Issue 245

1. Aviation stocks fly high on cheaper ATF prices
Aviation stocks have been gaining steady ground in the recent past even as most frontline counters are struggling for direction. While Jet Airways has gained more than 47% since November 28, SpiceJet is up nearly 30% in the past one month. According to dealers tracking the counter, the fall in aviation turbine fuel (ATF) prices has been the driving force as fuel accounts for nearly 60% of the airline’s daily operational expense. ATF prices have more than halved since August this year, falling to Rs 33,719.47 per kilolitre from Rs 73,673.56 per kilolitre. On Monday, Jet Airways gained 2.91% to close at Rs 191.05. Meanwhile, SpiceJet was up 3.50% to settle the day at Rs 15.67.
Source: December 30, 2008, The Economic Times

2. Jet slashes fares by up to 40 per cent
There is good news for air-travelers: the country’s largest private airline, Jet Airways, has announced up to a whopping 40 per cent reduction in basic fares on economy class on all its domestic flights from Monday. Now, Jet Mumbai-Delhi economy class basic fare will be Rs 2,000; for Mumbai Kolkata it will be Rs 4,065; and for Bengaluru-Mumbai it will come to Rs 1,220, a company statement said. The fares would be applicable on the airline’s domestic network of 45 destinations. The usual taxes and surcharge would be applicable Earlier this month, all major airlines had reduced fuel surcharge by up to Rs 400 on all domestic sectors. Even national carrier Air India will follow suit with a fare reduction from January 1. In view of the slackening demand in post peak season and decline in fuel prices, Air India is expected to revise its fares downwards in various sectors, a spokesperson said. He, however, did not divulge the quantum of fare cut, saying it was still being worked out. “We would be able to come out with reduced fares by January 1,” he said. Private air carrier Kingfisher Airlines had said on Sunday that it would cut fares from the New Year. However, the airline did not quantify the reduction either. Low cost carriers are also expected to follow suit, said an industry official. Despite the fall in fuel prices, Indian air operators had been unwilling to cut fares, demanding that aviation turbine fuel be brought under the “declared goods” category, which would bring down sales tax from an average of 32 percent at various airports to a uniform 4 percent. The proposal is now before Parliament. However, air operators started cutting fares following pressure from the government.
Source: December 30, 2008, The Free Press Journal

3. AirAsia X sees opportunities in economic crunch
Malaysian budget carrier AirAsia X said it can weather the storm of a sharply deteriorating global economy and is hiring pilots to expand its routes to China, India, South Korea and Japan. Its Chief Executive, Mr Azran Osman Rani, told AFP that while it was a challenging period for the aviation industry as many countries slip into a recession and carriers go bust, there were “a lot of business opportunities for us”. Bookings for its direct London flight on its leased Airbus 340-300, due to begin March 11, were overwhelming, he said, with 30,000 seats sold. Demand was great as ticket prices cost about 2,000 ringgit ($580), less than half the price of a regular non-budget flight.
Source: December 30, 2008, The Hindu Business Line

4. 35 non-metro airports to get a facelift by ’09
The Airport Authority of India (AAI) would complete modernization works of 35 non-metro airports and 20 others not classified as non-metro by the end of the next year, Union civil aviation minister Praful Patel said here on Monday. Two other airport modernization projects—one in Kolkata and the other in Meenambakkam (Chennai)—will be completed by May 2010. “The overall cost of development and modernization works is more than Rs 12,000 crore,” Patel said. “Upgradation works at these airports have already been taken up. Some have been completed, some are underway. All will be completed by 2009-end,” Patel told FE on the sidelines of the foundation stone-laying ceremony of the development and modernization project of Netaji Subhash Chandra Bose International Airport. While modernization of the Srinagar airport will be completed by next month, work at the Dibrugarh airport is almost finished, Patel said. The Cooch Behar Airport in West Bengal is ready and is awaiting commercial carriers to start operations. “We will have at least one carrier agreeing to operate from there by next month,” Patel said. Of the 35 non-metro airports, 24 have been taken up for city-side development through public-private-partnership programmes, which include maintenance and operation of terminal buildings, cargo operations, and real estate development. Making it clear that the Centre has no intention to bail out National Aviation Company of India Ltd (NACIL), the entity formed by the merger of Air India and Indian, he said: “We can explore other kinds of concessions like reducing duties. But there will be no direct financial assistance.”
Source: December 30, 2008, The Financial Express

5. Flying to NE costlier than southeast Asia
Reduced flights and a huge demand have made flying to northeast this year-end more expensive than going abroad. Return tickets from Delhi to either Bagdogra or Guwahati have been costing anywhere between Rs 21,500 and Rs 33,000 for the past week to 10 days on domestic airlines and are unlikely to drop till the first week of January. In contrast, flying to southeast Asia and back would cost between Rs 17,000 and Rs 22,000. “Fares have been very high for the past 10 days. In the last two months, we have seen three very high fare phases —around Dussehra, Diwali and now Christmas-New Year time. In these phases, airlines have sold a one way Delhi-Mumbai or Delhi-Kolkata ticket for as high as Rs 15,000-17,000. The just over an hour Delhi-Srinagar flight has seen one-way fares going up to Rs 13,000-14,000,’’ a leading airline’s official said. At present, the Delhi northeast sector fares are on fire as demand is high due to two reasons —locals going back home for Christmas and tourists on way to Darjeeling or Shillong. Even low cost carriers are charging between Rs 21,650 and Rs 23,500 for flying from Delhi to Guwahati and back in this holiday season. A leading full service carrier is selling return ticket for as high as Rs 33,000. Return fares for Bagdogra are also as high. But despite the exorbitant fares, all airlines are reporting high passenger loads. Ironically, the northeast falls in category II of civil aviation route norms that have been considered unattractive and on which airlines have to fly a certain percentage of their inter-metro flights as a rule. But with fleet sizes falling and flights being reduced, the demand supply mismatch during peak travel seasons is pushing the fares up. Airline fares are directly related to demand. Booking in advance on a plane which has unsold seats could mean grabbing the lowest fares. Then as seats start getting filled up, the fares keep moving to higher levels. “Since we have already sold seats at low fares at the start, there is no question of doing so for the last few unsold seats. Only airlines’ airport counters may offer last-minute attractive spot fares to fill up the plane as once the aircraft door is closed, the vacant seat is a dead loss forever,’’ said an airline official.
Source: December 30, 2008, The Times Of India

6. Kingfisher in search of private equity funds
Private equity players have showed keen interest in investing in Kingfisher Airline and the airline’s plan to raise $400 million is on track, its Chairman Vijay Mallya said here on Friday. ‘‘I have confirmed that we are continuing to discuss with certain private equity investors who are showing increasing amount of interest in this investment opportunity,’’ Mr. Mallya told reporters after the Annual General Meeting of Kingfisher Airlines. He did not talk about the timeframe for the initiative and the extent of equity stake that the airline would dilute by the measure, but added: ‘‘There is no reason why private equity investors who had expressed interest when oil (crude prices) was at $100 a barrel, should not be more interested when oil is $36 a barrel.’’ Asked if the airline is expected to break-even in the next fiscal (2009-10), Mr. Mallya said: ‘‘we are certainly optimistic.’’ If all goes well in the next five days (till December end), the airline should break-even (operationally) in the current month itself when its revenues (passenger, cargo and ancillary revenues put together) are expected to be close to Rs. 500 crore (in December alone). To a question, Mr. Mallya said Kingfisher and Jet Airways were not looking at picking up stake in each other’s company, saying there was no need to go that far. Asked if United Breweries would buy U.K.-based Cobra Beer, which has announced its decision to exit the beer business, he said: ‘‘we will study the information memorandum and then decide.
Source: December 27, 2008, The Hindu

7. Civil aviation min issues security instructions to states
With heightened terror threat on the aviation sector, a series of instructions has been issued to all state governments, airports and agencies concerned across the country by the civil aviation ministry, which has asked for their strict compliance. “The civil aviation ministry has circulated some instructions to all the airports,” Home minister P Chidambaram said, but did not elaborate. All airports across the country have been on a state of high alert since the Mumbai terror attacks, with civil aviation secretary M Madhavan Nambiar writing to state governments and union territory administrations to secure all airports and airstrips under their jurisdiction. There are about 340 airports and airstrips in the country, with many of them non-functional. A large number of these airstrips are of the Second World War vintage. Besides securing the airports, the Directorate General of Civil Aviation (DGCA) and the Bureau of Civil Aviation Security (BCAS) have also issued instructions for additional layers of personal and hand-baggage checking before a passenger boards an aircraft. They have also directed that the strength of sky marshals be increased and they should be put on more flights, rather than on the already identified sectors like those in Jammu and Kashmir and the Northeast. With elections nearing and the use of helicopters increasing, the DGCA will soon issue a new set of security guidelines for helicopter operators to report mandatorily to the local police before making landings at any unscheduled place. Under the proposed Standard Operating Procedures or guidelines, if a helicopter has to land at an unscheduled place, the local police authorities there would have to be informed in advance about the flight plan as well as the identity of persons travelling in it, official sources said. The DGCA has sought security from either state police forces or central paramilitary forces at all helipads, including make-shift helipads which come into vogue mostly during elections. Following the Mumbai serial terror strikes, the civil aviation ministry, Indian Air Force, Bureau of Civil Aviation Security, CISF, Directorate General of Civil Aviation and other related agencies have been assessing the threat perceptions on a regular basis and taking necessary measures. A series of meetings have been held to review the preparedness of “different layers” of security apparatus and safety mechanisms at major airports as well as the airspace in the wake of fresh intelligence inputs. A Disaster Management group has also been kept on the stand-by for a quick response to any kind of emergency. Extra surveillance has been mounted at most airports and their perimeter, with additional CISF and police personnel being deployed to keep an eye around the terminal as well as the perimeter. Sniffer dogs have been deployed in some airports and plainclothes watchers put on the job. Additional manpower was being deputed for round–the–clock monitoring of close circuit TVs. Additional barricading has been done along the entry points of the airports to thoroughly check incoming vehicles and armed security personnel deployed at vantage points.
Source: December 27, 2008, The Financial Express

8. Emirates Air bullish on India
While airlines across the world are feeling the heat of global meltdown, Emirates airline has been able to substantially buck the trend. It is on an expansion mode. The airline hopes to operate 163 flights a week to Indian cities by February next year, according to its President, Mr Tim Clark.
Source: December 29, 2008, The Hindu Business Line

9. Jet raises Rs 1,000 cr with help from banks
THE country’s largest private carrier, Jet Airways has raised around Rs 1,000 crore from a South-Indian based bank and one nationalized bank to meet its working capital requirements. Both the banks have issued letters of credit to the airline, said a source. Jet has been in the midst of a cash crunch for a while now. It is not known whether Jet Airways will pledge the company shares or any kind of collateral for the transaction. Jet Airways owes Rs 1,057 crore to the large oil firms that include Indian Oil Corporation, Hindustan Petroleum and Bharat Petroleum. Jet Airways-Jetlite together has defaulted on a payment of Rs 32.78 crore to Airport Authority of India (AAI). The airline desperately needs the funds to pay off AAI. Civil aviation minister, Praful Patel had given instructions to AAI to take all possible steps, including legal action, if warranted, against all defaulting airlines. A Jet Airways executive confirmed that the deal with the two Indian banks was sealed last week but declined to share details. A detailed email query and two text messages from Etthat sent to Jet Airways spokesperson on Saturday remained unanswered. It is learnt that Naresh Goyal, the airline’s chairman, has been negotiating with institutions based overseas for the purpose of debt funding at higher interest rates. Mark Martin, senior consultant with KPMG said: “Funds are readily available from institutions. Lenders however decide on the terms and conditions which are generally at higher interest rates.” The risk associated with the sector is something that has been an area of concern. Analysts maintain that lending to a sector that is deep in the red is a tough decision.
Source: December 29, 2008, The Economic Times

10. Travel agents to boycott Singapore Air
Indian travel agents’ associations and travel portals on Friday decided to completely boycott Singapore Airlines, after the foreign carrier declined to give any commission to agents on the sale of tickets. The boycott will start from December 30, said the Travel Agents’ Association of India (TAAI), which is the representative body of all travel agents in the country. The boycott of Singapore Airlines, the largest foreign carrier operating in India, would mean that travellers will find it difficult to book tickets on the carrier, as a major part of the ticket sales is done by agents and portals. When contacted, TAAI president Rajii Rai said: “The airline is not paying a single rupee either in the form of transaction fee or commission. The airline revenue could be hit by about Rs 15 crore daily from next week as Singapore Airlines is well connected to most Indian cities such as Delhi, Mumbai and Kolkata and other cities as well.” Singapore Airlines India general manager CW Foo is learnt to have left for Singapore to consult top executives. It was not yet known when the airline will take any final decision on agents’ commissions. A Singapore Airlines spokesperson said: “We haven’t changed our earlier decision (of not paying commission) and are not going to fulfill the demands of agents in any condition. The company is sticking to its earlier transaction fee model.” If the boycott continues for a week it will impact carriers’ loads, said an analyst with domestic brokerage firm.
Source: December 29, 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