Touch Base with Indian A&D Industry

It’s been a good new year for air travellers. As aviation turbine fuel (ATF) prices fell sharply last year, most airlines
reduced their
fares during the new year. But Kingfisher’s yet to come up with a fare cut announcement.

In fact, Kingfisher’s delay in announcing the percentage of fare cut has benefited Jet Airways. Passengers have quickly moved over to Jet, and have started bookings tickets on sectors where both airlines have flights. It’s not yet known why the delay in announcing the cuts but an industry source said there were some miscalculations between Jet and Kingfisher alliance on the fare cut decision.

It was learnt that Jet-Kingfisher alliance had agreed to similar amount of fare cuts to be implemented on the same day. But now, Kingfisher is considering both basic fare and fuel surcharge cuts of around Rs 600 and Rs 400, respectively, which would be implemented next week, the industry source added.

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The state-owned carrier Air India has cut fares by up to 82% in 20 sectors on Tuesday, mostly on metro routes, following a dip in aviation turbine fuel (ATF) prices. ”The airline is cutting basic fares by 35-82% on domestic sectors,” said a spokesperson of National Aviation Corporation of India (Nacil), which controls Air India.

Jet Airways’ subsidiary, JetLite, too reduced basic fares on all its domestic flights with immediate effect. These fares will now be lower by up to 40%, Jet Airways said in a statement on Tuesday. A Mumbai-Delhi economy class basic fare will now be available for as low as Rs 750; the Mumbai-Chennai basic fare is at Rs 595; Ahmedabad-Goa is at Rs 245, while the Delhi-Hyderabad fare at Rs 999, without taxes.

On Sunday, Kingfisher Airlines chairman Vijay Mallya promised to slash fares from January 1. While he did not mention the exact percentage, experts believe it could be in the 10-15% range, which means fares could drop by Rs 500 to Rs 1,000. Jet Airways had already cut its basic fares by 15-40% with effect from Monday.

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Jet Airways and its 100 per cent subsidiary, JetLite have introduced a 21-day advanced purchase fare of Rs 250 and Rs 9 respectively.

A passenger wanting to avail himself of these fares will have to make a booking by January 31 and ensure that the date of travel is at least 21 days after the booking has been made.

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The country’s largest private carrier Jet Airways is looking at buying a stake in the maintenance, repair and overhaul (MRO) facility at
the new Hyderabad international airport, according to a source close to the development.

A senior Jet Airways official declined to comment on the ongoing negotiations, but agreed there was a proposal to buy a stake in the MRO facility. No further details are available at this stage.

German carrier Lufthansa pulled out of a joint venture with Hyderabad International Airport. The airport, nevertheless, has signed an agreement with Malaysian Airlines. The MRO centre is promoted by the GMR group, which also operates the airport. It will handle all types of aircraft, including the A380s.

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India’s two largest private airlines — Kingfisher Airlines and Jet Airways — are actively contemplating another round of fare cuts if the
Aviation

government puts aviation turbine fuel under the "declared goods" category.

In a statement on Monday afternoon, Kingfisher Airlines said: "Once the government brings ATF under the declared goods category, we will immediately and significantly reduce fares."

Sources said Jet Airways, which has an operational alliance with Kingfisher, may also take a similar decision if ATF comes under declared goods.

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Private air carriers Kingfisher Airlines and Jet Airways, which have entered into an operational alliance recently, may reduce flights
as they tighten belts to overcome financial crunch.

"We are not going to unnecessarily deploy capacity which we cannot fill…if in non-peak hours Jet flight is not full and Kingfisher flight is not full, it makes sense for us to co-operate and fly one aircraft instead of two. (With this) the economics of airlines will improve substantially," Kingfisher Chairman and CEO Vijay Mallya told reporters here.

He also said the two private carriers would co-operate on international routes, even as Kingfisher’s plans to start non-stop flights to San-Francisco has been put on hold.

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With Jet Airways and Kingfisher Airlines struggling to combat the rising costs, employees of both airlines have begun scouting for jobs in competing, low-cost airlines such as SpiceJet and GoAir.

“We have started sending our resumes to the low cost carriers as our take-home salaries will be almost at par with low cost carriers once Jet’s plan to shift a major portion of our fixed income to the variable component comes into effect in November,” said a ground handling staff member of Jet Airways. Full-fledged airlines currently pay higher salaries compared to the low-cost carriers.

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Amongst its primary cost cutting measures will be the pay and perks of the top 200 of its people.

Jet Airways, the largest private airline in the country, is planning to slash the pay of its top 200 officials by anywhere between a quarter or a third in order to combat costs. The firm is also reported to be undecided on the payment of a Diwali bonus this year.

Reports quoted officials of the airline as saying that the proposed salary cut would impact Jet employees who make Rs10 lakh or more each month, and could be effective as early as next month. Reports say an official announcement is likely just before the weekend, ahead of India’s largest festival, Diwali.

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Jet Airways is to withdraw the daily Amritsar-London flight, push back the launch of its flights to Saudi Arabia and also lease out some of the aircraft in an attempt to tide over the current slowdown in the industry.

Sources told Business Line that though the decision of flight cut back has been communicated to the staff no date has yet been fixed for withdrawing the Amritsar flight. The airline is also evaluating its entire route network to see whether some domestic flights should also be curtailed.

The Amritsar-London service is the second international flight that the airline will be suspending. It has already announced that it will stop operating the Mumbai-Shanghai-San Francisco flight from January 13 next year, exactly eight months after it was launched.

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The Naresh Goyal-promoted Jet Airways has set ambitious goals of achieving a turnover of $4 bn (over Rs 18,000 crore) by the end of the current fiscal and breakeven in 2010.

Last year, it recorded a turnover of Rs 10,000 crore while the combined loss of Jet and JetLite stood at $152 mn (nearly Rs 690 crore) for the year ended March 31.

To achieve these goals, the country’s largest private sector carrier is targeting big revenue from overseas operations. It is also eyeing spurt in corporate traffic to boost its load factor in the next two quarters. To prop up the bottom line, it is working on a plan to integrate its low-cost carrier JetLite with itself.

“The integration is a part of the strategy to enable Jet to register a turnover of $4 bn by end of this fiscal and to be profitable in 2010,” Jet Airways senior general manager KG Vishwanath said.

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Former Air Sahara, which was rebranded as JetLite when Naresh Goyal took over the airline and made it a value carrier for his flagship airline Jet Airways, is planning to reduce its staff strength by almost a third.

JetLite currently has around 2,300 people, and is looking to reduce this number by a third in its bid to shave costs and integrate key functions with the flagship carrier Jet Airways.

Confirming the development, Jet Airways’ CEO Wolfgang Prock-Schaeur said that the integtation process, which is necessary to keep JetLite afloat, willl witness a shift of certain employees from JetLite to Jet, and ”the workforce for both the airlines will be combined.” He said that the majority of the workforces, almost two-thirds, would be integrated with Jet, and the remaining one-third would be offered a golden handshake or voluntary separation scheme, which would be ”an attractive” scheme.

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Jet Airways is going to expand its Gulf network by connecting Muscat to Thiruvananthapuram beginning September 15.

This will complement the airlines’ daily service on the Muscat-Mumbai sector.

On this sector, Jet Airways will introduce its service on the dual-class Boeing 737-800 aircraft.

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Arch-rivals Jet Airways and Kingfisher Airlines are on the battlefield again, this time over flight numbers.

Naresh Goyal-owned Jet Airways has put in a complaint with the aviation regulator—Directorate General of Civil Aviation (DGCA)—against Kingfisher Airlines for operating flights on similar code numbers.

Jet has claimed that rival Kingfisher is doing so to attract Jet travellers. It has also claimed that this could lead to air-safety problems and confusion. DGCA has set up a committee to look into the matter. Kingfisher has, however, rejected Jet’s charge and claims that clashes over flight numbers among competitors are common in most aviation markets.

“Clashes over flight numbers are a reality in the aviation industry around the world. Typically, airlines, regulators and national air-traffic management organisations work closely to deal with this issue. In India too, this is an industry-wide issue and is not just restricted to one or two airlines. Flight numbers are usually decided by an airline based on certain operational parameters, and no airline can claim right of usage over a particular flight number as is being claimed,” a Kingfisher Airlines spokesperson said.

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The Jet Airways announced here on Sunday that it will start daily flights from Dubai to Mumbai and New Delhi starting August 23.

Dubai has now become the airline’s twentieth destination, sixth in the airline’s Gulf network and the second in the UAE.

Jet Airways’ Dubai flights will complement the airline’s daily services to Abu Dhabi, Kuwait, Bahrain, Muscat and Doha from various gateway points in India.

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India’s largest private carrier, Jet Airways, due to commence services from Dubai to New Delhi and Mumbai by the end of the month, will enter into a code-sharing agreement with leading Gulf carrier, Emirates. The arrangement will allow both the carriers to benefit from the growing traffic on the UAE-India sector.

The arrangement is expected to become effective from October, Jet Airways chairman Naresh Goyal told reporters in Dubai on Sunday.

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India’s largest private carrier, Jet Airways, is all set to launch its service to Dubai from 23 August. Officials said the service would be a daily one with a direct flight each from Delhi and Mumbai.

The service will operate with an Airbus 330-200.

The launch of the Dubai service would also make Jet Airways the first private Indian carrier to fly to this Gulf destination.

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After national carrier Air India, other full-service carriers—Jet Airways and Kingfisher Airlines—are moving towards a zero-commission structure for travel agents.

These carriers are expecting to save around Rs 1,000 crore as commission payments to travel agents on air ticket sales. Air India and Jet Airways are expected to net Rs 450 crore each and Kingfisher will save up to Rs 100 crore. There are more than 8,000 travel agents in India, of which around 2,000 are affiliated to International Air Transport Association (IATA).

Air India, whose 90% tickets are sold through agents, has notified various travel agent bodies about a zero-commission deadline from October 1. Air India spokesperson Jitendra Bhargava said: “We will stop the 5% agent commission from October.

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There’s turbulence in the air. Two of India’s largest airlines, Air India and Jet Airways, have sounded caution on their fiscal health due to mounting operational costs.

A daily operational loss of $2 million (Rs 8.6 crore) has in fact forced Jet Airways to put its employees on alert.

Jet’s senior general manager (MIS & investor relations), KG Vishwanath, has shot off a letter to its senior executives on the current state of affairs, “The current situation is very grave in terms of the magnitude of losses that we have been incurring. We are very concerned, so is the chairman (Naresh Goyal). Our current losses are $2 million a day (including JetLite). The current run rate of Jet Airways’ domestic losses is $0.5 million (Rs 2.15 crore) and of JetLite is another $0.5 million. Our international business is losing over $1 million (Rs 4.30 crore) a day.”

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Jet Airways may have unveiled a $55 million fourth quarter loss, but much worse is set to come, says the Centre for Asia Pacific Aviation (CAPA). It says that the recent ‘consolidation’ efforts in India have had little impact on industry capacity levels, and that only the high  price of oil can force India’s airlines to trim their schedules.

CAPA says that to climb out of the present financial hole, capacity levels must fall, but that is only one part of a complex story. Fares too must increase, and/or the state governments deliver on fuel taxation relief.

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The Interpublic Group has won the Jet Airways/ JetLite global advertising contract following a pitch that took place in Mumbai. IPG will establish a new Indian entity called Altitude, which will operate as McCann Worldgroup’s special arm.

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