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 government is considering a proposal to allow foreign airlines such as Singapore Airlines, British Airways and Lufthansa to pick up equity stakes in domestic carriers, but with riders.

It is preparing the ground for a major policy shift on foreign ownership in aviation. Government sources say foreign airlines may be allowed to own a 20-25% stake in local carriers, but their role on boards and in the management would be limited.

The civil aviation ministry had, in the past, argued that allowing larger foreign airlines to own stakes in fledgling Indian carriers could cause harm to the domestic aviation sector.

“Things have changed. Earlier, only one Indian airline operated internationally. But now, three domestic carriers fly to foreign destinations. Our carriers have grown in size and scale in three to four years’ time. We don’t think the earlier concerns are relevant. If foreign telecom companies can buy stakes in Indian telecom companies, why can’t foreign airlines pick up stakes in domestic airlines?” a government official asked, on the condition of anonymity.

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National air-carrier Air India would offer freebies such as free-tickets, holiday packages, air-conditioners and microwaves to its
agents, who give the airline good sales using global reservation system, Galileo.

“Close on the heels of the recent major fare reduction and ‘Spouse Plus’ scheme for the passengers, Air India is now offering attractive incentives for its approved travel agents,” a company press release said today.

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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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State-owned oil marketing companies today cut the prices of aviation turbine fuel (ATF) or jet fuel by a further 6.8 per cent, making the eighth straight reduction since September.

With the latest cut, jet fuel in Delhi will cost Rs2,234.07 less at Rs30,457.21 per kilolitre effective midnight tonight, sources at Indian Oil Corporation, the nation’s largest fuel retailer, said.

Jet fuel prices, which make up half of airlines’ operating costs, have steadily fallen and is currently around 45 per cent of their all-time high level of Rs71,028.26 (Delhi) in August, and are at its July 2005 levels.

In Mumbai, ATF will cost Rs31,378.78 per kl from tomorrow against Rs33,719.47 per kl at present.

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New Year celebration plans of hundreds of travellers were ruined as flight operations at the Indira Gandhi Airport came to a standstill this morning because of heavy fog. Thirty five flights were delayed and seven cancelled.

On the last two days of 2008, the situation was no better. The thick fog cover that engulfed the city saw airline companies cancel 24 flights, while almost the same number (22) were diverted.

These are not isolated cases. On Christmas day last year, a thick fog enveloped the city, delaying more than 60 flights.

So why is it that despite the third runway in Delhi being commissioned for low-visibility operations, air traffic operations continue to remain affected? There are various reasons. Not only does there have to be hardware on the ground to guide an aircraft in, pilots also need to be trained to adequate levels to be able to land in low or zero-visibility conditions.

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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 government is yet to recover over Rs 280 crore out of the Rs 290 crore customs duty that the tax department detected was not paid
earlier this year, on import of aircraft by companies.

Rs 7.84 crore duty has been paid by operators, a Central Board of Excise and Customs (CBEC) source said, adding that total customs duty involved was Rs 290.35 crore.

The CBEC had seized 16 aircrafts on which the owners had not paid customs duty.

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Air travellers boarding at Mumbai may have to pay more soon. The civil aviation ministry has sent a letter to GVK-backed Mumbai
International Airport (MIAL), allowing the airport operator to increase aeronautical charges by 10%, which would in turn be passed on to the passenger. Aeronautical charges comprise passenger service fee (PSF) and aircraft landing and parking charges.

“The civil aviation ministry has allowed MIAL to increase aeronautical charges by 10% effective January 1, 2009. Due to this, landing, parking and passenger service fee at Mumbai airport would go up next year,” a person close to the development told ET. MIAL has already issued a circular in this regard to airlines, he added. A 10% increase in airport charges would add about Rs 35 crore to the airport’s total annual revenue.

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GOAIR, the Wadia Group promoted no-frill airline, is yet to clear the final salary settlement of its 500 ex-employees, 300 of whom were
asked to leave between May and September.

The employees were laid-off as the airline struggled to cope with a severe cash crunch, company sources said. The employees who were retrenched included pilots, cabin crew, ground handling staff and area sales managers.

The salary dues add up to Rs 80,000 to Rs 10 lakh for each employee, depending on their position. “GoAir is delaying our dues since the last six months,” said an ex-employee. “When we approach for our dues, the HR people don’t respond properly,” he added.

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Iconic business strategist Ram Charan is boarding Capt GR Gopinath’s start-up logistics company Deccan Express as an advisor. The new
venture is expected to kick off in May next year with a fleet of six cargo aircraft connecting 14 locations and supported by a trucking service that will reach out to 68 places across the country.

“Ram Charan will be on the company’s advisory panel, guiding the CEO and operational team every quarter. We are gearing up to launch services in May-June, with a fleet of three Airbus 310s and three ATRs having 14 air touchpoints. We will be the largest and double the size of existing industry players on day one,” Capt Gopinath, chairman & managing director, Deccan Express Logistics, said. Three more ATRs will be added to the fleet subsequently.

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Turning a deaf ear to aviation minister Praful Patel’s plea to cut airfares as jet fuel prices have crashed by almost half in past
three months, Vijay Mallya-owned Kingfisher on Monday ruled out any such move for now.

The airline reiterated its old condition that fares would be dropped as and when the government notifies aviation turbine fuel (ATF) as a declared good so that it attracts a uniform 4% sales tax across the country.

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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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Wadia Group’s no-frills airline GoAir is expanding its operations and increasing fleet. The airline has decided to scale up its fleet
size to 35 by March 2011 from the existing six in two tranches. It will add 20 aircraft by this year and later bring in another nine in the next two years.

The proposed expansion coupled with the tumbling crude and ATF prices will help the business break-even faster, said a GoAir executive. He, however, did not disclose the investment required for the expansion. The exact financial performance of the company is not in the public domain. Industry experts say that the company incurred “substantial loss” last year.

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Travel agents have threatened to boycott international airlines from January for non-receipt of commission. They have taken the decision
after their meeting with Singapore Airlines on Wednesday night failed to arrive at any solution. The agents will also take a call on their future course of action on Air India by this week.

State-owned National Aviation Co of India (Nacil), which runs Air India, is supposed to get back to them on Friday.

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Indian aviation industry went into a spiral dive in 2008, but a quick recovery appeared difficult as it saw falling traffic and high
operating costs foisted on it by global recession.

Indian carriers, according to the International Air Transport Association (IATA), are likely to account for one in every three dollars of losses in the global airline industry this year. It is a staggering amount for a country that accounted for only two per cent of the world air traffic.

All airlines, full-frill and low-cost, suffered major losses in revenue but somehow managed to survive by sticking together and joining hands to curtail flights and other costs, as the government also moved in to help them.

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Several Indian and international aviation and logistics companies such as Air India, Singapore Airport Terminal Services (SATS), Menzies, Bobba, Swissport, Bird Group and Worldwide Flight Services (WFS) have responded, individually or through tie-ups with each other, to two requests for proposals (RFPs) to set up a new cargo facility at Delhi airport and upgrade the existing one.

The RFPs were sent by Delhi International Airport Limited (DIAL), the GMR-led consortium that is modernising and operating Delhi airport. The last date to submit the bids is February 16.

Delhi accounts for around 25 per cent of total air cargo transported in the country.

An executive close to the development said Air India has tied up with SATS, Bird Group has tied up with WFS and Menzies with Bobba to bid for the cargo project.

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Turning down Civil Aviation Minister Praful Patel’s plea for a fare cut, full service carrier Kingfisher Airlines today said that at present there was no case for reducing air fare.

Other airlines like SpiceJet and IndiGo also said that after the recent round of cuts in fuel surcharge, customers should not expect further benefits in the short term, though there would be some advance purchase packages in January.

“The sharp and continuous rise in aviation turbine fuel prices earlier in the year has left a lasting impact on the bottom lines of the airline companies, leading to an accumulation of huge outstandings and liabilities with oil companies. As such, keeping in mind that the cash flow needs to settle these accumulated liabilities, there is currently no case for reduction in fares,” said an official spokesperson for Kingfisher.

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Travel agents in the country have had their way with airlines, at least in the domestic sector. National carrier Air India today agreed to pay a 3 per cent commission to travel agents, nearly two weeks after Jet Airways and Kingfisher agreed to do the same.

Like Jet and Kingfisher, AI too will pay the commission on the total fare including fuel surcharge and basic fare, instead of 5 per cent on the basic fare, which it used to pay earlier.

The three full-service carriers had stopped paying the agents commission since November 1.

This is a significant move since Air India accounts for the single largest chunk of agents’ revenues.

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