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Jet Airways plans to rejig – Again

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We have been hearing this in a continuous loop for the last six years or more… Every time there’s a shocking financial result from Jet Airways, (which is pretty much every year for the last 10 years or so), we hear:

“Stringent measures that include network restructuring”

“We have chalked out a map which involves fleet integration”

“Pull out loss making routes”

“There can be no short-term solutions. The changes will take time to implement”

pull out of lossmaking domestic routes, add short haul international flights, replace bigger planes with narrow-bodied aircraft

This time we hear what we expect a rookie airline exec in charge of restructuring to say:

“Increase ancillary revenue by imposing penalties on ticket cancellations, implementing payment for seat selection in economy class, allowing on spot upgrade to business class, and charging for excess baggage”

And the loop goes on.

But what really is a fact is the fact that Jet is in a continuous loss making loop. No amount of network restructuring or (the suicidal) downgrading bigger planes to smaller ones, or the petty payment for seat selection and penalties for ticket cancellations will help Jet come out of the red. Everything has been done, tried and tested. But Jet has a bigger problem – It’s culture, and it’s fixed costs ballooning way out of proportion to it’s size and model of operation. Jet, over the last few years, has tried to be a Low Cost carrier, a Hybrid carrier, a carrier that focuses on International. But because of it’s history as a once-dominant domestic Full Service carrier, it carries the baggage, the mindset and the costs associated with this.

Where is Jet headed now? Selling it’s larger planes and using its smaller planes to feed into the Etihad network out of Abu Dhabi… Etihad won’t mind too much as it gets fed into its long haul network into USA and Europe. And Jet? Still finding its way in the dark, trying to figure out it’s role in the Indian aviation market.

Watch this space after next year’s financial results. And you can probably read the same blog post again.

Written by aviationscribbles

May 29, 2014 at 2:25 am

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I’m as much a citizen as you are Ms. Mazumdar Shaw, Captain Gopinath

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Bangaloreans behave like inhabitants rather than citizens which basically means they have no right to complain or criticize” – Kiran Mazumdar Shaw, on the low voter turnout in the Bangalore elections

“”The worst politician, even scam-tainted ones, are better than indifferent voters. Voters in Bangalore should hang their head in shame.” – Captain Gopinath

I didn’t vote. And I’m as much a citizen as Ms. Mazumdar Shaw, and I’m not going to hang my head in shame. And I’ll crib if I need to. I pay my taxes, so I have every reason to complain and criticize. I pay my phone bills, so I have every right to criticize the telco providers, but all of them are equally bad so changing from A to B is not going to improve my call quality.

Much newsprint and flex hoardings and Radio Jockey breaths have been dedicated to getting people to vote. Barking up the wrong tree – Show me a correlation between high percentage of voter turnout and high development in that constituency, and I’ll change my opinion. Every 5 years, the hoardings state “Vote for change” – Barking up the wrong tree – It essentially means don’t vote for the incumbent every time, or you might as well say “Vote for Modi”… Enough real estate companies in Bangalore have come together to get citizens to vote. Why don’t they come together to ask citizens not to avoid paying taxes? Ha ha, note the irony.

Ms. Shaw stated that a great government is in power in Bangalore now. Well, I’ve been running a business for two years now, across two governments. Do I need to pay an insane amount of taxes and spend a similar amount to develop the road in front of my business? Check. Do I have frequent power cuts and erratic supply of water, basic needs? Check. Do I see an insane amount of subsidies for certain businesses? Check. Do I have to pay for “chai-coffee” or lots and lots of “chai coffee” to get routine government work done? Check. Can Modi or anyone else for that matter change that culture in one tiny little government office in some tiny little village in Karnataka? Haven’t you voted for the last 30-40 years Ms. Shaw and Captain Gopinath?

Prove me wrong in May 2019, both of you, and I’ll show you an inked thumb then.

Written by aviationscribbles

April 19, 2014 at 1:34 pm

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Tata-SIA – India’s first airline worth its salt

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Tata’s latest venture with Singapore Airlines has left the Indian aviation circles surprised. The decision to start a full service carrier in a market that has become a low cost mandi, even though the world’s best full service carrier is investing in the carrier, has left a few eyebrows raised.

The Challenges

Every Indian full service carrier in the past, except ironically Air India, has fallen into the trap of joining the low cost mandi. Products such as Jet and Kingfisher have tried to figure out where they should place their products, and have fallen to the easiest trap of all in the industry – Offer the lounge, offer the miles, offer commission and do everything else a full service carrier does, but simply remove the food and charge like a low cost carrier charges.

Tata SIA will have the challenge of making the consumers, including the traditionally higher paying corporate customers, un-learn what they have been trained to over the past half a decade or so – Charge a premium for biryani in a market dominated by brandless plain rice.

There is a market for full service in India – The Hyatts and the Sheratons don’t shake in the ground when a GingerHotel announces expansion… And that market is willing to pay. But how big that market is, and training the existing market to pay a premium, will be achieved by a slow growth of capacity initially rather than going shopping for aircraft just to make headlines. And Tata-SIA shouldn’t fall into the trap of offering a hybrid product – The Starwood Group of hotels doesn’t offer an Aloft room and a Sheraton room in the same hotel.

Slow Growth

For the first five years, or till Tata-SIA is given permission to fly overseas, the airline should focus on building its brand without adding too much capacity. The domestic market is not where the money lies. And the airline can’t feed SIA’s international routes because there are enough flights from the key Indian cities direct to Singapore (or to the various key hubs such as Dubai, Kuala Lumpur and so on).

Going International

Going international is where the pot of gold lies for Tata-SIA. A few years ago, Singapore Airlines was the undisputed king of the Indian skies, carrying passengers through Singapore to all across the world. Competitors such as Cathay Pacific and Emirates entered the market and SIA’s share shrank or practically evaporated from key markets such as China and USA.

Today, Emirates is the largest airline operating internationally out of India. Jet Airways’ hub and spoke strategy has always been confused, and Air India is Air India. With the Tata SIA venture, Singapore Airlines has gained access to a pie that it gave up almost a decade ago.

Hub

Analysts have predicted that Air India and Jet will see the maximum impact of the Tata-SIA venture, but have failed to note the impact on the Middle Eastern carriers such as Emirates and Qatar Airways, as well as the Middle Eastern airports such as Dubai and Doha. With the absence of any strong Indian airline, these carriers are eating a fairly sumptuous lunch out of India.

The new venture has the potential to build hubs in Delhi, Mumbai and Chennai and capture traffic that is currently going to these carriers. Ironically, it will take a half foreign carrier to develop our key metro airports into hubs, something that the Indian carriers failed to do even with spanking new airports. Delhi and Mumbai have invested billions of rupees in developing their airports, only to see Jet Airways practically move its hub to Abu Dhabi.

Today, a passenger travelling from Chennai to New York has to change planes in some Middle Eastern or European airport and fly onwards to New York. Tata-SIA could start a flight from Mumbai to New York nonstop, and hub passengers from Chennai, Bangalore and Kolkata, recapturing the traffic from the Middle Eastern and European carriers.

Alternative hub for SIA

With the growth of the Emirates and Dubai success stories, Singapore Airlines has lost out on traffic that earlier used to hub in Singapore. Developing New Delhi and Mumbai as alternatives to Dubai and Doha could also help SIA capture international traffic and do what Emirates did to Dubai and SIA itself did to Singapore in terms of tourism. For example, SIA currently doesn’t have access to Chinese traffic flying into Africa or Korean traffic flying into Europe, this traffic flying through Dubai or Doha due to the geographical location. Developing New Delhi or Mumbai into hubs to compete with Dubai and Doha, with a world class product like SIA could help the airline tap into new markets and build an alternative hub to Singapore.

And it’s not just passengers that SIA will hub – India is woefully short of cargo capacity by any Indian carrier. This is a good opportunity to develop India into a cargo hub.

Costs

Executives in SIA used to joke that it was the world’s first low cost carrier. The unit costs in SIA are something that other full service carriers would die for, and that would be the secret for SIA to survive in the Indian domestic market – Keep costs low.

The canvas is brand new and open for SIA to try out a different model of costs – Invest in as much automation as possible and keep the non-operating staff to the minimum. Set the rules straightaway for the operating crew – Airlines such as Jet lose out heavily in terms of crew rostering efficiencies.

Don’t invest in flashy offices – In fact don’t have any offices at all, similar to the European airlines. When was the last time you saw a Lufthansa office?

Don’t invest too much in staff to carry your bags – The Indian passenger can carry his own bags. Don’t invest in staff to perform manual tasks – Try and invest in technology such as Internet check-in to keep staffing costs to the barest minimum. Of course the other costs can’t be controlled – Fuel and aircraft.

Both the Tatas and SIA have unmatched brand names in India, so the market will gravitate towards them without even advertising. It’s just how much of the market is full service, and how much that market is willing to pay, that needs to be tested out by the new airline.

The airline can try out operating widebodies on domestic routes and transition these widebodies into international ops. Or even operate the A380s on international ops as there is a huge domestic market to support such a large aircraft.

It’s a win-win situation for all – Tatas, SIA, Indian airports and Indian tourism. Now all we need is for the venture to take off, given it’s SIA’s third attempt at entering the Indian market.

Contrary to most reports, it’s not Air India or Jet that will stand to lose once Tata-SIA comes in. There is enough in the domestic pie for everyone. International markets will still favour Jet and Air India where they can, equally along with Tata-SIA. This is because these carriers will offer nonstops out of India. For example, Air India’s recently launched Delhi-Sydney nonstop will be preferred over even the current offering of Singapore Airlines, transiting in Singapore.

Jet and Air India are messed up anyway, and they will continue to survive as they have been all these years. It’s the Middle Eastern carriers will take a hit out of India, because finally there is an airline worth its salt operating out of India. And it’s time for Singapore Airlines, a superpower in quality, to regain its status as a world superpower in size.

Written by aviationscribbles

October 4, 2013 at 7:37 am

Posted in Uncategorized

The cost of a life

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I’ve calculated the cost of a life to be INR 4.5 crores.

I was at the Guangzhou Railway station passing through Security to board my train to Hong Kong. The security lady stopped me and explained to me in broken English fluent Chinese that I won’t be able to board because I was carrying a couple of bottles of perfume that were inflammable. She poured some of the perfume from one of the bottles on the ground and used a lighter – Sure enough it was inflammable, but as inflammable as paper and silk. Anyway, not being able to argue in her language, I asked her how I could get to Hong Kong – She directed me to a bus.

That set me thinking – My perfume, or terrorists, can blow up a bus, some trains in India because of lack of security procedures, but not a plane. I can carry a bottle of water onto the train but not onto the plane. It’s not the number of lives that are affected – ATR aircraft in India can take off with 20-30 passengers on a 62 seater plane, which is lower than what my bus from Guangzhou to Hong Kong was carrying.

It’s not even if the fare paid by the passenger determines how valuable his life is according to the regulators and the transport operators. I know of several bus fares and train fares that are higher than airfares.

So it all boils down to this – The value of your life is not determined by your bank balance or how many people are travelling with you. It is determined by how much the vehicle you’re travelling in costs!

So assuming an average plane costs USD 200 million or INR 900 crores, and on average it carries 200 people – Each life is worth INR 4.5 crores.

Written by aviationscribbles

July 25, 2011 at 7:11 am

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The conspiracy against Air India

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Part I

Chapter 4 – The conspiracy against Air India

Fifteen years ago, I used to go to the newsstand every week to pick up the latest copy of “India Today” and “Outlook”. I used to wait for the film reviews every Sunday, but more often than not it was to compare notes with mine as I had already seen the movie on Saturday. A Three Star review meant Three Stars.

And then, the Internet happened. And Five Day tests and One day matches in coloured clothes moved to three hours of excitement in 20:20 Cricket. Our world was divided into three – Our social circle, our Facebook friends and the others.

We have moved beyond the email forwarding age to the Facebook and IPL age. I don’t need to go home to dial up and check the review of a movie. It’s pushed onto my mobile and my iPads when I’m moving from MG Road to Jayanagar, by content providers who are vying for the few seconds of my attention to turn into advertising opportunities and email databases. Everything today is just one status update or one tweet old, and our memory is limited to just forty overs. Everything is instant, and Sunday is too late for a movie review – Thursday night is the night to bash the movie, or make sure the paid media praise the movie no end.

And we are bombarded with these status updates, tweets and apps. Bombarded with information, that is still growing at an exponential rate, because an eyeball is worth money. With Facebook and Twitter, our first reaction to anything is to convert it into a smart-aleck status update or tweet, and hope that someone, anyone, “likes” it. We are judged by the number of likes and comments on our updates. A few clicks of an iPhone from the cinema hall and movies are bashed and murdered mercilessly, and most importantly, effortlessly. Everyone is empowered to become a critic on movies and cricketers, and wants to stake his claim to become a talking head on television or just have more “Likes” on his update. Saying something nice about Abhishekh Bachchcan in this age would completely destroy the credibility of a film critic, even if the actor has turned in (yet) another wonderful performance.

We don’t stop to think or sieve out the information or the millions of status updates and associated comments. Yesterday, google was the gospel truth. Today, Facebook updates are the gospel truth, and the paid media that push products and movies to us as content. We may find it absurd that the previous generations used to believe in a whole host of mumbo jumbo and traditions, which are fast changing. The next generation may find it absurd that we believed status updates and google results. The next generation will have no choice but to sieve out the noise from the actual music, because there will be way too much noise in the future. To stop and analyze an issue without the media hyperventilating or talking heads drowning each other out in order to make a point.

Air India is a victim of this age. The national carrier is caught in a vicious cycle of phone taps, mounting losses and email forwards. The media has found enough fodder to fill up half a page every couple of days and they are not going to let go easily. Air India too is at fault. Air India may be corrupt. But Air India has an important role to play, and if it is allowed to play that role within the environment of corruption and the private players, it can contribute positively. Air India may be making losses, but which private full service carrier is making money? Jet Airways has never reported a profit since 2006. Kingfisher Airlines has never reported a profit, ever.

Let’s stop, breathe and look at the conspiracy against Air India.

Benefiting private players

There is an argument that Air India withdrew from profitable routes to favour the private players. In an article in “Governance Now” entitled “Murder of a Maharaja – The very short story of how they killed Air India”, Sweta Ranjan has pulled out an email sent by the Air India representative in Doha to F J Vaz, AI’s regional Director in India protesting against the decision to withdraw the “profitable” Cochin Doha IC 997/998 flight and hand it over to Air India Express.

Mails from Sales offices to the Head office are fairly common, and are blown with emotion once a decision is made to withdraw a flight. It is more of an ego issue than a commercial issue. I remember my sales team writing to our head office about the proposed withdrawal of a Chennai to Singapore flight, giving them analysis and numbers. But at the end of the day it’s simple – You’re sending this fancy huge piece of metal across burning tons of fuel, and the passengers don’t add up. Ego issues and emotions run high even when a subsidiary (Silkair in the case of Singapore Airlines) or a low cost subsidiary (Tiger Airways) are sent on the route as additional flights. It’s not easy for the sales staff of a full service carrier to accept such decisions. So there was nothing out of the ordinary with what the Doha rep of IC did, but using it in an article proving that corruption killed Air India won’t hold good in a court.

And Indian Airlines wasn’t withdrawing from the route. It was replacing a two cabin Business and Economy aircraft with the low cost subsidiary Air India Express, offering more Economy seats rather than just splitting up the aircraft with a Business Cabin that hardly went full.

The beneficiary was supposedly Jet Airways. Let’s look at Jet Airways figures on this route. Jet for the last one year from June to May 2011 has carried an average of 3 Business Class passengers on the flight every day. On an aircraft carrying 16 Business Class seats occupying a lot of real estate, this is clearly not a good indicator. For twelve consecutive months ending May 2008, IC carried a grand total of one genuine business class passenger every four days. The largest carrier in Business Class at that time was Qatar Airways. In the twelve consecutive months ending May 2009, IC carried a grand total of 11 genuine passengers in Business Class. (Source: IATA Passenger Intelligence System). There is no way of getting accurate information on Air India Express loads on this flight.

Putting aside all the emotions that go with pulling out a flight or the ego tussles of Air India staff having been glued together with Indian Airlines staff, it was a logical decision to move the flight from Indian Airlines to Air India Express. After all, that was the whole purpose of the merger – to rationalize routes and to target routes that had heavy Economy Class content at low fares to move to a low cost subsidiary.

Also, a “95% load factor” doesn’t mean anything in the airline industry – A hard profit in the balance sheet is the only parameter that walks to the bank, not a bunch of passengers who fill up a flight at cheap fares. I remember visiting our office in Shanghai and they were pressing for re-introduction of the failed Mumbai-Shanghai-San Francisco route. They said “it clocked load factors of 90%”. Yes, but it was also a huge 312 seater Boeing 777 that flew and burnt around INR 6 lakhs worth of fuel every hour in its 10 hour flight across the Pacific. The flight was also carrying eight First Class seats that took up a lot of real estate on the aircraft but they didn’t have enough bums on them. And Eight seats will hardly distort a Load Factor when the total number of seats is 312.

Let’s move point by point on the other allegations against Air India withdrawing flights. The same flight above IC997/998, Cochin Bahrain was supposedly withdrawn to favour Jet Airways. It was transferred instead to Air India Express. And the supposed beneficiary, Jet Airways, has realized that it is bleeding red on the flight and has withdrawn from the route altogether!

According to the article, Cochin Muscat was withdrawn to pave way for Jet Airways. Cochin Muscat was actually handed over to Air India Express. Jet Airways, for perspective, carried an average of four genuine Business Class passengers per flight, leaving the remaining 12 seats empty or with upgrades.

IC925/926 Calicut-Muscat was withdrawn to pave way for Oman Air and Qatar Airways. Erm, Qatar Airways hubs in Doha. And as for Oman Air – Around 50% of its passengers between Calicut and Muscat transferred to flights beyond Muscat, to the rest of the Middle East and Africa, which won’t be possible on a point to point carrier like Indian Airlines. On average, only around 70 passengers a day flew on Oman Air purely to Muscat, so if IC flew with these loads at the prevailing fares, it would definitely bleed red.

According to the article, Calicut-Doha-Bahrain was withdrawn, but it was transferred from IC to Air India Express. The beneficiaries were supposedly Emirates, Qatar Airways and Bahrain Air. Erm, Emirates hubs in Dubai. Qatar Airways carries an average of 80 passengers a day from Calicut to Doha, the remaining 40% of its flight transferring flights to the Middle East and Europe. Which explains why Air India flies three times a week instead of daily. And also explains why Jet Airways pulled out of the route in 2009.

IC595/596 Mumbai Calicut was not withdrawn but transferred to Air India Express. And the supposed beneficiary, Jet Airways, didn’t even operate on the route. It was always Jetlite, showing that there was commercial sense in transferring the route from IC to Air India Express.

IC993/994 Calicut To Kuwait was not suspended as the article reports, but transferred to Air India Express. The supposed beneficiaries, Emirates and Air Arabia, don’t even hub in Kuwait. Even if Emirates carries passengers from Calicut to Dubai and transfers them to its Kuwait flights, it only carries 30 such passengers every day.

Moving down the list, the article talks about withdrawing IC737/738 Chennai Bangkok to favour Thai Airways, and withdrawing Bangalore Singapore to favour Singapore Airlines and Tiger Airways. Tiger Airways is no longer operating this sector, and Singapore Airlines and Thai transfer around 50% of their passengers to flights beyond Singapore and Bangkok.

The article mentions Air India Express having cancelled IX343 from Calicut to Dubai, IX 373 from Calicut to Bahrain benefiting Qatar who doesn’t even hub there, IX 363 from Calicut to Abu Dhabi benefiting Etihad Airways, IX 337 from Calicut to Muscat benefiting Qatar and Air Arabia who don’t hub there and IX 351 from Calicut to Sharjah benefiting Air Arabia. There’s no need to look at the numbers for this one – The Air India website shows that these flights are operating!

There are more flights mentioned, especially on the domestic circuit, but having gone through the international flights, it shows that the article and the allegations against Air India are baseless. There may be more to the withdrawal of the flights than what we see, but most of the decisions seem to be based on commercial sense. Airlines continually review their routes and chop flights or change to low cost subsidiaries as the case may be. Singapore Airlines used to be the king of the Singapore Kuala Lumpur sector, but with the opening up of the skies to low cost entrants like Air Asia, decided to move seven out of its ten flights to Silkair. That doesn’t mean that it benefits Air Asia – It just means that the market dynamics have changed.

The second part of the article by an ex-director of Air India, Jitender Bhargava, headlines “A series of dubious decisions dressed up as big thinking have hastened Air India towards what looks like certain death”. Very morose, but not untypical of the media headlines today. It talks about Air India, in the post NDA days and the first few days of the UPA government, was told by Praful Patel to think big and look beyond ordering 24 aircraft – ten long hauls and 14 narrow body aircraft. Air India reviewed its requirements and upped the order to 68 aircraft – 50 long haul and 18 short haul. The Comptroller and Auditor General report on Air India has dug out that AI executives wanted to place firm orders for 35 aircraft and keep the remaining 15 as options, but the government decided to place firm orders on all 50 aircraft. In the days of Lalit Modi and the complex web of the 2G scam, there may be more to this than meets the eye. But from a commercial perspective, even 50 aircraft for a decently run Air India is peanuts, representing one of the biggest aviation markets in the world. Emirates currently has around 150 widebodies and Singapore Airlines around 100. And both these airlines have a home base population of less than Bombay or New Delhi. So there’s nothing stopping Air India, decently run and with the support of the government, from replicating a Singapore Airlines or an Emirates model. And to do that, even 200 widebodies won’t be sufficient. An India Today report (Source: http://indiatoday.intoday.in/site/story/praful-patel-plummeted-air-india-into-financial-mess/1/137466.html) states that “the inflated purchase order was not backed by either a viable revenue plan or expansion of routes.”. Fair enough, this seems plausible given that it’s Air India, but it is difficult to come up with a concrete route plan five to seven years before taking delivery of an aircraft. The five year plan of one of the carriers I worked for changed every six months. The market dynamics of the industry change every few months, and today operating a particular route may make total economic sense but three months later, competition, a recession, fuel prices and / or an earthquake may force a change of plan. One of the other carriers I worked for didn’t have a five month plan, let alone a five year plan. This carrier had no idea where it was going to send its aircraft till the spanking new bird was taxiing into the airport upon taking delivery. The article also mentions “Between January and August 2004, there wasn’t much change in the aviation scenario – either by way of load factor or growth in traffic. Yet, the meeting presented a bizarre justification for the purchase of new long-range aircraft.” – Aircraft orders are not made for changes in a span of eight months. Aircraft orders are made based on planned growth for the next eight to ten years, and more often than not the airline route planners get it wrong. So although Praful Patel may have had his own dubious reasons for ordering these aircraft, looking at the explosive growth in Indian aviation in the last seven years, he may have coincidentally been proven right.

The article by Bhargava also talks about the then Chairman Thulasidas using “all ploys to create an environment within the company that everything was hunky dory… To dress up the balance sheet, some of the owned aircraft were sold and leased back. In such an arrangement, the lump sum recovered from the sale is shown as income while the lease rental… is shown as expenditure”. Every airline does this as a standard practice to free up the value of their assets in bad times and get cashflow to run operations. There was nothing unusual about what Air India was doing. True, the AI balance sheet is dripping with red ink today, but so are the balance sheets of the private full service carriers. Using these “ploys” is standard operating procedure.

The article goes into a whirlpool of emotions, talking about board members and bureaucrats “destroying the foundation of Air India” and “joined in the annihilation of the airline”. But beyond this and a clear ego battle, there is nothing concrete in the tirade against AI.

A third article by Susmita Dasgupta talks about how AI is making way for Jet the same way BSNL made way for Airtel. “There have already been murmurs about Jet heavily bribing the national carrier to hand over operations”. It’s a free market and both Air India and Jet have a role to play. Both are bleeding and Air India (with Air India Express) is still the largest carrier operating internationally out of India today. There are very few routes that Jet operates that AI doesn’t and AI operates many more routes that Jet doesn’t. In principle, a conspiracy theory about Jet and Kingfisher benefiting from AI may well make sense in today’s scenario, but the actual fact is that no one has “benefited”, as we have seen in the flight by flight analysis. It’s a free market and both Air India and Jet have a role to play. PSUs need to survive in this free market, and compete against the private carriers.

Back to the India Today article: “Additions were made in the Boeing order. That included Boeing 777 LR (long range), Boeing 777 ER (extra range), and Boeing 787 Dreamliner.”. Jet Airways has ordered the Boeing 777 ER (which by the way is Extended Range and not Extra Range), so there’s nothing unusual about ordering the aircraft type. The way the article puts it, it makes it look like Air India has ordered a one engine propeller boat instead of an aircraft. Today, Air India is the only Indian carrier to offer nonstop flights to the USA. Thanks to it’s Boeing 777 LR aircraft. “Shockingly, the Dreamliner, which did not meet the delivery schedule was selected, for which Air India is now seeking compensation from Boeing.”, continues the article. There is nothing shocking about the Dreamliner not meeting its schedule. In 2004 a lot of airlines ordered the Boeing 787 as one of the most exciting next generation of aircraft that promised to offer unparalleled fuel efficiency with much lighter composite materials as its base. The first delivery for All Nippon Airlines was supposed to be in 2008 and was delayed, so there was no way that Air India could have predicted this in 2004.

And here’s where a lot of hype around the aircraft orders arises: “How an organisation, whose annual turnover was around Rs 7,000 crore, could place orders worth Rs 50,000 crore”. First, INR 50000 crore is the list price of the aircraft and AI (or any other airline) would have negotiated substantial discounts. Secondly, that is the nature of the airline industry – Your turnover may be X, but you order aircraft worth 3X or 5X because they have to be delivered over five to ten years. Your cashflow and loans will fund the aircraft orders, but your turnover and the value of the order have nothing to do with each other. Case in point: Indigo’s 180 aircraft order worth 67500 crores. The combined turnover of all the airlines in India won’t hit this number.

Let’s stop and breathe, and allow Air India to breathe. Let’s not kill it off with conspiracy theories, Facebook updates and Breaking News talking heads.

Written by aviationscribbles

June 30, 2011 at 9:22 am

Is Qantas getting more kiasu?

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“Bank stocks affected by virus” – A headline like that would sound ridiculous, no?

Replace that with “Airline stocks affected by XYZ” – In place of XYZ, you can put whatever you want – Terrorist attacks, Bomb Blasts, Volcano Ash, Bird Flu, Pig Flu, Bank Stocks falling – Doesn’t sound so ridiculous now eh

Shows how intricately tied airline fortunes and stocks are to anything that happens in the external world – Someone sneezing and spreading the SARS virus can cause mighty giants like SIA and Cathay to go to their knees. Lehmann Brothers giving loans to anyone and everyone and causing a credit crisis in the USA and Europe can bring the world airlines back to the ground.

So its not just fuel prices that can crash an airline. Fuel prices may squeeze margins, but which industry hasn’t had its margins squeezed by rising input costs? Consider this fact – In 2001, when the oil prices were at around $25 per barrel, global airlines lost a couple of billion (and we had more mad billionaires putting in their money to start airlines after that). In 2011, with fuel prices forecasted at USD 130 per barrel, airlines are forecasted to make USD 4 billion in profit.

Shows how much the fortunes swing with the outside world, not so much with the fuel prices.

And talking about the outside world, we had Qantas and Jetstar ground flights again because some mountain spewed some of its ash again. Erm, wasn’t that volcano in Chile? Chile? The South American Chile?

Australia is that island near the left of the map. And Chile – Well kayak across the South Pacific for many many kilometres and you should shout “Land Ahoy” in a couple of hundred years. And ash from Chile has grounded flights in Australia? Is Qantas getting kiasu because of its new found Singaporean relatives and its proposed new Singapore base?

(Kiasu:KIASU
(kee-ah-soo)
Hokkien adjective literally meaning, “afraid of losing”. A highly pejorative description beloved of Singaporeans. Possibly our defining national characteristic. The nearest English equivalent is “dog in a manger”, though even that is pretty mild.
“You went to get a handicapped sticker just to chope a parking space? How kiasu can you get?”

Source: A popular Singaporean site talkingcock.com. Go and find the meaning of chope)

Singapore Airlines was kiasu. But not to the extent of being detrimental to its commercial interests. In fact it had one of the finest balances of being kiasu and making money. But what’s gotten into Qantas?

The aviation authorities in Australia have said that it is safe to fly around or under the plumes of clouds. Airlines like Air New Zealand (also with Singaporean relatives but now disowned) and Virgin Australia (with distant Singaporean relatives) have kept some flights in the air to minimize disruptions. Qantas CEO defended his decision and said that there is insufficient equipment in Australia to measure ash density. Sure Mr. Joyce, so if there is no equipment in Australia, how does Qantas decide whether or not to fly its airplanes? Or does he google like the rest of us? There is no advisory from any of the authorities (http://reg.bom.gov.au/info/vaac and http://www.meteo.fr/vaac/) not to fly, and although safety of the passengers is of paramount importance, there is nothing more frustrating for a passenger than to watch other airlines taking off while his airline is grounded.

So why IS Qantas suddenly so conservative? Is it really because of its new found Singaporean relations (part owners of Jetstar Asia, Jetstar setting up a base in Singapore, Qantas planning to set up a base in Singapore)? Or is it because it doesn’t want to risk another mechanical issue to tarnish its impeccable safety record?

Qantas A380 pilot Richard Woodward declared that he would be happy to fly under or around the ash cloud. “Obviously I don’t want to criticise their decision when it is for safety reasons but it is a very conservative view,” said Captain Woodward, who is the Qantas pilots’ union vice-president. “In the ash cloud there are small particles of stone which can damage the windshield and go into the engines on the wing,” Captain Woodward said. “[But] providing the proper risk assessment was done and we had updated satellite imagery of the movement of the cloud, I’d be happy to fly underneath.” (Source: http://www.themercury.com.au/article/2011/06/15/237661_tasmania-news.html)

Shows that there is definitely a disconnect there. And Qantas has always had a disconnect with its union which is threatening to blow up more smoke than the Chilean volcano can ever spew. So is it because of a shortage of technical staff and engineers that Qantas has decided to cancel its flights? Or is it because Qantas doesn’t want a repeat of its couple of turnbacks after engine failures in the recent past?

Compare this with British Airways boss Willie Walsh who flew in a BA 747 through the volcanic ash last year during the Iceland volcano crisis and found no damage to the engines. He then ordered a dozen of his 747s to take off from Canada and USA, putting pressure on the British Government to open the airspace. Ten minutes before the planes ran out of fuel, Heathrow opened up. Qantas by the way was one of the last to resume flights after the 2010 volcano crisis.

So, is Qantas getting more kiasu?

Written by aviationscribbles

June 17, 2011 at 1:02 pm

Posted in Uncategorized

What is low cost in India?

with 4 comments

A lot of people say there is no low cost in India as far as aviation is concerned. Everyone pays the same fuel and everyone lands at the same airports, so where is the low cost?

A lot of people also confuse low cost to mean no food on board, so thats the big difference and thats the main saving. Food costs around 100 bucks a head on average for a typical flight (whether its a Bombay Singapore or a Bombay Delhi), so if someone is building a low cost carrier, cutting on food costs and charging INR 2000 less than the full service, well good luck…

To me, low cost should be a religion for an airline, a way of life, whether it’s a Singapore Airlines or a Jet Airways or a Spicejet. Now that the three listed carriers in India have announced their results, its a good time to see where is the low cost actually is.

Fuel costs

As all the experts state, fuel costs are the same (or pretty much the same) for all airlines.

Spicejet spends INR 1.17 to carry one seat across one kilometre. So to operate a Bombay Delhi (1000 km) flight on a 180 seater, it would cost Spice INR 2.1 lakhs.

Jet spends INR 1.27 to carry a seat across one kilometre. This is slightly higher probably coz Spicejet’s domestic aircraft are newer and slightly more fuel efficient.

Kingfisher spends INR 1.41 per seat per km, which is surprising and I can’t explain this, unless they’re filling up their planes with beer.

Just to add perspective, Singapore Airlines spends INR 1.23 per seat per km. And one must remember that SIA has a fleet of only large aircraft unlike the Indian carriers Jet and Kingfisher which are primarily small aircraft and Spice which is only made up of small aircraft. And large aircraft give better fuel economy per seat per kilometre.

Which makes this comparison interesting coz Indian carriers claim that they have to pay a ridiculous amount of tax in India and can’t compete with the foreign carriers, and here we see Spice having a lower fuel cost per seat per km! The size of aircraft really doesn’t matter since I’ve reduced the cost per seat per kilometre.

Staff costs

Spicejet spends 23 paise on staff to fly a seat over one kilometre. This includes operational staff – crew, engineers, airport staff as well as other ground staff (Marketing, Finance, Management etc).

Jet’s corresponding cost is 39 paise per seat per km.

Kingfisher’s is 42 paise.

Perspective – Singapore Airlines, with its cost base in Singapore, spends 50 paise on staff per seat per km.

Other costs

Spicejet’s non-fuel and non-staff costs are INR 1.29 per seat per km.

Jet spends INR 2.15 per seat per km, Kingfisher a whopping INR 3.07 and Singapore Airlines INR 1.8 per seat per km. (A big portion of this cost is due to interest charges in India, so without that Jet’s cost is INR 1.85 per seat per km and Kingfisher is INR 2.26)

Running the aircraft

Spicejet runs each aircraft of theirs over 1 million seat kilometres every day. In contrast, Kingfisher runs their aircraft over 670,000 seat kilometres every day. Jet’s average is around 1 million and SIA’s is around 3 million, but they have a lot of long haul aircraft which can fly at night (while domestic operations are pretty much limited to the day).

Low cost

Staff costs for the legacy Indian carriers are much higher than the low cost carriers, but since the above costs are per seat per km, its taken the size of the airline into account. And your staff costs don’t need to be that much higher for a full service carrier, as Singapore Airlines has shown.

And Spicejet runs their aircraft like workhorses! They stretch one aircraft to as many missions per day as possible so that they can make do with as few of these fixed assets as possible. Kingfisher and Jet on the other hand seem to have a lot of aircraft sitting on the ground more than they should be flying. And that is the real difference where a traditional LCC scores over the competition – Flying the aircraft as much as possible on as many viable sectors as possible, hence reducing the number of aircraft required.

Spicejet’s non-staff and non-fuel costs are way lower than Kingfisher and Jet. Sure you can save a bit on the distribution channel (Spicejet uses the Internet as the booking channel while Jet and Kingfisher have to pay Global Distribution Systems an average of INR 200 per passenger). Sure you can save a bit on the sandwich. There’s no beer on domestic flights so you cant save that much versus a legacy carrier. Spicejet has only one aircraft type in its fleet (now adding one more) so they save a bit there on crew training and engine spares. All the low cost carriers give free 15-20kgs baggage allowance, so you can’t charge there. So ultimately you save a bit on the “visible” aspects.

And this is where low cost really comes in. Not by removing a sandwich and a paneer butter masala on board, but by looking at controlling costs as a religion.

So when Jet started Jet Konnect and Kingfisher rebranded Deccan as Kingfisher Red, all they removed was that sandwich, and added more Economy seats and dumped fares by over INR 1000 compared to the full service option. Everything else remained the same – Staff costs, Distribution costs and Engineering costs. The aircraft were rotated across the same sectors that they used to so they weren’t flying more sectors to enjoy the LCC advantage. Of course they saved a bit here and there by removing crew and cutting some weight on the aircraft, but thats about it. Non fuel costs remained pretty much the same! So did Jet or Kingfisher suddenly transform their full service operation to low cost? Not really – They just dumped fares.

So as the experts say – Fuel is the same for everyone. But the smart ones like Spicejet and SIA practice low cost as a mantra. And you can see this in their results: SIA and Spice have reported profits while Jet and Kingfisher are in the red.

Written by aviationscribbles

May 30, 2011 at 8:19 am