Travel |Update|
Issue 2
40
INTERNATIONAL TRAVEL
In the case of international travel the saving will vary from Rs 1,200 that was
being levied on economy class travel to Europe to Rs 10,000 being levied on a
first class ticket to Europe and the US. The transaction fee was introduced
earlier this month, after the airline community moved away from the system of
paying a commission to travel agents for ticket booked.
TRAVEL AGENTS’ COMMISSION
The airline industry took the decision to move away from a commission system, as
globally airlines do not pay a commission to travel agents. Instead travel
agents get compensated for value addition services they provide passengers such
as making hotel bookings and car rentals.
Source: November 26,
2008, The Hindu Business Line
3. Uniform sales tax for jet fuel on cards
A proposal to amend the Central Sales Tax Act to include aviation turbine fuel (ATF)
in the list of declared goods is likely to be taken up by the Cabinet on
Thursday. The move would bring more relief to the beleaguered airline industry
by restricting the power of state governments to levy sales tax on ATF beyond
4%. ET had first reported the government’s move to consider a declared goods
status for jet fuel. According to a civil aviation ministry official, the
Cabinet is also likely to consider a proposal from the ministry to allow Air
India (National Aviation Company of India, or NACIL) to set up joint ventures
with SATS of Singapore for ground handling and cargo operations. Four such joint
ventures have been proposed, the sources said on the condition of anonymity.
Section 14 of the CST Act has to be amended to include ATF in the list of
declared goods, or goods of special importance specified by the government. It
is understood that civil aviation minister Praful Patel and the airline industry
are in touch with major political parties in the Opposition to drum up support
for the amendment. On Monday, finance minister P Chidambaram said that the
government will take up the issue of inclusion of ATF — the fuel used by
aircraft — in the list of declared goods during Parliament’s winter session. ATF
supplied to turboprop aircraft is already in the list of declared goods as the
NDA government had amended Section 14 of the CST Act to boost regional air
connectivity. The UPA government has to delete the qualification that only ATF
sold to turboprop aircraft is eligible for declared goods status. While the
existing facility benefits only a small section of the aviation industry, the
proposed amendment would benefit the entire industry. “Most airlines use jet
aircraft like Airbus or Boeing. Even airlines that use small aircraft deploy jet
aircraft like Embraer rather than turboprops, which belong to an earlier
generation in the aviation industry,” said the sources. Some airlines like Jet
Airways and Kingfisher use turboprop aircraft made by ATR of Europe. Inclusion
of ATF in the list of goods of special importance has been a longstanding demand
of the airline industry since several states impose sales tax on jet fuel in
excess of 20%. The demand had gained momentum when spurt in crude oil prices
pushed up ATF costs to new highs earlier this year.
Source: November 26,
2008, The Economic Times
4. Mallya may route USL stake sale to airline
Though lobbying hard for foreign equity in local airlines, Vijay Mallya has a
Plan B in place to fund his loss-making Kingfisher Airline. FE has learnt that
Mallya, who is planning to divest 15% in his liquor flagship, United Spirits
Ltd, to the world's largest liquor manufacturer, Diageo, would use the funds to
shore up the cash flow of Kingfisher Airlines. "In a global environment where
funds are becoming more and more difficult to obtain this is the only way to
save the bleeding aviation business", sources dose to the development said. Such
a fund infusion would give Kingfisher a breathing space while all domestic
airlines, except state-owned Nacil, step up pressure on the government to
revisit its foreign in-vestment rules for the aviation sector. Mallya on Monday
confirmed to the media that he had requested the government to allow foreign
airlines to acquire up to 25% stake in Indian carriers. This followed reports
that he had been in talks with a handful of foreign airlines to sell up to 25%
state in Kingfisher to keep the carder airborne. A statement issued by Mallya on
November 17 stated, "Yes 1 have requested the government to allow foreign
airlines to acquire up to 25% in Indian carriers as 1 believe aviation should be
treated as per international norms and cither industry sectors where strategic
investors can invest. This will be an enormous wealth creator and secure the
future of Indian aviation. I have received several expressions of interest from
foreign airlines as the Kingfisher Airlines network is unparalleled. However I
cannot give details".
Source: November 24,
2008, The Financial Express
5. Foreign carriers upbeat on India operations
Despite the current downturn in the aviation sector globally, international
airlines look to India as a breather. To optimize revenues from India
operations, carriers like SriLankan Airlines, Gulf-based Air Arabia and Sama
Airlines are upbeat of securing high load factors by operating in and out of
India. However, analysts say international carriers believe that the long-term
prospects of the Indian economy are very strong and this will drive demand for
air travel in future. SriLankan Holidays, the leisure arm of SriLankan Airlines
is offering tour packages from November 1 to January 31, 2009 by which a minimum
of two adults purchasing a package like holiday in Colombo, holiday on the
beach, holiday in Negombo and holiday in Kandy can be accompanied by two
children, below the age of 12. These special packages include return airfare on
SriLankan Airlines. It may be noted that in 2007, nearly five lakh
holiday-makers visited SriLanka. Air Arabia is also not lagging behind the race
to secure load factors from Indian destinations. The low cost carrier recently
announced its biggest promotional scheme on its fifth anniversary on October 28.
The airline offered over 12,500 free seats to its passengers spanning across 44
global destinations including India. Also, the airline introduced Hyderabad-Sharjah
flights recently which is the 12th Indian destination on its network. However,
AK Nizar, head of commercial department, Air Arabia says, “In our anniversary
month, we have launched daily flights from Hyderabad to Sharjah to cater to
Indian expatriate population in the Gulf region.” Similarly, Saudi Arabia based
Sama Airlines has also launched its services between Dammam and Mumbai. The
airlines have plans to add many Indian destinations to its network. The basic
fare would begin from Saudi Riyal (SR)199 (approximately Rs 3,600 excluding
tax). The airline is currently eyeing the Haj Pilgrims to enter the Indian
market. Meanwhile an analyst from a Mumbai-based broking firm adds, “Domestic
carriers are cutting down the number of operational flights owing to a slowdown
in traffic and international carriers are increasingly trying to push their
presence in domestic skies. To grab a stronghold in times of crisis.” According
to the data available with the Airports Authority of India even though
international passenger movements fell to 5.6% this September from 16% in
September 2007, the frequency of international flights has shown an 8% growth
this year compared to that in 2007.
Source: November 24, 2008, The Financial Express
6. Finnair upbeat about India operations
Betting high on the increasing traffic for overseas travel from India, Finnair
has decided to add three more flights a week from summer next year, even as it
has its eyes set on flying to Bangalore.
Source: November 24, 2008, Financial Chronicle
7. Empty skies, DIAL air dashes to cost-cutting
Hit by the recent economic downturn, Delhi International Airport Limited (DIAL),
the consortium headed by infrastructure company GMR, is going in for major
cost-cutting measures in areas like HR and consultancy. The measures would be
necessary since sources in DIAL said that its profits for the last quarter ended
September had declined by 6 per cent, compared with the same period last year.
According to experts, DIAL’s aeronautical revenues would have taken a direct hit
last quarter due to the slowdown in aviation, which saw airlines cutting
capacity by around 30 per cent (including ad-hoc cancellations). According to
the civil aviation ministry, around 70 daily flights (departures) were cancelled
at the Delhi airport, bringing the total number of daily flights at the airport
to a mere 230 per day. Passenger traffic has also seen less than expected
growth. As a result, DIAL has revised its passenger traffic growth estimates for
this winter season to 8 per cent from 18 per cent. “We are looking at cost
cutting measures in whichever areas it is possible without compromising on the
development project in,” said Andrew Harrison, Chief Operating Officer, DIAL.
Like other companies, one of the major areas for cost cutting would be manpower.
Even though DIAL is not looking at laying off staff or cutting salaries yet,
there will be a deferment in a chunk of the additional recruitments. “We are
deferring recruitments for around 70 positions. Since these are noncritical
positions, we will fill them later,” said Harrison. It is, however, not clear
how this would quantify as a form of savings on the company’s costs. DIAL is
also cutting its operational costs by reducing the number of consultants engaged
in various aspects of the airport development and functioning, by around 69 per
cent. “We are cutting the total number of consultants from 35 to 11. This will
lead to savings of Rs 42 crore for us,” said Harrison. Due to a slowdown in
traffic, DIAL has actually had to defer some airport development projects. Since
none of these are shelved, the delay would automatically lead to an increase in
costs. DIAL has pushed the deadline for completing the construction of the new
domestic terminal, 1D, to the first quarter of next year. The deadline for
opening the terminal, which was supposed to house private carriers, has already
been postponed once from August to the end of this year.
Source: November 25,
2008, Business Standard
8. Chidambaram for ATF as declared good
Finance minister P Chidambaram has asked civil aviation minister Praful Patel to
bring about political consensus, so that a legislation can be put in place to
bring aviation turbine fuel (ATF) under declared goods category. The civil
aviation ministry is in favor of passing an ordinance in December to make
aviation turbine fuel a 'declared good'. "By December, ATF should be a declared
good. We will pass an ordinance when the Parliament is not in session. We have
taken up the issue with the finance ministry and are working on the
technicalities of the procedure,” a senior ministry official told Financial
Chronicle. But a senior finance ministry official said, financial legislations
are never brought through an ordinance. He added the sales tax on ATF was
highest in Congress-ruled Delhi and Maharashtra. Hinting at the move, Patel on
Saturday had said that his ministry was in touch with the finance ministry and
the empowered committee of the state finance ministers on the matter. ATF, if
notified as a declared good, will attract a uniform sales tax of 4 per cent
across the country as against prevailing 20-30 per cent tax being levied by
various states. It will also bring major relief to the air passengers who have
been trimming their travel plans due to high fares. According to industry
sources, the finance minister was ready to offer tax relief to the airlines.
However, with the fuel prices coming down to $50 level, the minister got upset
by the fact that the airlines were not passing on the benefits to the customers.
The aviation ministry is of the view that once the ATF is brought under declared
goods category, the airlines, which have been crying a loud over high sales
taxes, will also be able to cut fares. "Other modes of transportation get
subsidised fuel. We don't get it. Once the sales taxes are reduced, the
passengers will get the benefits in terms of lower fares," the ministry official
said. If the tax on ATF is cut down to 4 per cent, the states may lose about Rs
2,000 crore. The move, the official said would be a permanent solution to the
industry's problem. "The current financial scenario is volatile. The global oil
prices are below $50 now but they may go back to $100 again. The aviation
industry needs a permanent solution. The ATF prices in India are very high
compared to other countries mainly due to high sales taxes," he said.
Source: November 25, 2008, Financial Chronicle
9. Passenger aid
The government seems to be a little annoyed over the airlines’ reluctance to
bring down airfares. The government was expecting a cut of 25% in the tariff,
but domestic carriers led by Kingfisher and Jet Airways have preferred to stay
away from any discussion on fare cuts. While it remained sympathetic towards the
airlines because of their poor financial health till the recent past, the
government now maintains that airlines are ‘holding the entire nation to ransom’
blaming huge previous losses. The civil aviation ministry is no longer
subscribing to the airlines’ argument that they are still not in a position to
pass on the benefits of reduced jet-fuel price as in the past when fuel prices
shot up they didn’t pass on the burden entirely to consumers. Officials in the
ministry say that bigger airlines are virtually indulging in restrictive trade
practices and the matter may now be brought to the notice of Competition
Commission of India. Looks like the consumer has got a defender, after all.
Source: November 25, 2008, The Economic Times
10. Indigo violates language rule, gets DGCA notice
A mid-air language fracas between Indigo and the director general civil aviation
(DGCA) is all set to snowball into a major controversy. The reluctance of the
low-cost carrier to have aircraft safety instructions written in Hindi has
forced DGCA to issue it a notice. DGCA found out the violation during a safety
audit a few months ago. “In the audit, it was found that instructions in
aircraft of the airline were written in English language alone. This is in
violation of rules,” a senior DGCA official who was part of the audit team said.
Repeated attempts to get the airline’s view yielded no response. This
correspondent emailed specific queries but an Indigo spokesperson said: “I have
not received any response from the management till now… I can’t say anything.”
DGCA sources said the airline was set a November-25 deadline to have air safety
instructions written in Hindi. Failure to meet the deadline would elicit serious
action such as marking its license “red”, which in aviation parlance means a
willful violator of DGCA rules. The instructions are written on passenger seats
and in different sections of aircraft. According to DGCA rules, they should be
written in Hindi as well as English. It was not just the language violation that
angered DGCA officials but the airline’s indifference to follow rules. Sources
said Indigo honchos were unhappy to have instructions written in Hindi in the
airline’s fleet. This did not please DGCA. During discussions, the airline
officials were told in clear terms that Hindi was the national language and they
could not violate this rule,” the senior DGCA official said. But the airline
went slow, which angered DGCA even more, spurring it to issue Indigo a notice to
comply with the Hindi language rule.
Source: November 25,
2008, Daily News & Analysis
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