1. Air India tightens belt to cut losses

Air India staff will hereafter not be allowed go on foreign tours unless it is “absolutely essential” and that too only with the permission of the airline’s chairman and managing director. “Foreign tours should be undertaken only for absolutely essential purposes. All foreign tours henceforth should be scrutinised at the functional director level and recommended to the chairman only in respect of critical cases,” an Air India circular signed by its chairman and managing director Raghu Menon said. With its losses amounting to Rs 2,100 crore and with aviation turbine fuel (ATF) prices on the rise, the national air carrier has been forced to resort to cost-cutting measures to boost its sagging bottom-line. Air India is expected to implement a rigorous cost-cutting regime based on the recommendations of its finance department. The recommendations were presented before the airline’s board a couple of months ago. The circular said foreign travel should be restricted to the bare minimum number of people who are operationally required to travel and that “accommodation at overseas stations should as far as possible be at crew hotels where facility of lower room charges is available.” The cost-control measures to be implemented cover areas such as contractual casual employment material consumption, outside service and repairs of aircraft, return of leased aircraft, fuel conservation, pooling of vehicles/fuel bills reimbursement and temporary postings. The free use of pool vehicles including cars attached to station managers has also been stopped with immediate effect. A 25 per cent reduction in fuel expenses of vehicle pools is also being targeted, the circular said. In addition, fuel reimbursements of all officials’ right from the executive director-level to the senior managers have been capped at an upper limit of 140 litres and 100 litres per month. Similarly, mobile bill reimbursements would be capped at Rs 1,800 per month for executive directors, while general managers cannot claim more than Rs 1,600 as cell phone expenses. These limits are applicable even to officials posted abroad. The passenger service fee reimbursement to staff-on-leave (SOL) has also been stopped. In addition, the circular states that Rs 250, Rs 750 and Rs 1,000 per sector on each domestic, international and non-stop flights would be recovered to partially neutralise the increase in fuel costs with immediate effect.

Source: August 18, 2008, Financial Chronicle

2. More passenger lines make room for cargo to augment revenues

Indian carriers have started looking at increasing cargo carried on the belly space of their planes as they are looking at increasing ancillary revenues, apart from cutting costs. Carriers are pulling their socks to counter the high jet fuel prices, the primary reason to make them to post a combined loss of $2 billion in this current financial year. Gurgaon-based SpiceJet is aggressively looking at the cargo business and has already put in place the necessary infrastructure required. "The response from the market has been very positive and encouraging. In the month of June alone we have lifted in excess of 1320 tonnes that has generated revenue of over Rs 3.5 crore. We see a huge demand for our specialized services across industries with special emphasis on auto and garments. There is a huge demand for perishables like food and flowers," Samyukth Sridharan, chief commercial officer, SpiceJet, said. "The domestic cargo industry is estimated to grow in excess of 15% annually. We see a tremendous potential in this business and for us we are confident of touching a magic figure of Rs 100 crore annually within the first three year of cargo operations," he further added. SpiceJet is now successfully running in nine cities. This includes major metros like New Delhi, Mumbai, Chennai, Kolkata, Bangalore and Hyderabad. Among the secondary cities are Ahmedabad, Pune and Coimbatore. The company will soon start its cargo operations from Guwahati and Bagdogra. With the new generation Boeing 737 - 800/ 900ER fleet, SpiceJet can carry between 2 tonnes to 3.5 tonnes of cargo on each of its flight. It operates 94 flights every day to 16 destinations and can offer a capacity of over 300 tonnes per day. In the ancillary services space, SpiceJet is already present in onboard advertising, home delivery of tickets, in-flight contests and travel insurance. Kingfisher Airlines, one of India's leading airlines, has started using IBS' iCargoNet, a 'software as a service' (SaaS) version of IBS' new-generation airline cargo management system (CMS), iCargoGold. iCargoNet now provides a unified, enterprise wide solution to help manage the entire cargo business of airline, from planning, sales, operations, ground handling (both inbound and outbound), Unit Load Device (ULD) management to cargo revenue accounting and revenue optimization functions in an integrated and cost-effective manner. The system enables the airline to use all the functionalities of a proven integrated CMS while drastically bringing down the total cost of ownership. The implementation comes at a time when Kingfisher Airlines is seeking to grow its cargo business in the domestic market while optimizing its cost of operation. The IBS group (IBS) is a leading global provider of new-generation IT solutions to the travel, transportation and logistics (TTL) industry. Jet Airways is also looking at increasing the share of cargo while Air India is offering incentives to enhance the cargo business. The new entrant is Capt GR Gopinath, who floated India's first low cost carrier. Capt Gopinath's new venture Deccan Express Logistics, India's new delivery system, has signed a memorandum of understanding (MoU) with GMR group for setting up express cargo operating facilities at Delhi and Hyderabad airports. In July this year, Deccan Express Logistics also signed a MoU for establishing a state of-the-art cargo hub at Nagpur Airport. Capt Gopinath said: "It is crucial that the growth in various sectors of the economy be pushed to all regions including the hinterlands of the country. The airports and seaports at Mumbai and Chennai are saturated leading to distribution delays and huge amounts of wastage. The emergences of new cargo hubs at Hyderabad, Delhi and Nagpur will not only create hinterland linkages but will also spur the services, agricultural and manufacturing sectors to make inroads into the interiors." It is estimated that currently 35% of India's annual produce is being wasted in the absence of cold chain systems and transport infrastructure. The Indian retail sector valued at about $30 billion is shockingly limited in its reach within the country. For India to become an economic powerhouse, opportunities and markets have to spread evenly across, from Bangalore and Hyderabad to towns like Saharanpur, Kota and Ambala. "Initially, domestic carriers were a bit hesitant about carrying cargo as it may affect the turnaround time of an aircraft. But now with the new generation airports coming in and oil prices hitting at the bottom-line, domestic carriers are increasingly looking at such opportunities. The industry will see more domestic player putting in serious efforts to fill up their belly space," said an airline executive.

Source: August 18, 2008, The Economic Times

3. Jet Airways to connect Dubai with Mumbai, Delhi
Jet Airways announced that it will start daily flights from Dubai to Mumbai and New Delhi starting August 23. Dubai has become the airline’s twentieth destination, sixth in the airline’s Gulf network and second in the UAE. Jet Airways’ Dubai flights will complement the airline’s daily services to Abu Dhabi, Kuwait, Bahrain, Muscat and Doha from various gateway points in India.

Source: August 18, 2008, The Economic Times

4. Finnair looking to expand Asia operations

Nordic carrier Finnair, which has been rapidly expanding network in the East, particularly India, has named a new director to anchor growth in the Indian Subcontinent where the airline operates 13 flights a week. Kari Stolbow, who started Finnair services in Beijing and Latvia, was responsible for the airlines Global Tour Operation sales prior to his India assignment. The airline operates a daily flight between Helsinki-New Delhi and is expected to make Helsinki-Mumbai service daily by the next summer, by when it would look at expanding to more Indian cities, sources in the airline said.

Source: August 18, 2008, Business Standard

5. Airlines want DGCA penalty clause waived

If airlines have their way, then the penalty proposed by the director general of civil aviation (DGCA) in case of cancellation or delay of flight and denial of boarding will remain a pie in the sky for the passengers. Industry insiders said airlines were putting a lot of pressure on the government to waive off the penalty clause proposed by the DGCA or to reduce it to the basic fare level, which in many cases is as low as Rs99. The airlines want the penalty to be reduced to the level of base fare to tide over the financial losses they are suffering due to the sky-high prices of aviation turbine fuel (ATF). We are committed to provide better services to our passengers. But condition of penalty is unfair. Especially because there are so many reasons which can cause delays or cancellation of flight. And all the airlines do their level best to minimise the inconvenience to passengers in such situation, said an official from the second largest private airline. However, frequent fliers were shocked to learn about the demands being made by the airlines. Sudeep Chatterjee, 27, an assistant manager with a private firm in Mumbai, flies at least twice a month to Delhi for work. His two-way ticket costs him minimum Rs12,000 on a low-cost airline out of which Rs6,900 adds up to taxes and surcharge (t&a). Why the passengers should bear the loss in the entire transaction and be content with the base fare refund if the airline is at fault, he said. In June, DGCA had drafted a civil aviation requirement (CAR) which was aimed to empower the passengers. Under this CAR a slab-based compensation was framed which the airlines had to follow in case of long delays, flight cancellations or boarding denied to passengers against their will. On routes below 1,500 km, the amount to be paid is Rs5,000, for routes between 1,500 km to 35,00 km the amount is Rs8,000 while on routes above 3,500 km or foreign flights the amount is Rs12,000. We were flooded with complaints from passengers. So we decided to come up with this draft to discipline the airlines and offer respite to the passengers, said a DGCA official. He added that these compensation slabs are, however, not applicable to extraordinary circumstances like political instability, meteorological conditions, security risks, unexpected flight safety shortcomings and strikes that affect the performance of the airline.

Source: August 18, 2008,  Daily News & Analysis

6. Asia, Mideast airlines bright spot in global cargo standings
International airfreight traffic has been registering weaker growth on the back of the global economic slowdown, however, airlines from the Middle East and Asia are still seeing growth, although it is slowing. According to the Air Cargo World list of the world's 50 largest cargo airports, Asian airports continue to perform strongly, particularly in China, with Hong Kong International Airport registering a year-on-year growth of 4.5% in 2007, outstripping Memphis, which maintained its number one position with 3.8 million tonnes. Memphis International, home and headquarters of Fedex Express, posted an increase of 4%. Freight volumes for Mumbai and New Delhi in India grew by 12.1% and 8.7%, respectively, in 2007. Meanwhile, volumes are continuing to fall at US airports, with New York's John F Kennedy and Newark airports seeing their cargo volumes decline by 2.8% and 2.7%, respectively last year.
Source: August 18, 2008, The Economic Times

7. Domestic airlines see 12% drop in July passenger traffic
For the second consecutive month, the domestic airline industry has carried fewer passengers. The latest data released by the Directorate General of Civil Aviation (DGCA) show that in July, the 10 domestic airlines carried 30.85 lakh passengers, a drop of about 12 per cent from the 34.87 lakh passengers carried during the same period in the previous year. Low-cost airline Air Deccan has seen the maximum drop in passenger traffic at 3.45 lakh, down from 5.62 lakh in July last year, while SpiceJet has reported a marginal drop having carried 13,000 fewer passengers in July at 2.55 lakh compared with the same period in the previous year. Air India (domestic), Jet Airways and Go Air are among the other airlines that have reported a drop in passenger traffic in July when compared with the previous period.

TREND BUSTERS
Kingfisher Airlines was among the airlines that bucked the trend of carrying fewer passengers during the month under review, having flown 17,000 more travellers in July compared with 4.52 lakh passengers flown during the same period previously. JetLite, the 100-per cent subsidiary of Jet Airways, carried 10,000 more passengers in July while IndiGo at 3.20 lakh passengers in July flew 44,000 more travellers.

LEAN SEASON
Dismissing fears of a slowdown in the industry, the SpiceJet Director, Mr Kishore Gupta, said that the three-month period starting July is the lean season in the domestic market.
Source: August 13, 2008, The Hindu Business Line

8. Goldman Sachs to invest $20 m in SpiceJet
Goldman Sachs is to invest $20 million (Rs 76 crore) in the low cost airline SpiceJet by subscribing to equity warrants of the company under Securities and Exchange Board of India (SEBI) preferential issue guidelines. These funds are to be in addition to the $80 million (Rs 345 crore) that the US-based private equity firm W.L. Ross will be investing in the airline. The investment is to be made by the private equity firm through the purchase of Foreign Currency Convertible Bond (FCCB) from Goldman Sachs and Istithmar, the equity arm of Dubai Government. On July 14, this year, the airline board accepted an offer made by W.L. Ross to pump in funds into the company. “There has been no major change between the previous agreement and definitive agreement signed on Monday last. On 14 July we had signed a term sheet, where the final details needed to be worked out because at that point of time it was only in principle agreed that $80 million will be invested into the company. Now the only difference is that now in place of $ 80 million we will get $100 million. W.L. Ross will have $80 million and there will be issuance of $20 million of warrants,” Mr Kishore Gupta, Director, SpiceJet, told newspersons on the sidelines of the launch of a new travel initiative for defence personnel.

FUND UTILISATION
The monies, which are expected in two tranches with an initial flow of about $35 million, should start coming in about a week, he added. “The funds will help us survive for the next couple of years. The funds will be used for working capital for our day to day operational, used to meet our fuel bills and airport charges. But not for pre delivery payments for aircraft,” Mr Gupta said. The budget carrier was not in talks with any other company for picking up funds, the SpiceJet Director added.

RESULTS
SpiceJet, like several other airlines, has been hit by the rising cost of aviation turbine fuel, which accounts for between 40-45 per cent of the operating cost of most airlines. The airline reported a net loss of Rs 133.5 crore for the full year ending March 2008 as against a loss of Rs 72.1 crore reported during the previous year, mainly due to the increase in fuel prices. SpiceJet, which started operations in 2005, currently has a fleet of 15 Boeing 737 aircraft and operates 94 daily flights.
Source: August 13, 2008, The Hindu Business Line

9. American, BA, Iberia seek to expand ties
AMR Corp.'s American Airlines and its two main European partners plan to ask the U.S. government as early as this week for permission to cooperate more closely on flights across the Atlantic. The expected move is designed to help them cope with high fuel costs and stiffer competition. For travellers, closer ties among airline partners could ease flight connections and the use of frequent-flier awards and offer a wider array of destinations. Critics, however, say such cooperation stifles competition. The request by American, British Airways PLC and Spain's Iberia tine as Aereas de Espana SA illustrates the growing emphasis airlines place on their global alliances. The three carriers are members of the 10-airline oneworld alliance, which competes with Star Alliance's 21 members and SkyTeam's 11 to carry passengers across their respective networks. The alliance landscape is changing fast. Just weeks ago, Continental Airlines Inc. said it will switch to Star from SkyTeam because it stands to reap greater benefits in terms of traffic volume and global reach from the larger Star group. That follows approval granted in April to six SkyTeam members^—including Air France-KLM SA, Delta Air Lines Inc. and Northwest Airlines Corp.—for the same sort of cooperation that American, BA and Iberia plan to seek. The approval for what is known as antitrust immunity allows-airlines to cooperate internationally on pricing, scheduling and marketing in ways normally deemed collusive and illegal. For now, American and BA are allowed to share passengers on some routes, but they compete head-to-head on flights between the U.S. and London's Heathrow Airport and can't share commercially sensitive information on capacity or pricing. Their decision to apply for antitrust immunity now is notable because American and BA have twice requested the special status in past years but backed off when regulators asked for big concessions. The situation is different today, American and BA say, because Heathrow has opened to new competition. The preparations also come after BA and Iberia last month announced plans to merge, and as carriers world-wide are looking to leverage partnerships amid the industry's deepening crisis. Delta and Northwest also are seeking permission to combine. Airlines have been using the alliances to boost revenue and cut costs. The three groupings are expanding efforts to help carriers jointly purchase supplies such as fuel, food and even information technology. Alliances are coordinating common space at airport terminals to reduce each member's overhead, and cooperating on marketing to grab more passengers and revenue. Today's efforts by airlines to survive by cooperating mark a sharp contrast to their reaction in the last downturn triggered by the 2001 terrorist attacks. Following that sudden shock, most carriers turned inward as they struggled to adjust. Now, with a new crisis brought on by soaring fuel prices, airlines are looking to the alliances, which are more mature, as a competitive weapon. "I think the alliance has taken on more relevance," says BA Chief Executive Willie Walsh. "It's now right for BA to strengthen oneworld" by getting closer to American. The one-world grouping is the smallest of the three global clubs by number of airlines. Mr. Walsh says oneworld has suffered in competition against Star and SkyTeam because American and BA, its two biggest members, have been forbidden to cooperate closely. For example, they may not link their frequent-flier programs. Airlines formed alliances because international treaties largely preclude them from merging across borders. When air travel began deregulating around the globe in the 1990s, carriers grew frustrated by limits on their expansion and started pairing up. In 1997, UAL Corp.'s United Airlines, Germany's Deutsche Lufthansa AG and three other carriers formed Star, the first multi airline link-up. SkyTeam and oneworld followed three years later. Today, the alliances together account for roughly two-thirds of world-wide air traffic. American is the world's largest airline by traffic, but managers say even it can benefit from having more foreign partners. "Airlines are networks, and the alliances are surrogates for what eventually should be global airlines," says Dan Carton, American's executive vice president for marketing. For midsize carriers like ACE Aviation Holdings Inc.'s Air Canada, the boost from alliances is even bigger. Air Canada, a founding member of Star, now has tight links with United and Lufthansa. These allow it to add routes, increase frequencies and “do way more than we could ever dream to do on our own,” say Benjamin Smith, Air Canada's chief commercial officer. A further boon will be the entry of Continental into Star, Mr. Smith says, and a related plan for those four carriers to seek antitrust immunity to operate a trans-Atlantic joint venture. Not all carriers are fans of alliances. London-based Virgin Atlantic Airways Ltd. which operates largely on its own despite the 49% ownership stake held by Star member Singapore Airlines, already is attacking BA and American for proposing to get closer. "If regulators let this alliance through in any way, they're permitting less competition," says Virgin spokesman Paul Charles. While American's application with BA and Iberia likely will stir - controversy, quiet-work is proceeding inside all the alliances to strengthen ties. Star spokesman Markus Rudiger a meeting to share best practices on saving fuel. "I think we've proved our value and are proving it even more now," Mr. Riidiger says.
Source: August 13, 2008, Wall Street Journal

10. I-Day weekend relief for travel industry
The Independence-Day extended weekend has come as a respite for travel agents and airlines, which witnessed a dip in domestic traffic for the first time in the last four years. Most hotels are expecting a higher occupancy this weekend, even though package costs are up by 10-15%. Domestic airlines have projected a 5-7% increase in load factors. “After the Holi weekend, the long wait has ended. Inflation and slowdown hasn’t really impacted this product category (long weekends), which has seen a spurt in travellers in the last few years,” says Stic Travel Group director Richa Goyal Sikri. The company has witnessed 15-20% growth in sales for this weekend as compared to similar weekends in previous years. Adds a marketing head of a Gurgaon based airline: ”Many sectors such as Bangalore, Pune and Hyderabad, where techies work away from home, will see increase in traffic.” Air Deccan has projected a 20% higher load factor for this weekend. Travel agents point out that Goa is one destination whose popularity has been marred owing to higher fares. Self-drive destinations win hands down when it comes to weekend getaways. “Our properties at Mussoorie, Corbett, Pondicherry, Lonavala and Manali are sold out,” says Sarovar Hotels V-P (sales and marketing) Pradeep Kalra. Sarovar Hotels is offering kite flying competitions and flag hoisting ceremonies, Leisure Hotels is offering packages which include cultural performance celebrating IDay and discount on spa therapies. Says The Grand Group of Hotels COO Farhat Jamal: “We are expecting occupancy close to 90% at our resort properties.” People are also travelling to Sri Lanka, Thailand and Hong Kong. Kuoni Holidays is offering Just Fly Out Holidays where the travellers can call and fly to their weekend getaway within 24 hours. The concept has been designed keeping in mind that many travellers don’t have time to book in advance for a short weekend trip.

Source: August 13, 2008, The Economic Times

Prepared by
Jennifer Kumar, BBA (NAU) Alumni
Skyline Business School
Hauz Khas Enclave, New Delhi 110 016
Tel: 2686 4848, 2652 4399
http://www.skylinecollege.com