008 according to a Reuters survey of three analysts. However, some analysts expect Singapore Air Asia's most profitable and the world's second-biggest carrier by market value, to emerge relatively unscathed from the industry turmoil due to its strong cash position and focus on premium travel. "One curiosity of SIA is how it manages to stay ahead of the curve despite plunging traffic. Strength in first and business class is probably helping it maneuver the turmoil better than its peers," said Standard & Poor's aviation analyst Shukor Yusof. The world's largest air cargo carrier Korean Air Lines is expected to post its first quarterly operating loss in five years due to higher oil prices and slower demand.

Source: July 26, 2008, Hindustan Times,

Prepared by
Jennifer Kumar, BBA (NAU) Alumni
Skyline Business School
Hauz Khas Enclave, New Delhi 110 016
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