Issue 246

 1. BA's premium traffic falls
British Airways suffered a steep fall in premium passenger traffic in December, as the impact of the recession in the UK and the turmoil in financial markets took a growing toll on demand from its most lucrative customers. Its premium traffic volumes, the segment where it generates most of its profits, have been falling heavily for four months but the pace of the decline accelerated in December with a drop of 12.1 per cent year-on year. With its leading presence on North Atlantic routes and in particular in the London/New York market, BA is especially exposed to the crisis in the financial sector. The airline, which has previously warned it will fall from record profits last year to little better than break even in the current financial year to the end of March, is preparing to announce a further round of restructuring measures in the coming weeks. Keith Williams, chief financial officer, has told staff the shake-up will be "far-reaching, reshaping our company from top to bottom". In the latest edition of the BA staff newspaper he said, "only through delivering fundamental change can we achieve the small profit we are targeting this year and emerge from the crisis as a strong global player". The group has just completed a big cut in its management ranks, eliminating the positions of a third or more than 450 of its 1,400 managers, and the next round of restructuring is likely to be aimed at making further reductions in its labor costs. it has been successful in reducing significantly its sales and distribution costs but is facing sharply rising costs in some other key areas including airport charges levied by BAA at its global hub at London Heath row. Mr Williams has told RA staff the nest financial year "is going to be one of the toughest we've ever faced ... We need to plan for a protracted downturn. It's going to be extremely tough. "He highlighted the growing decline in premium traffic volumes and said the group's "biggest challenge" would be "ensuring we pick up as large a share of the declining business market as possible". BA said yesterday it had cut its capacity, measured in available seat kilometers, by 3 per cent in December compared with the same month a year ago. Its traffic, measured by revenue passenger kilometers, fell 3.4 per cent overall, including the steep 12.1 per cent fall in premium traffic and a 1.7 per cent fall in non-premium traffic. It left its financial guidance fur "a small profit" in the year to March unchanged. The deteriorating market conditions had also caused the deficits in the group's pension funds to increase, an issue which is still threatening to undermine BA's protracted talks to merge with Spanish carrier Iberia. BA has already been forced to abandon its separate merger negotiations.
Source: January 09, 2009, Financial Times

2. U.S. plans to extend air security regulations
One of the biggest conveniences of private aviation is. the speed with which passengers can get on the plane and off the ground. But that may be about to change, at least in the United States. The U.S. Department of Homeland Security is proposing to extend to private aviation many of the security rules imposed on commercial airlines, including requiring fingerprint-based background checks on pilots, checking passenger names against a government watch list and restricting what items might be carried onto the airplane. The proposal could affect 10,000 previously exempt air operators, including businessmen like Microsoft's co-founder Paul Allen, who owns a Boeing 757, but also companies with fractional ownership of jets and even some recreational fliers. The proposal to extend the jurisdiction of the Transportation Security Administration of the Homeland Security Department to include private jets has angered many. In fact, organizations representing private airplane owners have complained so vigorously that the security agency has extended the comment period for the proposal and scheduled a series of public meetings. "Businesses have airplanes in order to transport what they produce — sometimes because it's too difficult or impossible to carry onto an airliner," said Ed Bolen, president of the 8,000-member National Business Aviation Association. "Tool companies that can't take their own products, sporting goods companies that can't take their own products onto their own airplanes — that doesn't make sense. "Even airplanes the size of commercial airliners, if operated privately, are currently exempt from security measures put in place after the Sept. 11, 2001, terrorist attacks in the United States. It is this inconsistency that prompted the proposed regulation. In its notice, published in the Federal Register last October, the Transportation Security Administration suggests that the improvements in safeguarding public air carriers have shown the weaknesses in private operations. "Terrorists may view general aviation aircraft as more vulnerable and thus attractive targets." During an interview, Christopher White, a spokesman for the security agency, said: "What we're looking to do is address risk based on size and weight. Whether it's public or private doesn't matter. It's based on the weight of the plane. "The proposal would_ affect owners of any airplane weighing more than 12,500 pounds, or 5,670 kilograms considered "large" by U.S. government standards. For the most part, these are jet aircraft. But even a Beech craft King Air 350, a twin-engine turboprop that seats 11, would be included. The idea that large planes are flown for the most part by large companies that can afford to hire a security chief, pay to check passengers against the watch list and perform security auditing is a misconception, according to the business aviation association. Eighty-five percent of its members are small to midsize businesses, the association says, and many of the planes they fly are small enough to fit nose to tail, across the width of a Boeing 747."The size of the aircraft they have picked is very, very small," Bolen said. "To suggest that an airplane weighing 12,500 pounds is similar to a commercial transport airplane doesn't hold water." On Tuesday, more than a hundred aircraft owners were expected to argue at a meeting at Westchester County Airport north of New York City that the proposed rule would have a major impact on general aviation. For the smaller operators, in particular, they say, the requirements may be too onerous. "We want the feedback from the community," said Michal Morgan, general manager of business operations for the Transportation Security Administration. "We need their input to be able to make sure it works for everyone." Final action on the proposal is not expected before late spring. The Westchester meeting is the first of five scheduled nationwide, a response to the request from the general aviation industry and a letter to the Department of Homeland Security from Representative Sam Graves, Republican of Missouri, who is a private pilot. "My focus is rare antique airplanes and rare vintage war birds," Graves said. "Some of these not-for-profits they give rides to help support the upkeep and maintenance of the airplane. And this will place an undue burden on them," he added. Private jet owners are also angry that the security agency is proposing to hand security functions over to private companies, in part because of concerns that private companies had failed to screen passengers adequately at commercial airports. "They're expanding their regulatory scope so dramatically and outsourcing regulatory oversight," said Andy Ce-bula, executive vice president for government affairs at the Aircraft Owners and Pilots Association. "That's like the most basic responsibility of government — to go out and enforce its regulations." Hiring security experts to conduct audits on so many private airplane operations is expected to be the most expensive part of the regulation. Airplane operators would pay about 83 percent of the total costs, estimated at $196 million annually. The Transportation Security Administration calculated that would represent about $44 a flight. The price is certain to be a large part of the debate at the public meetings, with proponents of general aviation arguing that the agency is attempting to fix something that is not broken and the government arguing that reducing the risk of using airplanes as tools of terror is worth the increased supervision.
Source: January 09, 2009, International Herald Tribune

3. AAI to install radars to strengthen air security
In a bid to strengthen security in the wake of the Mumbai terror attack, Airport Authority of India (AAI) will soon install three monopulse secondary surveillance radars (MSSRs) in Orissa and West Bengal. “The MSSRs will closely watch the movement of aircraft in the sky as well as their landing at any place,” P.K. Singhal, AAI executive director (eastern region), Kolkata, said here. The radars are capable of surveillance of up to 200 nautical miles and their installation is part of the security measures taken by the Centre after the Mumbai attacks. The radars would be installed in Kolkata and Raniganj in West Bengal and Jharsuguda in Orissa for proper surveillance of aircraft movement in the region, Singhal said. At present, only one MSSR is functioning here in Orissa’s Ganjam district since 1992. The radar installed at Berhampur is capable of surveillance upto 400km in air path and functions without an airport, he said.
Source: January 09, 2009, Mint

4. Air France-KLM traffic up 1.3%
Air France-KLM Group, Europe’s biggest airline, said December passenger traffic rose, helped by leisure travel, while cargo traffic plunged as global trade slowed. Traffic was up 1.3 per cent amid a 0.9 per cent increase in capacity, while cargo plummeted 20 per cent, the Paris based carrier said today in a statement. The passenger load factor, the proportion of seats filled, was 78.9 per cent, 0.3 point higher than a year earlier. Air France succeeded in lifting traffic every month in the past year except November, when it suffered a strike, by serving a wider range of customers and destinations than competitors. In contrast, British Airways Plc, which said January 6 that traffic fell in December for the 10th consecutive month, is heavily dependent on the London-to-New York business-travel market.Traffic, or the number of passengers multiplied by kilometers flown, to the Americas rose 4.1 per cent with capacity up 2.9 per cent. Asia traffic rose 0.4 per cent, as did capacity. The load factor was stable at 82.2 per cent. In Europe, traffic edged up 0.1 per cent with capacity declining 0.3 percent, leading to a 0.3 point gain in the load factor. The decline in cargo came amid a slowdown in global trade. Freight capacity fell 6.2 percent, bringing the December cargo load factor to 59.6 percent, a decline of 10.6 points from a year earlier. At British Airways, Europe’s No. 3 carrier, traffic in December declined 3.4 percent, while first and business classes plunged 12 per cent and economy traffic fell 1.7 per cent. Air France doesn’t break out premium versus economy traffic by month. It said that the increase in passenger traffic in December came from a boost in leisure travelers. Global airline traffic may drop 3 per cent in 2009, the International Air Transport Association forecast in December.
Source: January 09, 2009, Business Standard

5. Jet and Kingfisher
Per a government directive. Other full service carriers, namely Jet and Kingfisher, followed suit – and some may perceive this as a triumph (albeit small) of free market economics – and cut surcharge by an equal amount. But as crude continued on its downward trend, oil companies recently announced a further reduction in ATF prices by 11 per cent. Airlines are yet to respond to this with a cut in fares or the fuel surcharge. While Air India and Jet Airways remain tight lipped, a Kingfisher spokesperson had this to say, ‘The sharp and continuous spike in ATF prices earlier in the year has left a lasting impact on the bottom lines of airline companies, leading to an accumulation of huge outstanding and liabilities with oil companies and the like. As such, keeping in mind the cash flow needs to settle these accumulated liabilities, there is currently no case for reduction in fares.’ However, even as airlines are buying time, a rather irate set of industry insiders are wondering about the use of the fuel surcharge kitty. Asks an industry person on strict condition of anonymity, ‘What have airlines done with the money? They haven’t paid the Airports Authority of India or the oil companies or the leasing companies, and neither have their account books improved. So where has the money gone?’ ‘And mind you, this kitty is not small. Fuel surcharge was initially in the range of Rs 200 to Rs 300 and had risen to Rs 3,100 for medium-haul flights before the last cut. And if 3.04 million people flew in November alone, you can imagine how large the monies are,’ he adds.Meanwhile, airlines are taking on the next demon. After getting the government to remove the custom duty on ATF, they are now looking to get it conferred with the declared goods status, which will imply a has scenario does look better.
Source: January 09, 2009, Business Standard

6. Gap between rail, air fares narrowing
The latest fare reduction announced by the domestic airline industry has further narrowed the gap between rail and air fares, especially between cities that are more than 750 km apart. Now, a passenger can look forward to travel between Delhi and Chennai for Rs 2,926 on the Delhi-based low cost airline, IndiGo. This is only marginally higher than the Rs 2,700 that a passenger pays for travel in second AC on the Rajdhani. Similarly, Air India, which is a full service airline, now offers fares between Delhi- Bangalore at Rs 5,275. In comparison, First class AC travel in Rajdhani costs Rs 4,625, while it costs Rs 2,765 to travel in second AC. In the last few days, the domestic airline industry has lowered fares passing on the benefits of lower aviation turbine fuel prices. Currently, a liter of ATF costs less in Delhi and Mumbai than what a customer pays for unbranded diesel. The two metro airports are the busiest in the country. On the short-haul routes, however, the fare difference still remains substantial. Between Bangalore and Chennai, a passenger travelling on the Shatabdi is charged Rs 1,105 for travel in first AC, while the journey in second AC costs Rs 965. In comparison, the cheapest full service airline ticket is priced at Rs 2,325.The airline industry, however, feels that the time and now money saved in air travel will lead to increase in passengers travelling by air. Airline officials point out that a passenger can fly from North India to the furthest point in the South in about four hours, while the same journey by train will take more than 48 hours. Officials indicate that it is still too early to comment on whether the lowering of airfares has seen any rail passengers look at air travel. Travel agents feel that it is still too early to gauge whether the narrowing if fares between rail and air will impact the travel policy of companies.
Source: January 05, 2009, The Hindu Business Line

7. British Air wants to buy 25% in GoAir
UK’s flagship airline British Airways (BA) is looking to pick up a 25% stake in Wadia group-promoted no-frills airline GoAir. Officials from BA and GoAir will meet in London next month to take discussions forward, said two industry sources familiar with the development to ET. Two weeks ago, BA’s merger talks with Australia’s Qantas did not fructify. It is learnt that the third largest carrier has been seeking a deal with an Indian carrier for a while now. Interestingly, BA tried to reach a code sharing agreement with GoAir last year. “The interest in buying equity stake in GoAir comes in the wake of the development that the Indian government is considering a proposal to allow foreign airlines to pick up stake in domestic carriers,” said one of the sources. GoAir has a market share of 2.3%. A GoAir spokesperson said, “GoAir would welcome a change with regards to the foreign direct investment policy allowing foreign airlines invest in the industry. The airline does not have any agreement with any other foreign carrier at the moment.” A BA spokesperson from London, in an email response to ET said, “As a matter of corporate policy, we do not comment on speculations.” BA had already acquired Spanish airline Iberia. Besides, the company’s alliance with American Airlines could be a step towards a merger. ET had first reported that the government was planning a change in policy, which would allow foreign airlines to invest in domestic carriers with a cap of just below 26%. Domestic carriers have been in a spot and players have been grappling with a credit crisis. And, selling equity to foreign airlines will bring in liquidity. India’s aviation sector posted losses of nearly Rs 4,000 crore in 2007-08. GoAir is a closely held company and its financial numbers are not in the public domain, though it is learnt that it incurred substantial losses last year. The airline had dues of Rs 8.81 crore payable to the Airport Authority of India . Meanwhile, GoAir has decided to scale up its fleet size to 35 aircraft by March 2011 from the current six in two tranches. It is also planning to add 20 aircraft this year and bring in another nine in the next two years. The aviation ministry had met various airline since October last year to discuss key policy changes including possibility of allowing foreign airlines to pick up stake in domestic carriers.
Source: January 05, 2009, The Economic Times

8. Air France favored in Alitalia race
Air France-KLM enters 2009 as the favorite to clinch a deal in the fierce battle for a stake in Alitalia as the Italian carrier crawls toward its planned rebirth as a smaller, private airline in just over 10 days. After a three-month tussle for a stake of up to 25 percent, Air France-KLM appears for now to have the edge over Lufthansa despite aggressive German lobbying and overt political opposition from Rome, said two sources close to the talks who could not be named because of the sensitivity of the talks. At stake is access to Europe’s fourth largest aviation market amid a severe industry downturn, combining busy business routes for Italy’s export-driven north with one of the world’s top tourist destination markets targeting Rome in the south. CAI, the group of Italian investors that bought Alitalia last month for 427 million, or $592.8 million, hopes to have a foreign partner in place when it officially relaunches the carrier with a revamped network and fewer staff on Jan. 13, one of the sources said. Italian media have reported that CAI has already picked Air France-KLM, with a formal signing of the agreement expected next week, but both sources denied such a decision had been made. ‘‘It’s true that the talks with Air France-KLM are in a more advanced stage,’’ one of the sources said. ‘‘We are at an important point. We’re still discussing, but we don’t have a deal yet.’’ One investor in CAI, Ninni Carbonelli D’Angelo, also told the AGI news agency that the group was in advanced talks with the French-Dutch carrier but that a deal had not been reached. Air France-KLM has long been considered a logical partner for Alitalia, with which it shares commercial ties. Both belong to the SkyTeam alliance, and the French-Dutch carrier last year agreed to buy Alitalia before the deal collapsed over union opposition. CAI’s plans to give Rome the biggest share of intercontinental destinations under the new network also suggest a likely deal with Air France-KLM, who have favored a greater role for that hub. Prime Minister Silvio Berlusconi of Italy, however, has spoken in favor of an alliance with Lufthansa, whose multihub model is also preferred by unions and influential north Italian politicians. They hope that could save jobs in Milan’s airports. British Airways, which called off merger talks with Qantas Airways last month, is also vying to become Alitalia’s foreign partner but its pursuit of only a commercial alliance has hampered its bid. CAI executives have said they favor a partner that buys a stake, which they expect to be about 20 to 25 percent. Investors in CAI have agreed to pump a maximum of €1.1 billion into the holding company to buy and re launch Alitalia, valuing such a stake at roughly €220 million to 275 million. Price may not be the only important factor. Alitalia has been resentful at what its executives regard as second-class treatment in SkyTeam and has been pushing for the best possible commercial and ticketing deal with SkyTeam or Lufthansa’s Star Alliance. Some airline executives say, however, that Alitalia will have to prove it can still command the loyalty of passengers to bring them into a foreign partner’s network after years of strikes, poor service and uncertainty over the airline’s future. In the meantime, CAI has been swiftly ticking off the boxes on administrative and legal steps ahead of Alitalia’s reform. The group has completed the purchase of assets from the tiny Italian airline Air One, which will be merged with those of Alitalia. It has also decided to maintain the Alitalia brand and begun an advertising campaign to promote the reshaped airline.
Source: January 05, 2009, Financial Chronicle

9. Paramount to enter North by year-end
Chennai-based Paramount Airways plans to become a national player by the end of 2009 by foraying into the northern region, says MD M Thiagarajan, reports Swagata Gupta from Bangalore. “We expect to saturate the entire western region by mid-2009 and then foray into the northern market,” he said. Paramount Airways, an all-business-class airline, enjoys market leadership in the South with 27% share. “Despite the recession our market share for December grew by about 2%.”
Source: January 06, 2009, The Economic Times

 10.Singapore Airlines flies into price war
HOW airfares are back and so is competition. The cash rich Singapore Airlines is offering discount deals of up to 60%, connecting Mumbai with various South-East Asian cities. A Mumbai-Singapore return fare is now available for just Rs 16,830, including taxes, whereas Bangkok and Kuala Lumpur return fares are Rs 23,980 per ticket. The Sydney, Melbourne and Perth return fares from Mumbai are Rs 41,350 only. “Attractive prices to popular leisure destinations will allow more customers to travel these places,” said Singapore Airlines general manager CW Foo. These fare cuts are coming at a time when Kingfisher Airlines is launching its daily Mumbai-London flight from Monday. Singapore Airlines, which started operations from Chennai in 1970, operates 56 weekly flights to Singapore from eight Indian cities. It has double daily flights from Mumbai and Delhi, apart from flights from Chennai, Bangalore, Kolkata, Hyderabad and Ahmadabad. Its subsidiary airline SilkAir operates daily flights from Kochi, four flights from Thiruvananthapuram and thrice weekly from Coimbatore. On the other hand, Jet Airways has announced offerings for international travellers last week. Mumbai-Singapore return fare in the Premier Class is available for two persons for Rs 1,01,250. A companion-free offer with a return Premier ticket worth Rs 94,500 is available on the Mumbai-Hong Kong sector. Jet has announced companion free offers on the Mumbai-Bangkok sector at a Premier fare of Rs 57,065. Kingfisher Airlines flight to London has almost full occupancy, said a spokesperson. The Mumbai-London flight will be Kingfisher’s second overseas route after the Bangalore-London flight launched in September last year. Kingfisher is planning to launch Mumbai-Hong Kong flight from January 12, and Mumbai-Singapore flight from January 16. It will also launch Bangalore-Chennai-Colombo flight from January 19. Kingfisher will also be competing with Air India, Jet and several other international carriers. Meanwhile, Jet Airways has introduced special 3, 5 and 7-day advance purchase (APEX) fares for its Premiere passengers on key domestic sectors. While the 3-day APEX fares range from Rs 7,900 to Rs 8,100; the 5-day APEX fares range from Rs 6,500 to Rs 11,500; and the 7-day APEX fares from Rs 4 500 to Rs 17 500.
Source: January 06, 2009, 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