Issue 253

1. AI may soon tie up loans worth $1 b

National carrier Air India (AI) is at an advanced stage of negotiation with three public sector banks to raise Rs 5,000 crore, or nearly $1 billion, for funding its purchase of seven Boeing aircraft and spares. According to an official familiar with the talks, AI is close to securing a loan from a consortium led by IDBI Bank, Punjab National Bank (PNB) and Canara Bank at lower than prevailing market rates for a term of 11 years. Being the lead arranger of the loan, IDBI Bank is trying to rope in more lenders to the syndicate, the official said. He added that the deal may be finalized by the month-end and the loan was likely to be disbursed next fiscal (FY10). When contacted, an AI spokesperson said in a text message that the deal was still at the negotiation stage and the company would, therefore, not be in a position to comment on it. Earlier, a similar deal between the carrier and a consortium of banks led by Barclays had to be aborted as the latter could not raise the total funding requirement. The Boeings will supplement AI’s fleet of 154 aircraft and will be used on international routes, such as New Delhi-Frankfurt-Chicago and Ahmedabad-Mumbai-Frankfurt-Newark apart from Ahmadabad-Frankfurt and Amritsar-Frankfurt-Toronto around November 2010. National Aviation Company of India, which controls AI, has been in the market to raise funds since February 2009. AI has the largest fixed assets in the Indian aviation industry along with a combined order for 100 new aircraft estimated worth Rs 40,000 crore. “Domestic airlines have a combined fleet strength of 300 aircraft, which could increase to about 600 by 2010, based on current orders. Once the market matures, AI should be able to increase frequencies further,” Daljeet Kohli, head of research at Emkay Global, said. According to Boeing, India will need 1,001 new aircraft worth $105 billion over the next two decades. Interestingly, AI's private-sector rival Kingfisher Airlines deferred the delivery of 29 narrow-body aircraft apart from selling some of its wide-body A340 planes from its fleet. Aviation industry biggies have been facing a tough time due to dwindling passenger traffic, volatile aviation turbine fuel prices and low liquidity, which have resulted into mounting losses.

Source: March 19, 2009, The Economic Times
 

2. SpiceJet fares remain unchanged in levy reji

Low cost airline SpiceJet Ltd, which flies one of every 10 passengers in India, has shuffled its airfare structure by reducing fuel surcharge on tickets, the biggest component in ticket prices, by up to Rs700 per ticket, or 26%, but made up that decrease by raising the base fare on a ticket. The result: Overall ticket prices remain unchanged. An airline ticket typically has a base fare, a passenger service fee of about Rs225, fuel surcharge and a so-called user development fee. Of these, the passenger fee goes to the government to pay largely for security, the user development fee is collected for the airport operator, while fuel surcharge and base fare are part of airline’s revenue. SpiceJet, India’s second ranked low cost carrier by passengers, behind rival Inter- Globe Aviation Pvt. Ltd-run IndiGo, has reduced the fuel surcharge from Rs2,700 to Rs2,000 for tickets flying distances more than 750km— those such as New Delhi-Mumbai, for instance— while flights under 750km will now invite a fuel surcharge of Rs1,500, 23% less than Rs1,950 charged earlier. But, base fares have been increased in proportion, said SpiceJet chief commercial officer Samyukth Sridharan, declining to give more details. It was not immediately clear why the changes had been made, but it may be related to a directive from aviation regulator Directorate General of Civil Aviation last month. It had then asked domestic airlines to make it clear, on its tickets, charges accruing to them instead of grouping fuel surcharge and passenger service fee as taxes which “gives an impression to the travelling public that high airfare are due to government taxes”. An expert interpreted the SpiceJet move as one to move to a simpler, consolidated ticket price rather than have various components in it. “I can only think that they are gradually wanting to remove the fuel surcharge and move to one consolidated fare,” said Kapil Kaul, India chief executive of aviation consultant Centre for Asia-Pacific Aviation. Fuel surcharges increased from Rs900 on a ticket when jet fuel sold at Rs37,421.90 a kl in May 2007 to Rs2,350 a year later when the fuel cost Rs58,387.92 a kl. The levy then peaked close to Rs3,000 when jet fuel prices soared to Rs71,028.26 per kl in August last year. Since then, jet fuel prices have been scaling down. Aviation turbine fuel is now at Rs27,275 a kl, less than the retail price of diesel. International airlines such as AirAsia Bhd have discontinued charging fuel surcharge since mid-November 2008 on cheaper jet fuel prices explaining then that it will help passengers “compare prices more easily and needn’t have to worry about the difference quoted between seat fare and the final amount” paid. The latest SpiceJet move, said a senior executive at a travel portal, could be another way for airlines to play with fares to stoke demand as it gives them more scope to reduce or decrease base prices. Airlines do not change fuel surcharge on a daily basis but usually all airlines follow the same fuel surcharge patterns. Shares of airlines rallied on Wednesday, continuing a run that began Monday after the firms reported better passenger numbers in February. SpiceJet shares rose 4.48% to Rs14.47 on the Bombay Stock Exchange, while those of Jet Airways (India) Ltd shot up 15.21% to Rs175.70. The Kingfisher Airlines Ltd scrip also jumped 7.36% to Rs32.80 each on a day the Sensex moved up 1.27%.
Source: March 19, 2009, Mint
 

3. A R Rahman to be new face of Star Aviation

Star Aviation, the Indian aviation wing of the Dubai based conglomerate, ETA Star Holdings, is all set to sign up Oscar winner, A R Rahman as the brand ambassador for the soon-to -be-launched regional airline operations. Star Aviation has already received the go ahead from the civil aviation ministry for operating its regional airlines service in the country. The airlines, which is scheduled to start its operations sometime next month, will initially operate brand new fleet of three Embraer 170 aircrafts. “We are firming up our plans for the airlines and flight schedules. The launch of the service will happen in about a month’s time,” a senior Star Aviation official told Financial Chronicle. “We have held discussions with Rahman. But, yet to sign a formal agreement with him,” he said, on A R Rahman becoming the Brand Ambassador for this fledgling airline. A for mal agreement is likely to be signed over the next couple of days, it is learnt. Star Aviation will be the first corporate to sign up A R Rahman as its brand ambassador, after he won the Oscars. He had earlier represented a few brands, including Airtel, in the past. The designated regional airline will initially cover seven cities, mostly in south India, from its Chennai hub. These are Bangalore, Kochi, Thiruvananthapuram, Madurai, Hyderabad, Vishakapatnam and Ahmedabad. The ‘full service carrier’ will offer a ‘single class configuration’ of seats, as already being successfully done by Paramount Airways, based out of Madurai. And it is also adopting a similar approach by opting for a mix of leased and owned aircrafts. While the initial focus is expected to be south, Star Aviation will eventually spread to other Indian cities as well. Though regional airlines are not permitted fly between two major metros across regions, Star Aviation will still be able to connect Chennai with Bangalore and Hyderabad, besides operating flights to most tier-II cities in the region. The multi-billion Dubai based ETA Star Holdings has interests which pans across industries including real estate, hospitality, automobile, power sector and shipping services. The group’s Indian operations are headquartered in Chennai and it has already forayed into real estate, shipping, insurance and power sectors in India, besides restaurants.

Source: March 19, 2009, Financial Chronicle

4. Debt forces Chinese airline to halt flights
Authorities ordered East Star Airlines, based in the central Chinese city of Wuhanto, suspend its operations on Sunday because of debts owed to General Electric Co’s aviation subsidiary. A woman who answered the phone at the airline’s ticket sales office confirmed that flights have stopped, but said she did not have details. The economic slowdown has hurt all of China’s airlines, but the country’s handful of private carriers are particularly affected since they cannot count on the huge government bailouts that several state-run carriers are now seeking. The statement said a regional branch of the General Administration of Civil Aviation of China issued the order after a request from the Wuhan city government. The city government said on its Web site the airline had failed to pay plane rental fees to GE Commercial Aviation Services, General Electric’s aircraft leasing company The . aircraft firm sought help from the local government and was applying to begin legal proceedings against the airline, the government said.

Source: March 16, 2009, Hindustan Times
 

5. Oil firms raise jet fuel prices by Rs158 per kl

Breaking the string of reductions, state-owned oil firms on Sunday raised jet fuel, or aviation turbine fuel (ATF), prices marginally by Rs158 per kl on average. ATF will cost Rs27,275 per kl in New Delhi from midnight on Sunday against Rs27,106 per kl, an Indian Oil Corp. Ltd official said. In Mumbai, it will cost Rs28,023 per kl from Rs27,861 per kl. The price rise varied from airport to airport depending on local taxes and levies.

Source: March 16, 2009, Mint
 

6. Lufthansa’s support for Jet’s Star Alliance entry upsets govt

The civil aviation ministry is annoyed with German carrier Lufthansa for its apparent backing of Jet Airways for inclusion into Star Alliance a route sharing club comprising a score of carriers from across the world while state-run Air India is still waiting in the wings, a government official here said. Lufthansa’s support is important as it is the nodal member in the alliance. Following instructions from the civil aviation ministry, the Indian embassy in Germany has now written to Lufthansa, pointing out that the carrier’s move to back Jet Airways would put Air India (AI) at a disadvantage. The government has reason to be upset with Lufthansa because it earlier contrived a quid-pro-quo agreement between Air India and Star Alliance. Under this agreement, Star Alliance was to give membership to AI. In return, Lufthansa, which spearheads the alliance, would get more traffic rights in India. Lufthansa has 35 flights connecting various cities in India and Germany. As AI had expected to formally enter Star Alliance this month, it had already made significant investment into passenger-related IT systems, the letter said. Deutsche Lufthansa declined to comment to an e-mail from ETon the issue. A Jet Airways spokeswoman said there was no such move. “There is no truth in the information. The airline is, however, evaluating various options,” she said. “The first-member advantage to AI would be lost if this (Jet becoming member) were to happen,” said a government official. For both Jet and AI, the membership is vital because it would widen their network all across the world. Star Alliance is the oldest such club of international carriers that allow members to share codes and use each other’s maintenance and parking infrastructure. Other alliances of similar nature are One World and SkyTeam. According to new guidelines, domestic airlines need to obtain government approval before entering into any code-sharing agreement with foreign carriers. This is seen as a move to protect AI’s interests.

Source: March 16, 2009, The Economic Times
 

7. Travel agents, S’pore Airlines’ talks end in

Marathon four-hour long meeting between leading Indian travel agents and Singapore Airlines ended in a stalemate. The meeting, between Singapore Airlines’ general manager CW Foo and travel agents, had been called to resolve a three-month long issue of non payment of commissions. The issue had also resulted in the agents boycotting Singapore Airlines. “Mr Foo offered the travel agents a 1% commission for six months only, and after that, it would go to zero commission structure,” said a source who was present in the meeting. Even the 1% commission is linked to productivity, he added. Also, the ticketing amount should come from basic fares only. Mr. Foo met six travel association heads including the Travel Agents’ Association of India, Travel Agents Federation of India and IATA Agents Association of India. When contacted, Travel Agents Federation of India national general secretary Ajay Prakash told ET: “The terms and conditions are not acceptable by the agents. If they want to do business here then they have to abide by our rules, at least to some extent. We had proposed a 5% commission, but it was not accepted. We will continue to boycott Singapore Airlines.”

Source: March 17, 2009, The Economic Times
 

8. Cathay realigns flight schedules

Cathay Pacific has realigned its flights in India by introducing daily non-stop flights between Mumbai and Hong Kong. It will also introduce Bangkok as a new destination from Delhi with daily non-stop flights beginning March 30, 2009. Cathay Pacific Airways general manager — India Tom Wright told  that the decisions are expected to benefit the air travellers in the Asia-Pacific region. Broke the news in its online edition on Tuesday. The re-alignment will help passengers connect with the airline’s extensive global network. The airline currently offers double daily services from Delhi to Hong Kong and 10 weekly flights from Mumbai to Hong Kong. The aviation industry is passing through a rough phase, wherein, filling flights has become increasingly difficult, Mr Wright said. “We will implement tough measures to remain competitive as the airline has been hit badly due to the global downturn.”

Source: March 18, 2009, The Economic Times
 

9. JetLite’s Mumbai-Kozhikode service

Effective March 29, 2009, JetLite, Jet Airways’ wholly-owned all economy subsidiary, will introduce a new daily service on the Mumbai - Kozhikode - Mumbai sector. The new daily Mumbai-Kozhikode- Mumbai flights will be operated by JetLite’s Boeing 737 series aircraft. The flight will depart Mumbai at 11:25 am, and will reach Kozhikode at 01:05 pm. The return flight will depart Kozhikode at 01:35 pm, and will reach Mumbai at 03:10 pm. Effective March 29, 2009, JetLite, Jet Airways’ wholly-owned all economy subsidiary, will introduce a new daily service on the Mumbai - Kozhikode - Mumbai sector. The new daily Mumbai-Kozhikode- Mumbai flights will be operated by JetLite’s Boeing 737 series aircraft. The flight will depart Mumbai at 11:25 am, and will reach Kozhikode at 01:05 pm. The return flight will depart Kozhikode at 01:35 pm, and will reach Mumbai at 03:10 pm.

Source: March 18, 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