Issue 248

1. Clients seek clarity, won’t terminate deals just yet
Top customers of Satyam such as GE, Qantas and DuPont will wait for a few months before exploring any possibility of terminating their outsourcing contracts with the company, as they seek more clarity about the new leadership, and a potential change in the management, if the company is acquired by a rival tech firm. A person familiar with decision-making at Satyam’s top customers, who does not want to be named, said that some of the clients “including GE and Qantas have told Satyam that they would wait for things to stabilize over the next 3-6 months, and will move to other vendors only after that.” GE, which accounts for around 4.5% of Satyam’s revenues, also works with the fraud tainted company’s domestic rivals TCS and Patni. “We are watching the developments carefully, and taking a hard look at our de-risking strategy as business continuity is a top priority for us,” said an official at Satyam’s biggest customer GE, who did not wish to be identified. “One cannot just walk away from a multi-year engagement, but if things do not improve, there will be enough reasons to explore other options.” When contacted by ET on Monday, a GE India spokeswoman said the company continues to work with Satyam. “GE continues to use Satyam Computer for services and we have not moved any work,” she said in an email reply. Meanwhile, other Satyam customers, such as Australian airline Qantas, are making sure that they have an internal IT support ready to prevent any disruption of services, if needed. “Qantas IT Services has a team monitoring the situation and will continue to do so on a daily basis until the situation is resolved,” said Simon Rushton, a spokesperson for Qantas Airways.
Source: January 22, 2009, The Economic Times

2. Singapore Airlines to cut flights from today
Singapore Airlines will be reducing the number of flights out of India starting Thursday. The airline will be cutting its frequency to one flight/ week from Delhi between January 22 and March 25 and two flights a week from Mumbai between January 27 and March 26. “Singapore Airlines’ outlook in India continues to be positive. There will be a temporary reduction of flights. This is part of the overall network- wide review undertaken by our Head Office to adjust the capacity in the short term to current demand; including flights to East Asia, Australia and Europe,” said Mr C.W. Foo, General Manager in India for Singapore Airlines, through an e-mail response to Business Line. Meanwhile, Indian travel agents continue to boycott sales of Singapore Airlines and Silk Air tickets. At least in Mumbai, the agents have also advertised in newspapers and distributed pamphlets appealing to passengers to support them by not flying these carriers.
TRANSACTION FEE
However, the airline remains firm in its stand that the decision to switch from commission to transaction fee is part of its global strategy. “This change is happening globally and in line with the overall shift and transition taking place in the travel industry. We feel that the industry and customers have progressed in the way airline bookings are done. Our sales and bookings continue to pick up. There has been good response to our offers in the last two weeks,” said Mr Foo. The tussle between commission and transaction fee between airlines and travel agents has been going on for the last few months. The agents refuse to agree to the new system on several grounds, one being that it hinders their cash flow, as transaction fee does not run on ‘cut-and-pay’.
Source: January 22, 2009, The Hindu Business Line

3. Jet reduces international biz class fare
Mumbai-based full-service carrier Jet Airways has announced a 25-40 per cent cut in business class fares for destinations ranging from London, New York and Toronto to Singapore, Bangkok, Hong Kong and Gulf countries. The airline has introduced a special Mumbai-London and Delhi-London first class base fare at Rs 2 lakh per person, down from Rs 2,72,000. The business class fare on the above two routes stands at Rs 75,000, down from Rs 85,000 earlier. Apart from that, there are special fares ranging between Rs 90,000 and Rs 1 lakh on offer for destinations such as New York and Toronto. Special business class base fares to the Asean destinations, including Singapore, Hong Kong and Bangkok range around Rs 17,000, while offer for couples to the Gulf destinations stands at around Rs 20,000 per person, down from Rs 34,000.
Source: January 22, 2009, Business Standard

4.Jet’s affiliate marketing programme
As a part of its new digital marketing strategy, private air-carrier, Jet Airways, has launched an affiliate marketing programme, which would be managed by Shoogloo Affiliate Marketing of the Shoogloo Network. Shoogloo network is an online arm of the ecommerce consulting group, Shoogloo, and is powered by the Online Media Group of the UK. The programme provides affiliate partners with websites the opportunity to partner with Jet Airways, and generate revenues per conversion by promoting the airlines web sales, a Jet Airways release said on Wednesday.
Source: January 22, 2009, The Financial Express

5. Jet-KF alliance to take off in 6 months: Mallya
The alliance between India's two biggest private airlines Jet and Kingfisher — will take six months to be fully operational. Kingfisher chief Vijay Mallya and Jet owner Naresh Goyal are slated to meet on Tuesday and take the alliance forward. Both the airlines have denied any rift in their four-month-old partnership. "Just because we don't announce everything does not mean the deal is not working. The alliance is going perfectly fine. It takes time to work things out but I have spoken to Goyal and both of us have reaffirmed the partnership," Mallya said at an aviation meet last Friday. While maintaining that the alliance details can be shared jointly by both the airlines, Jet Airways CEO Wolfgang Prock-Schauer said: "The cost saving initiatives and synergy of the partnership will show in coming quarters." The airlines are working on synergizing their flight schedules so that code sharing as part of the announced alliance can take place.
Source: January 19, 2009, The Times Of India

6. Airlines up on FDI hopes
Aviation stocks gained height on Monday as a section of market players placed bets on the prospect of fresh investments by foreign airlines. Last week the Civil Aviation Minister, Mr Praful Patel, indicated that the Government might allow foreign airlines to buy up to 25 per cent stake in local carriers. Industry watchers said that the Ministry’s proposal note is ready for circulation among other Ministries. “The Government has roughly six weeks to act on any proposals before the elections. If cross-currents within the Government do not come in the way, the Cabinet approval could come quickly,” an observer said. Industry insiders said there could be positive response from some foreign airlines for even a minority stake of 20 to 25 per cent. Keeping in view a long-term growth potential, a toehold now would be a win win situation for the investor and the local operator. “In aviation industry, equity investment normally opens up opportunity, operational partnership reduces cost and competition and thrives on cooperation. Moreover, the current valuation of Indian airlines’ stocks would amply justify investments. On the other hand, local players would be benefited from additional cash infusion,” said the CEO of an investment banker. All private domestic carriers want to expand overseas operations and survive the present negative growth. After reporting 32 per cent and 26 per cent growth rates in 2006 and 2007 respectively, the aviation sector has in 2008 seen a negative growth of 4.8 per cent due to high ATF prices and de-growth in domestic air travel. Jet Airways had recently raised about Rs 1,250 crore from banks. It plans to raise Rs 750 crore through more borrowings shortly. Equity investment would obviate the need to borrow at higher cost. Currently, local airlines are bleeding, but expectations were that 2009 could prove to be better than 2008, on a stable ATF price regime. At the end of the trading session, Jet Airways shot up 19.18 per cent, SpiceJet moved up 13 per cent while Kingfisher gained 7.68 per cent.
Source: January 20, 2009, The Hindu Business Line

7. Air France warns loss is likely for quarter
Air France-KLM Group, the biggest European airline, said Tuesday it was likely to report a third-quarter loss because of falling revenue from ticket sales and a "strong decline" in cargo handling, sending the stock down 9.5 percent. The loss for the three months ended Dec. 31 will stem from weak passenger-unit revenue, a measure of average fares, as well as lower income from transporting goods and wrong-way bets on oil prices, the company said. The earnings are scheduled to be released on Feb. 13. "Deterioration in yield is a lot stronger than thought earlier," said Yan Derocles, an analyst at Oddo Securities in Paris. Airlines including Air France-KLM and British Airways are facing falling revenue as the global recession stunts demand for first- and business-class tickets, typically the most lucrative. For the industry as a whole, premium air travel slumped almost 12 percent in November, adding to declines in September and October, the International Air Transport Association said Monday.
Source: January 23, 2009, International Herald Tribune

8. This is the worst period for aviation: British Airways
The Present time could be the worst period in the history of aviation, says British Airways (BA) chief executive officer Willie Walsh. The bad phase may continue for a bit longer than most expect, he feels. “The challenges facing the industry are quite significant. It is the bleakest period for the industry in general. We have seen a combination of factors that have had a very negative impact”, said Walsh, who was in Hyderabad in connection with British Airways’ 80th anniversary of flying to the Indian sub-continent. Walsh blamed weak economic conditions in several key markets, poor consumer confidence and the banking sector crisis for the airline companies’ woes. Also, the ultra high crude oil prices in the first half of 2008 left the airliners bleeding. “Even though the oil prices have reduced, the pound sterling has weakened against the dollar, leading to foreign currency issues,” he said. Walsh sees no immediate remedy to the ills plaguing the airline industry, at least in the year 2009. 2010 may also turn out to be low key with companies in recovery mode. “The economic forecast suggests that the US will move out of recession late 2009 or in 2010. The UK and Europe will follow that in the latter part of 2010,” he said. British Airways is planning its operations expecting a weak 2009, a weak but improving 2010 and a recovery later that year. The first flight that the airlines operated to India took off from London Croydon airport to Jodhpur and Delhi in 1929. The journey took more than a week, used four different aircraft and included 20 stops en route. The airline began flying Hyderabad direct to London Heathrow last month. Walsh said, “India is our largest market outside North America and with the addition of the Hyderabad route, we now fly there 48 times each week. This is up from 19 flights per week when the UK-India aviation market was liberalized in October 2005.” The company is on track to expand its fleet of aircraft with several new airplanes to be inducted. Walsh said the slowdown had not changed British Airways fleet expansion plans and deliveries would be taken as per schedule. “We are in a fortunate position in that we have secured financing for all those aircraft 18 months ago. So we already have financing for all the aircraft orders that we have till the end of 2012,” he added.
 

9. Bleeding airline industry sends SOS to govt
Crisis Hit airlines industry has reiterated its plea for some sort of relief from the government to get the airlines back to health. Though price of aviation turbine fuel (ATF) has come down from Rs 73 a litre in August 2008 to Rs 32 in Mumbai currently, the financial conditions of airlines are precarious. They still lose a lot of money due to high cost of operations and lower income from passenger service. Airlines are expected to report a combined loss of around Rs 8,000 crore by the end of this fiscal. "The industry needs some relief package from the government by way of reduction in sales tax on ATF and cut in landing charges," said Wolfgang Prock Schauer, CEO, Jet Airways. Kingfisher Airlines chairman Vijay Mallya for the past few months has been urging the government to put ATF under the declared goods category so that it could attract an uniform sales tax of 4 per cent. "The government should bring down the route navigation charges and landing fees," said M Thiagarajan, managing director, Paramount Airways. "This would help us at a great extent. This is well under the control of the ministry of civil aviation and they can do it without approaching higher ups." With active support from Civil Aviation Minister Praful Patel, the airline bosses had almost convinced former finance minister P Chidambaram for a package. But the matter could not be taken up in the last Parliament session as the Mumbai terror attack changed the course of discussions. Source: January 23, 2009, Hindustan Times

10. Stake in domestic airlines
A committee of secretaries headed by Cabinet secretary KM Chandrasekhar on Friday will look into the proposal of allowing international airlines to pick up stakes in domestic carriers. The government is mulling the proposal to allow up to 25% equity stake by international carrier. The idea to equity ownership will bring in much needed cash for the industry. And in addition to the cash the strategic alliance will also bring in international management practices and hence much needed quality product and services offerings for passengers.
Source: January 23, 2009, The Financial Express

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