Issue 258

1. Jet Airways set to revamp biz ops
Private airline Jet Airways is restructuring its business operations that would trim its workforce and enhance efficiency. In place of several city offices, Jet plans to establish a centralised control and rostering office in Mumbai, a person close to the development said. The centralised system would mean redeployment and retrenchment of staff engaged in operation and dispatch departments, he said on condition of anonymity. The company is also considering having automated systems for passenger services such as check-in facility that would further reduce number of staff. The plan is likely to be put in place by July 1 this year and would result in reducing 3% of company's 13,000-odd staff strength, he added. The company's management has already communicated its decision to its operation department. The move may also see some flight engineers losing jobs due to the restructuring exercise, he said. "The aviation industry is undergoing a severe crisis worldwide and in India. Jet Airways is taking a proactive approach to improve its viability. However, we are not commenting on any of our restructuring initiatives at this point of time," a spokesperson of Jet Airways said. The current restructuring strategy is different from the company's attempt to cut operation costs by retrenching hundreds of crew members and ground staff. The move attracted nation-wide criticism and forced the company to reconsider its decision. Jet Airways has 18% market share of domestic air traffic. The company is severely hit by the current global recession. As a re-suit, it has slashed about 20% of its capacity in the last winter schedule and is looking at further reducing the capacity in the range of 8-10%. The airline which wet-leased four wide-bodied B777 to a Gulf-based carrier last year is planning to lease a few more jets of B737 family. "The airline has no option but to take tough decisions as the situation is very critical," a Jet executive said. The domestic aviation industry is currently facing one of the severe crises in the last few years. While it continued to bleed during the first half of 2008-09 due to excess capacity and skyrocketing fuel price, it is now facing the challenge of filling its seats in the wake of a slowdown in the economy.
Source: April 17, 2009, The Economic Times

2. Emirates and Cathay continue to pay agents commission
Emirates and Cathay Pacific said that they continue to give commissions to travel agents in India. “Emirates has always partnered with the travel agent fraternity and has not deprived them of their 5 per cent commission at any given point of time,” said the Dubai-based carrier. Cathay Pacific, on the other hand, said, “Cathay Pacific Airways does not have a transaction fee module and is still giving a commission to travel agents.” The airlines which stopped giving agents’ commission from November 1 are KLM Royal Dutch Airlines, North West Airlines, Air France, Qatar Airways, Singapore Airlines, Silk Air, Lufthansa German Airlines, Air Canada, Continental Airlines and Japan Airlines. Austrian Airlines has gone to zero commission from January 1. Airlines that have gone to zero commission from April 1 are Delta Air Lines Inc and British Airways.
Source: April 17, 2009, The Hindu Business Line

3. Air Arabia Goa -Sharjah flight
The United Arab Emirates-based low cost carrier Air Arabia on Thursday launched its direct flight from Goa to Sharjah. The airlines would operate from Goa thrice a week Tuesdays, Thursdays and Saturdays, a statement from the airlines said. It will depart from Sharjah at 12.25 a.m. and arrive in Goa at 5.05 a.m. and on its return leg, the flight will take off at 5.50 a.m. from Goa and arrive in Sharjah at 7.35 a.m.. The fares start at Rs 3,653, excluding all taxes and other surcharges, for the new sectors, the airline said.
Source: April 17, 2009, The Hindu Business Line

4. Govt mulls charging development fee at nine airports
After imposing development fee at four private airports, the government is mulling charging it from passengers departing from another nine airports in the country. A proposal to impose development fee on passengers departing from nine airports being modernized by the Airports Authority of India (AAI) is likely to get the government’s nod soon, which would enable the state owned body recover its cash shortfall, official sources said today. The proposal is being vetted by the finance ministry, the sources said, adding that the fee would be levied from May 1 for a “limited period”, if approved. The fee would be about Rs 200-250 for outbound domestic passengers and Rs 1,000 for departing international travellers, in line with those being imposed on passengers travelling out of major privatized airports at Bangalore, Hyderabad, Delhi and Mumbai. The nine airports where AAI is carrying out major expansion and modernisation activities include Kolkata, Chennai, Jaipur, Thiruvananthapuram, Amritsar and Trichy, the sources said. The cash shortfall, the sources said, has arisen out of the falling income, reduction in flights and passenger traffic due to the slowdown affecting the aviation sector and increase in costs. The passenger traffic in the first three months of this year has fallen by almost 12 per cent over the same period last year. “Our purpose is not to tax the travelling public, but to raise cash to meet the shortfall in carrying out the modernisation work at these airports,” sources said. With the AAI developing a total of 35 non-metro airports, the imposition of the development fee for the remaining airports would be decided on a “case-to-case” basis, depending on the cost situation and the shortfall, they said.
Source: April 17, 2009, Business Standard

5. Foreign airlines pull out of India
A severe squeeze on margins has prompted leading international airlines such as Virgin Atlantic, Sri Lankan Airlines, Austrian Airlines, Delta, KLM, Syrian Airlines, Aeroflot, All Nippon Airways, Singapore Airlines, Lufthansa and Finnair to withdraw over 100 flights in the last six months. Rising airport charges (although they are falling globally), the growing gap between fuel costs in India and globally, pressure from travel agents threatening to boycott ticket sales and a 20 per cent fall in inbound premium passenger travel have forced international carriers to reduce their exposure in the country. According to estimates by the Centre for Asia Pacific Aviation (CAPA), international carriers’ margins have dropped to single digits and even turned negative in some cases, from 10 to 20 per cent early last year. European carriers, which carry a large proportion of outbound Indian passengers to the US and Canada, have been hit the hardest. “Let me just say that it is now difficult to do business in India. Our margins have been hit, while our costs have increased,” said Marnix Fruitema, senior vice-president, India and AsiaPacific, for KLM, adding: “Our load factors in India range in the 80s and our break-even loads are hovering around 90s.” He said airports around the world have cut airport charges, whereas Indian airports have increased theirs. Among airports that have lowered airport charges between 10 and 50 per cent are Singapore, Thailand and Korea. “Our airport charges in India have gone up 9 to 10 per cent in the last few months,” Fruitema said. KLM pulled out of Hyderabad last October and operates only to Mumbai and Delhi currently. The airline has no plans to deploy additional flights to India for the time being. Its partner Air France recently pulled out of Chennai. KLM will deploy 5per cent less capacity in India this summer against last summer. The carrier is, however, considering code-share agreements with full-service carriers Jet Airways and Kingfisher to improve access to Indian destinations. “Airport charges have been constantly rising in India. This does not align with the situation that all the airlines are facing right now,” said C W Foo, General Manager, India, Singapore Airlines. Singapore Airlines has cut capacity 11 per cent globally but the India cuts at 19 per cent are far steeper. The number of weekly flights is down from 55 last year to 45. Foo added that the airline has no plans to add capacity in the Indian market right now, though it may add many flights to Mumbai and Delhi and other destinations later. Singapore Airlines has also been hit by the travel agents’ protests, since the agents, who account for 70 to 80 per cent of ticket sales, have stopped selling the airline’s tickets in India because it is not paying them commissions. “Inbound travel has taken a huge hit, as has the premium (business and first class) passenger traffic, which contributes for the bulk of the revenues. This, obviously, will impact margins,” said Kapil Kaul, CEO, Indian subcontinent, for CAPA. KLM, for instance, had seen a15 per cent fall in its global premium passenger traffic by October 2008, against a 5 per cent growth in 2007. Around 54 per cent of its outbound traffic from India goes further to the north Atlantic and 28 per cent flies onward to the rest of Europe. For Virgin, 80 per cent of its traffic flies from India to London and the rest to north Atlantic routes like the US. Experts said all these segments had been adversely affected. An executive from a European carrier that recently pulled out of Mumbai said costs in India had definitely risen more than they had in other countries. “Demand in routes like Mumbai has dropped 15 to 18 per cent. There was major overcapacity in Mumbai and profitability had gone down, which was why we pulled out of that destination,” he said. Ankur Bhatia, managing director of the global distribution system provider Amadeus India, added while European carriers had been the worst hit, the passenger load factors of all airlines had fallen anywhere between 10 and 40 per cent.
Source: April 17, 2009, Business Standard

6. AAI may levy user charges
After imposing development fee in four private airports, the government is mulling charging it from passengers departing from another nine airports in the country. A proposal to impose development fee on passengers departing from nine airports being modernized by the Airports Authority of India (AAI) is likely to get the government’s nod soon, which would enable the state-owned body recover its cash shortfall, official sources said on Thursday. The proposal is being vetted by the finance ministry, the sources said, adding that the fee would be levied from May 1 for a “limited period”, if approved. The fee would be about Rs 200-250 for outbound domestic passengers and Rs 1,000 for departing international travellers, in line with those being imposed on passengers travelling out of major privatized airports at Bengaluru, Hyderabad, Delhi and Mumbai.
Source: April 17, 2009, The Asian Age

7.ATF distribution: oil PSUs, Mial to form JV
To address the security concerns and improve efficiency, the three state run oil marketing companies have decided to form a joint venture (JV) with the Mumbai airport for distribution of aviation turbine fuel (ATF) to aircrafts. Petroleum secretary R.S. Pandey held a meeting on Wednesday in this regard with the top management of Mumbai International Airport Ltd (Mial) and senior officials from Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd. “There was a meeting with officials of Mial and the three oil PSUs yesterday. The MoU (memorandum of understanding) to set up a joint venture company will be signed within the next 15 days to one month,” the petroleum secretary said on Thursday.
Source: April 17, 2009, Mint

8. Air India scouts for clients for its MRO arm
After successfully conducting operational and competence checks on one of the two Airbus A330s, the country’s public sector airline, Air India, is now scouting for domestic and international clients for its aircraft maintenance repair and overhaul (MRO) business. “We will be speaking to all domestic and international airlines to utilize our expertise at the best,” Air India spokesperson Jitendra Bhargava told Financial Chronicle. Air India has 22 hangars and employs over 5,000 skilled personnel in the MRO division across the country. At present, many Boeing and Airbus aircraft owned by domestic airlines such as Jet Airways and Kingfisher Airlines are flown to Belgium and other international centers for ‘C’ checks every 36 months. The check involves major component removal, inspection and installation; structural inspection and detailed operational/functional checks of the system. According to an estimate, spending on MRO of aircraft in India that constitutes to over 15 per cent of the operating costs, is expected to go up to $1.2 billion by 2017, compared with over $450 million, now. Air India, at present, conducts ‘C’/’D’ maintenance checks on A319, A320, A321 and A310 aircraft including freighter, B747-300, B747-400, and B737-200. “This capability has been recently expanded for carrying out ‘C’ Check on B777 aircraft, and now conducted 2C checks on A330,” he said.
Source: April 17, 2009, Financial Chronicle

9. Jet-Sahara dues row: HC to fix hearing date today
The Bombay high court will on Monday announce a final date of hearing in a payment dispute case between Sahara India Commercial Corp. Ltd, or SICCL, and Jet Airways(India) Ltd. Jet Airways on Thursday sought more time from the court to file a reply to an affidavit filed by SICCL, claiming Rs2,000 crore in dues. The court will hear the case either on 29 April or 4 May, Jet Airways’ lawyer Janak Dwarkadas told Mint. SICCL’s 26 March application claimed that Jet Airways had defaulted on payments towards the purchase of Air Sahara, and had asked for permission to seize Jet’s assets. Jet Airways bought Sahara Airline Ltd, which operated Air Sahara, in April 2007 and later rebranded it JetLite. Jet said it had paid SICCL money in installments after making deductions for liabilities from before the completion of the acquisition.
Source: April 13, 2009, The Economic Times

10. Service in sky may be 5-star, but on ground, it’s different
The domestic airline industry may boast of fivestar 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: April 13, 2009, The Hindu Business Line

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