Issue 257

1. Jet’s Dubai Chennai flight
Jet Airways (India) Ltd, the nation’s largest airline by market value, would start flying from Dubai to Chennai from April 23, the company said in a statement on its web site. Jet would also add a second service on the Mumbai-Dubai route, it said in the statement on April 2. The airline currently operates from Mumbai and Delhi to Dubai.
Source: April 06, 2009, Business Standard

2. Air India’s Frankfurt hub to offer operational efficiencies
National carrier Air India has recently restructured its operations to Europe and the US by making Frankfurt Airport its operational hub for its West-bound flights. Insiders at Air India say that previously, the carrier was keen on having Munich as its hub, but Frankfurt Airport offered them better incentives like over 30% of its parking allocations and lounge facility for its passengers. Second, the airport is also offering over 20% discount on landing and ground handling charges. The airport has also offered facilities like transfer for Indian passengers to a single terminal for easier onward travel. “Air India’s competitor, Jet Airways, has a hub at Brussels , hence Air India did not find it feasible to rush there. The airline had also considered Heathrow Airport for the purpose and had plans to bid for peak hour slots but due to the presence of many international carriers including Kingfisher, it dropped that plan. Also, Air India’s code-sharing arrangements with Lufthansa will make it possible for its passengers to get convenient connections on the German airline’s flights to destinations within Germany, Europe and the US via the Frankfurt hub. EA Varghese, southern region executive director, Air India, while announcing the new hub for India recently, had said, “The connections at Frankfurt will be immediate. The transit time will be less than two hours and passengers can complete all boarding formalities from the Indian airport itself. Frankfurt was just a transit point earlier. Now, after making it a hub, Air India will be routing all of its west-bound flight via the German city.” The flight schedules have been drawn up in such a manner that passengers from Mumbai, Delhi and Chennai would get fastest connection to US. “The hub will come in handy when Air India will expand to more US cities after new aircraft arrives in August and September this year,” Varghese said, adding that Air India will also launch non-stop Delhi-San Francisco flights later this year.
Source: April 06, 2009, The Financial Express

3. Travel agents’ tussle with SIA intensifies
The 100 days-battle between travel agents and foreign airlines seems to be intensifying. In a clear warning to the foreign carriers, which had some support from travel agents in Hyderabad and Kolkata, the Travel Agents Association of India (TAAI) has decided to suspend its members who are still selling Singapore Airlines tickets. “We are taking punitive actions against our members in Hyderabad and Kolkata, who have not followed the norms of the association. We have sent them a notice saying that they will be suspended for continuing the sale of the Singapore Airlines tickets,” said a senior official of the TAAI, who did not wish to be named. TAAI has about 2,500 members across the country, of which 60 members are in Hyderabad and 55 members in Kolkata. Travel agents’ associations decided to boycott Singapore Airlines three months ago over the zero commission issue. Travel agents have been at loggerheads with foreign carriers ever since the latter decided to stop paying 5 per cent commission to agents on per ticket sale. However, some of the association members continue to sell the airline’s tickets. The TAAI official said agents would get back the membership only if they submit a written apology. The Travel Agents Federation of India (TAFI) also plans to take action against erring members. “First, we will tell them to stop such practices, if they don’t then we’ll have to take stringent steps against them,” Vasuki Sundaram, chairperson (western region), TAFI told. TAFI has about 1,250 members across the country. Travel agents sought the help of civil aviation minister and directorate general of civil aviation to resolve the issue. “There have been many rounds of discussions but no decision could be taken due to the impending Lok Sabha elections. We have not got any response from the government. We hope the new government would consider the matter seriously,” Sundaram said.
Source: April 07, 2009, Financial Chronicle

4.Service in sky may be 5-star, but on ground, it’s different
The domestic airline industry may boast of five-star service in the air, but it can’t stop flyers from complaining about the after-sale service being provided by the airlines on the ground. The latest gripes are about the frequent flyer programmes. Examples of harried customers abound. A frequent flyer member with Kingfisher Airlines went through a nightmarish experience in getting her frequent flyer miles converted into a free ticket. In the process, she had to threaten legal repercussions to get what was her due. Jet Airways, which has about 1.5 million JetPrivilege members, it seems, is no different. A frequent flyer had to remember all the rules that he had learnt in his previous job with a global airline to get out of paying the fuel surcharge while redeeming frequent flyer miles for a free ticket. One reason for airlines dragging their feet while redeeming frequent flyer miles is that membership has been going up steadily. But these miles do not generate any income for the carrier. An idea of the numbers involved can perhaps be had from an article in The Economist published four years ago. It had suggested that the total stock of unredeemed miles was worth more than all the dollar bills in circulation! Today, even with all the stimulus packages unleashed by the US government, the miles might well be more. In layman terms, a frequent flyer mile programme is basically a ‘buy-one, get-one-free’. In an effort to retain passengers, airlines globally have frequent flyer miles programmes, which reward a passenger by adding miles to his account for flying with a particular airline and not shift to a competitor flying on the same route. Probably, to overcome these situations, the Government had asked all the airlines to have individual Ombudsmen by October last year. As yet, no airline has done so. And till such time that the airlines do so, frequent flyers can either fight on or look for other modes of travel.
Source: Business Line;12.4.2009

5. IndiGo lines up marketing alliance with foreign carrier
IndiGo, the country’s largest low-cost airline by market share, has shown an interest in entering into a marketing alliance with a foreign carrier. The Delhi-based carrier recently wrote to civil aviation ministry seeking its permission to enter into code-share agreement with international carriers, a government official said. IndiGo has fast increased its market share simultaneously maintaining a load factor considered the best in the industry. The airline is in talks with South African Airways (SAA), South Africa’s flag carrier, for a possible tie up, following its aborted attempt to partner with Virgin Airlines, a person close to the development said. A detailed questionnaire to the airline remained unanswered. Code sharing with an international carrier will enable IndiGo to sell foreign destinations on its reservation system. The aviation ministry has given its go-ahead to the private carrier. In a recently-framed guideline, the ministry has said that notwithstanding the present eligibility criteria for flying abroad, code shares by Indian scheduled carriers as marketing airline can be entered into with foreign airlines for international operations. “The present eligibility criteria for domestic airlines to fly international will, however, continue as approved by the Cabinet in 2004,” an official said. The existing guidelines require a domestic airline to have a fleet of at least 20 aircrafts and an operational experience of five years in the domestic market before flying abroad. As IndiGo started its domestic operation in August 2006, it has to wait for nearly two years to spread its wings internationally. “The new guideline would allow local carriers to virtually fly abroad, despite restrictions. The flight for foreign destinations would be shown on the ticketing system of the domestic carrier. Except that the local carrier would not fly its brand, it would still have several other advantages of flying international,” Amadeus India managing director Ankur Bhatia said.

Source: April 07, 2009, The Economic Times

6. Poll bonanza awaits Air India
In less than four weeks Air India (domestic), previously known as Indian, could earn the equivalent of flying 52,000 passengers, or the equivalent of operating 300 Airbus A-320 flights. This is because the airline will be transporting more than 1.37 million electronic voting machines (EVMs). Besides, indelible ink phials, symbol blocks, paper for printing ballot papers and other election materials too will be airlifted by the airline through the length and breadth of the country. Each EVM weighs 4 kg. The airline charges varying cargo rates between different destinations. For example, cargo rates between Delhi and Bangalore vary between Rs 40.65 and Rs 21.35 a kg, while those between Delhi and Mumbai vary between Rs 29.75 and Rs 15.90 a kg. The airline charges a higher rate for flights operated in the morning and a lower rate for the evening operations. The transportation of EVMs and other election-related materials will mean that the airline will be able to earn a few crores of rupees during the general elections. Some analysts estimate that the airline’s earnings could be in the region of Rs 10-13 crore. Besides, the airline has also been asked to provide reservation of seats on a priority basis on different flights to officers appointed as observers of the Election Commission in various States and union territories. Officers of Bharat Electronic Ltd and Electronics Corporation of India too will be given seats on a priority basis on different flights. While confirming that the material will travel on Air India (domestic), sources told Business Line that it would be difficult to quantify how much money the airline will generate from this exercise. “The billing for this is done in each region. Besides, we look at transporting EVMs as public service and there is a special rate charged,” the official said without getting into specifics.
Source: April 07, 2009, The Hindu Business Line

7. GoAir CEO leaves; airline plans top-level restructuring
The Wadia Group-owned low-cost carrier GoAir has gone in for restructuring at the top level. In a latest development, the carrier’s Chief Executive Officer, Mr Edgardo Badiali, is no longer with the airline. Earlier, the company’s Chief Financial Officer, Mr G.P. Gupta, also left the airline to join rival SpiceJet as Chief Administrative Officer. The industry sources told Business Line, Mr Badiali had resigned from his post two three weeks ago. However, the official statement from GoAir said, “Go Airlines Pvt Ltd has made a restructuring change. The board decided unanimously that a change in the senior leadership positions was necessary that has resulted in the departure of CEO Mr Edgardo Badiali and CFO Mr G.P. Gupta. This decision was strategic and planned. The restructured senior management is already in place and will be announced shortly. ”Mr Badiali joined GoAir in January 2008. Before joining here, he was the CEO of Italian low-cost airline MyAir. Mr Badiali is also the co-founder and member of the Executive Committee of the European Low Fares Airline Association (ELFAA). He has also held various senior positions in leading airlines, including Swiss Air and Jet Airways. A senior aviation professional with over 15 years of senior management experience, Mr Badiali has 27 years of experience in the aviation sector.
Source: April 07, 2009, The Hindu Business Line

8. Log on to Jet Airways and fly to Cannes film festival
Jet Airways announced an online contest in association with UTV World Movies, under which the winner would get a unique opportunity to visit Cannes (France) along with an entry to the prestigious Cannes Film Festival 2009. The contest, Cannes Calling, effective from April 1, is hosted through the airline’s web site.
Source: April 07, 2009, Financial Chronicle

9.Traffic fall adds to the cash woes of airlines
Falling domestic air passenger traffic is hitting the cash flows of airlines, making it difficult for them to meet their working capital requirements. Not so long ago, domestic carriers were able to mobilize close to 30-40% of the total working capital from advance sale of tickets. Today, with travellers being resistant to flying, airlines are able to raise only 15-20% cash from advance sales. Such a low upfront revenue accrual is making airlines jittery. This is one of the reasons they are coming out with attractive schemes for passengers to get them onboard early. "Till the last quarter of 2007-08, the cash flow from advance sale was substantial. This made us comfortable but that has come down significantly today. Falling demand for air travel has affected our ability to raise enough passenger revenues to meet a large part of our working capital need," said a senior executive of a budget airline. The executive said that despite drop in the aviation turbine fuel (ATF) prices and other operational costs over the last few months, operating an A320 or a Boeing 737-800 for 180-200 flights can cost anywhere between Rs 10 crore and Rs 12 crore per month. This means that airline with a fleet of 20 aircraft need to raise around Rs 200-250 crore from their operations to meet their working capital needs. "In today's scenario, it is becoming increasingly difficult to do so (ensure the cash flow for meeting their operational cost)," said the executive. An aviation analyst said airlines were trying to strike a balance between yield and revenues by introducing and withdrawing promotional offers. "By changing base fare and fuel surcharge, airlines are able to prop up booking volumes that ensures some cash flows but this hampers yields (average fare per passenger). So, the trade off is between getting higher volume with low ticket prices and getting lower volume with higher fares," said the analyst, who did not want to be named. With passenger revenues taking a dip, airlines were trying to generate some cash flow through sale and leaseback deals. And even though such a capacity induction could prove suicidal in a market that is slowing down, domestic carriers are taking delivery of planes to earn income from sale & leaseback. "We sell and leaseback about 3-4 aircraft every year and that generates working capital for the airline, depending on the type and age of the aircraft," said a senior executive with full service carrier Jet Airways. Budget SpiceJet Ltd inducted four aircraft to its fleet since October while GoAir is going to add two by June. Ankur Bhatia, managing director of Amadeus, believes the two no-frill airlines are trying to infuse cash into their operation by earning profits on S&L.Though, softening prices of aircraft in recent times have pulled down the profits from such deal. Cash generated from an S&L deal on a B737-800 has slipped to $1.5 million from $3-3.5 million a year back. Severe working capital crunch has driven full service carriers (FSC) Jet Airways and Kingfisher Airlines to lease aircraft to foreign airlines. Jet has already leased of its aircraft and Kingfisher two. This summer, Naresh Goyal-owned FSC is going to lease four planes. Analysts feel this is a good strategy to ensure a steady flow of income, with no or lower operating cost. A senior Jet Airways executive said his airline has flown into non-turbulent working capital zone after lining up funding of Rs 2,000 crore from Indian banks in the last few months. Many Industry experts argue that the airlines cannot be dependent on the banks for meeting their working capital needs forever. As passenger revenues fall, they are borrowings from the banks are also shooting up. Mark Martin, aviation head at research firm KPMG, says going forward private equity funding would become a popular mode of capital infusion for the airlines. Kapil Kaul, CEO India and Middle East of Centre for Asia Pacific Aviation (CAPA), says that survival of the airlines industry would depend on their ability to ensure uninterrupted cash flow. "They (airlines) have to address the issue of cash flow for their survival. If they don't then they'll have no balance sheet by 2010," said Kaul. The CAPA chief for India and Middle East says the current enterprise value of the airline industry is not more than $ 1 billion. This means that with an industry loss of $2 billion, its current net worth is negative.
Source: April 08, 2009, Daily News & Analysis

10.  Spurt in foreign airlines' rights worries desi ones
It’s now the turn of the struggling domestic aviation industry to seek protectionism from mega global airlines that have flooded Indian market with flights and dirt cheap fares. While the common traveller is not complaining, desi carriers have approached the aviation ministry and voiced their concern over the massive increase in foreign airlines’ entitlement to fly to India. In last five years (2004-08), foreign airlines’ capacity has increased 240% from about 3 crore to nearly 8 crore one-way seats per annum. The biggest cause of worry, which is threatening domestic airlines’ survival, is the fact that the big airlines are no longer offering point to point flights between India and their home bases. Places like Dubai, Singapore, Vienna and London have become Indian travellers’ gateways to the world on airlines from these countries. Indian airlines pointed out that the objective of traffic rights is to ensure sufficient capacity for point to point traffic between one country and the other. “In the absence of adequate country to country traffic and good hub airports in India, Indian carriers cannot fully use their entitlements. Gulf carriers like Emirates, Gulf Air, Qatar and Etihad have been using their Indian capacity primarily to carry traffic between India and US, UK, Europe, Africa and Australia over their hubs,” said an official. Southeast and European carriers also follow the same pattern of operations. The aviation ministry is aware of the growing might of foreign carriers and the damage it is inflicting on desi ones but can do little about that. “Seat allocation is a diplomatic decision made by the government. The Gulf countries, for instance, enjoy huge clout due to their oil resources and the fact that mil-lions of Indian expats work there. So almost any quid-pro-quo by India is linked to granting more rights to airlines from there,” said a senior official. “It is hugely disadvantageous to Indian carriers as foreign airlines can realistically operate to only one point of call in countries like Singapore, Dubai, Malaysia, Thailand, Qatar, Bahrain, Kuwait, Oman, Germany, France, UK and Netherlands. Other airports in these countries, even if they exist, have little or no commercial potential for international operations. Indian carriers are being completely denied the home market advantage that is always jealously guarded by other countries,” said CEO of an airline.
Source: April 13, 2009, The Times Of India

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