Airline flight schedules went haywire on Monday, due to a re-fuelling problem at the Rajiv Gandhi International Airport (RGIA) at Hyderabad. A technical hitch in the fuel hydrant system of Reliance, the fuel franchisee, led to disruptions and delaying almost all the morning flights by up to two hours.

27 flights were delayed due to 'pressurisation problem' in the Reliance fuel system, forcing the airport operator GHIAL to carry fuel up to the aircraft in tankers.

Passengers were a anxious and irritated lot, and some of they were additionally nervous, coming on the back of yesterday's 'hijack' drama at New Delhi.

The early morning delays, have led to a nationwide domino effect, and all downstream flights across India have been delayed. One airline spokesman put it simply -- "It's chaos today."

Time for Reliance to have some reliable backup plans. (sorry, just could not resist the pun).

Kingfisher is the largest defaulting private airline in India, and this has finally caught up with it. State owned oil marketing companies (OMCs), who claim they are owed about Rs. 1,000 Crore ($200 million), have enforced 'cash and carry' payment terms on the airline, since it has not cleared its dues, even after the extended 90 day payment terms.

Kingfisher Airlines will now have to pay upfront to buy aviation turbine fuel from oil companies to operate its regular scheduled flights. It goes without saying, this will put a major kink in the operations of the airline.

Airline officials are trying to keep its operations unaffected and claim that Kingfisher is sticking to all its schedules.

Hectic negotiations are on behind the scene. Industry sources in the oil industry indicate that with Kingfisher Airlines agreeing to the cash upfront terms, OMCs may not carry out any immediate action against the airline, though they will continue to seek ways to get the dues from the airline, and are also demanding interest on the outstanding dues, and bank guarantees.

Kingfisher Alliance partner, Jet Airways, has paid about Rs. 98 Crore, when pressed by the OMCs on January 28th. However, no action is contemplated against, the state owned National Aviation Company of India Ltd. (NACIL) which operates Air India.

NACIL is estimated to owe the OMCs about Rs. 2,500 Crore ($500 million), but no official, including the CEOs of the OMCs, would even dream of taking any step, for fear of their job. One hand of government has to scratch the back of the other.

The much publicised bio-fuel test flight of Air New Zealand was conducted successfully. Congratulations to the teams at Air New Zealand, Boeing, Rolls Royce, and UOP division of Honeywell.

The blend of fuel was 50% Jet A-1, and 50% Jatropha oil. The Jatropha plant is grown extensively in India, and bio-diesel is slowly inching its way in to the market. I have opined before, that airlines in India, who are constantly complaining about the cost of fuel should strongly consider the bio-fuel option.

While there are many stories on the flight, I found George Raine's article at the San Francisco Chronicle, and Kris Hall's article at The Dominion Post, the most comprehensive technically.

More details can be found at Air New Zealand's website.

TV NZ has an article along with a video report, which I reproduce below as a convenience to Bangalore Aviation readers.

Read more articles on biofuel at Bangalore Aviation.

PTI reports, Kingfisher Airlines, has said that it would effect fare cut across its network from January 1.

Without specifying the quantum of reduction in fares, in a statement today, Kingfisher Airlines Chairman, Dr. Vijay Mallya said

Kingfisher Airlines will begin the New Year on an aggressive note by slashing fares on its network,

The current low prices of Air Turbine Fuel (ATF) allows Kingfisher to pursue an opportunity to significantly increase market share by offering the fine five star flying experience at reduced fares.

Bangalore Aviation readers will recall, until now, Kingfisher, and its alliance partner Jet Airways, had been saying, fares would be cut only after the government classifies ATF in the Declared Goods category. The proposal of the Civil Aviation ministry is before the Parliament.

This long standing demand of airlines across the board, will ensure there will be a uniform four per cent sales tax on air fuel across the country, unlike the present, where sales taxes range from four per cent to 32 per cent, depending on the state, and accounts for over 35 per cent of airlines' operational costs.

However, several state governments oppose the uniform taxation as it would cause revenue loss to them.

Over the last four months, there has been a sharp decline in ATF prices. While some air carriers earlier this month reduced the fuel surcharge between Rs 200 and Rs 400, they did not touch the basic fare.

Mallya's decision could have its inspiration in the fact that Low Cost Carrier (LCC) IndiGo recently beat both Kingfisher Airlines and its LCC Kingfisher Red, to take third place in market share.

There is no doubt, the losses at the airline are significant. Just two weeks ago, there was news about four Kingfisher aircraft being de-registered. Doubts are rising on the impact of these losses on Dr. Mallya or his core alcoholic beverages business.

December 29, update.

The Times of India is reporting the fare reductions will be in the range of 10% and 15%. Jet Airways is expected to cut its fares by a similar amount, and Air India will follow suit. The LCCs IndiGo, SpiceJet, and Kingfisher Red are also working on the fares.

British Airways and Virgin Atlantic Airways have announced a reduction in their fuel surcharges because of the falling price of oil.

The reductions apply on tickets purchased beginning Thursday, and the airlines are not offering refunds to customers who booked flights earlier at the higher price.

British Airways is reducing the charge on World Traveler (economy) class flights of nine hours or longer from £96 ($147) to £66 ($101). For first class and business class passengers on those long-haul flights, the surcharge will be reduced by £30 to £85 ($130)

Surcharges on domestic and European flights are being cut by 25 percent, British Airways said.

Virgin also cut its surcharge on long-haul economy flights in line with British Airways £66, and other reductions were similar to BA's moves.

Singapore Airlines has issued a flight alert for its Christchurch Singapore services.

Apparently Christchurch airport is currently providing only limited supplies of jet fuel to airlines as a result of a fuel supply problem. This problem is affecting all airlines operating from Christchurch.

As a result, Singapore Airlines is unable to uplift sufficient fuel each day to allow for its Christchurch – Singapore flight to operate non-stop.

SQ298, departing from Christchurch will make a short refueling stop in Brisbane, en route to Singapore, from 19 to 24 December (both dates inclusive).

On these days, the arrival into Singapore of SQ298 will be about two hours later than originally scheduled.

The departure time from Christchurch remains at 1150 hrs - the new arrival time into Singapore is 1915 hrs. (All times are local).

Ministry of Civil Aviation (MoCA), in a meeting held recently in New Delhi, has asked domestic airlines to pass on the benefits of reduced jet fuel prices to passengers by reducing fares.

According to a report in Economic Times (ET) today, MoCA has also instructed the airlines to review their security systems and verify the background of their employees in the light of the recent terror attacks in Mumbai. The meeting was attended by CEOs of various airlines and officials of the Bureau of Civil Aviation Security (BCAS) and the Directorate General of Civil Aviation (DGCA). “We took stock of the entire aviation sector in the meeting on various issues right from Aviation Turbine Fuel (ATF) to security and airlines’ preparedness to land on airports during unusual fog conditions,” M Madhavan Nambiar, Secretary, Ministry of Civil Aviation (MoCA) told ET.

Nambiar further stated that the airlines cannot be forced to slash air fares as it’s a commercial decision of the air carriers. An official present in the meeting said that airlines had been categorically asked to reduce airfares to attract more passengers. “All of us should work together to increase passengers on the aircraft. Fares have to be competitive to fill up seats,” said the official.

According to estimates, there is still about 20 per cent excess capacity in the market that may put pressure on airline operators to slash fares. High airfares and slowdown in major economies has hit the domestic aviation sector. Domestic air traffic declined by 22 per cent to 3.04 million in November this year. Air traffic growth is expected to be negative for this year with the sector witnessing double-digit fall in passengers for the last several months.

Aviation turbine fuel (ATF) prices have been slashed by over 11 per cent by state-run oil companies.

This is the seventh straight reduction since September as price surged to an all time high of Rs 71,028.26 a kilolitre (in Delhi) in August.

ATF in Delhi has been cut by Rs 4,208.37 to Rs 32,691.28 a kilolitre effective midnight tonight, said an official of Indian Oil Corporation (IOC). In Mumbai, the home to nation`s busiest airport, ATF will cost Rs 33,719.46 a kilolitre from tomorrow against Rs 38,103.19 a kilolitre at present.

From its all time high in August 2008, fuel prices have now reduced by 54 per cent.

Surely the airlines should also reduce their fuel surcharges by the same 54 per cent, i.e. from a high of Rs. 3,350 to Rs. 1,541.

The current slowing economy needs an extra large dose of stimulus to bring it back on track. Unlike previous slowdowns, this time a 360 degree effort is required to prime the pump and beat the "FUD" factor (Fear Uncertainty Doubt).

The government has to do it's part and focus on areas like infrastructure and other plan expenditure, the companies have to do their share, improve efficiency and reduce prices, and this time around, we the consumers are also going to have to do our bit, spending a bit more than we are comfortable with, even though we face FUD.

In the aviation sector the government has done a little bit like extending credit periods and partially reducing some taxes on aviation turbine fuel (ATF) , but it needs to bite the bullet of populism, and place ATF in the declared list, to ensure a uniform 4% tax across the nation. Government has to resist the political need to distribute populist largess, in the face of elections that are looming around the corner.

I doubt, the airline companies have fully appreciated the fact, that survival, and only then, growth, will be realized, if there is more revenue and with it, potentially greater profits. Selling more products or services is a challenge in the best of times, but in the current economic environment, regardless of business segment, it is a monumental challenge, most especially if one imagines maintaining current price points.

As consumers, all around us, we are seeing prices falling. Be it cars, trucks, two-wheelers, electronics, industrial goods, clothing, even consumer consumables like toiletries, cosmetics, and higher-end restaurants. The exceptions being the two major "F"s - fuel and food, and airline ticket prices, at least in India.

Following the lead of the private counterparts in the car, two-wheeler, who have begun announcing price cutting deals, and have even passed on the savings of the 4% reduction in Central VAT (Cenvat) to customers, the airline companies too have to pitch in and bring down their fares drastically, if they are to return passengers and cargo to the skies, until now, lost to road and rail.

Instead of learning from the global airline industry, the Indian airline industry seems to be playing the same goodwill loosing strategy as that of the Indian real estate industry, who continues to blame high interest rates as the reason for their lot in life, just as airlines continue to whip the fuel demon.

We keep hearing from airlines that fuel represents about 40%~50% of their total operating costs, and that taxation on ATF must be reduced. Most passengers agree on both statements. But, when fuel prices have retreated by almost 50% from a high of Rs. 71 per litre to Rs. 38 per litre, and yet the fuel surcharge levied by airlines is brought down by a paltry 13%, that too at the behest of government "suggestions", the airlines will have to face the cynicism and a complete lack of sympathy of the general populace, and may be, even some of the ministers.

In any organisation, may be with the exception of government, and some of most the iconic luxury brands, the first response to any slowdown is to cut costs, improve efficiencies, and offer customers a better price . The cost cutting could be anything from nominal to extreme, but the more the better.

India, and Indians, are renowned as one the most cost-conscious buyers on the planet. Give them a good deal, and they will flock to you. Keep prices high, and, you better have a big wad of cash sitting in the safe for your fixed costs, for you are going to be one very lonely organisation; and that is the downward spiral to bankruptcy.

IndiGo joined fellow airlines Air India, Jet Airways, JetLite, Kingfisher Airlines, and Kingfisher Red and announced a cut of Rs 400 in its fuel surcharge across all domestic routes, today.

IndiGo President Aditya Ghosh said

"Effective December 6th, IndiGo has reduced its fuel surcharge to match that of Air India, Jet Airways and JetLite,"

He said this was aimed at keeping the promise of affordable fares and passing on the benefits of the recent reduction in aviation turbine fuel (ATF) prices to the air travellers.

Fuel cost constitutes between 40 and 50 per cent of the total operational cost of an airline in India

Following reductions from fellow airlines, Kingfisher Airlines and Kingfisher Red, today, announced reduced fuel surcharge on air tickets.

The cut on fuel surcharge on all domestic routes will be applicable with immediate effect, a company spokesperson said.

Kingfisher Red (formerly Air Deccan) has reduced fuel surcharge

• For routes under 750 kms, the fuel surcharge is reduced by Rs. 300, from Rs. 2,250 to Rs. 1,950.
• For routes over 750 kms, the fuel surcharge is reduced by Rs. 200, from Rs. 2,900 to Rs. 2,700.

Kingfisher Airlines has also reduced the fuel surcharge

• For routes under 750 kms, the fuel surcharge is reduced by Rs. 400, from Rs. 2,350 to Rs. 1,950.
• For routes over 750 kms, the fuel surcharge is reduced by Rs. 400, from Rs. 3,100 to Rs. 2,700.

I was just reading an article on Business Standard about no fare cuts by Jet and JetLite, and in the background, I get this news from Jet and JetLite.

From tomorrow, December 6, 2008, JetLite has announced a reduction in applicable passenger fuel surcharges on all domestic routes.

• For routes under 750 kms, the fuel surcharge is reduced by Rs. 300, from Rs. 2,250 to Rs. 1,950.
• For routes over 750 kms, the fuel surcharge is reduced by Rs. 200, from Rs. 2,900 to Rs. 2,700.

Similarly Jet Airways has also reduced the fuel surcharge.

• For routes under 750 kms, the fuel surcharge is reduced by Rs. 400, from Rs. 2,350 to Rs. 1,950.
• For routes over 750 kms, the fuel surcharge is reduced by Rs. 400, from Rs. 3,100 to Rs. 2,700.

While these reductions are welcome, I am wondering why is the reduction not greater on the longer distance routes. With massive reduction in aviation turbine fuel prices, wouldn't the savings to airlines be greater ?

Read a nice article by Anjuli Bhargava in the Business Standard today, about the airlines' ticket prices, the fuel prices, and the politicians. I strongly recommend your reading it.

Ms. Bhargava asks

Can someone enlighten me as to what’s going on? I am referring to this quid pro quo that’s been playing out through the media between the airline industry, the aviation ministry and the government.

Sure I can Ms. Bhargava. We consumers are being taken for a ride. I have written how.

• Click here for all articles about the fuel prices.
  

• Click here for all article about the zero commission issue.
  

• For an analysis on the current crisis in Indian aviation click here.
  

Talking of the zero commission issue. The travel agents have become smart. They have decided to target the airlines one at a time. From yesterday, travel agent, including the online agents, have stopped issuing Jet Airways or JetLite tickets. To ensure maximum impact on Jet, and continued income for themselves, the agents will continue to issue Kingfisher and Air India tickets. Within a week they expect Jet to soften its stand. Then they will go after Kingfisher, and on and on, one airline at a time.

What is the fight all about. Very simple.

Till November 1, all full service airlines used to pay travel agents a 5% commission on the basic fare. This was built in to the cost of the ticket. If you or me, went direct to the airlines' websites and bought the ticket, the airline kept the 5% commission for itself.

On November 1, the airlines stopped the commission and told agents to start charging a "transaction fee" ranging from Rs. 350 to Rs. 10,000, per transaction. The agents are willing to do that, but expect the airlines to charge the same transaction fee from direct customers who go to the airline office or website, so that a price parity is maintained.

The airlines are unwilling to do that. Now that the costs are out in the open, we customers have started complaining. Herein lies the crux of the matter.

It may not be $700 billion as for Wall Street, but we customers are being called on to bail out both the airlines and the travel agents.

And just as a reminder, the fee is per TRANSACTION. i.e. if you change your ticket, or even cancel your ticket, you have to pay the fee again, and again, and again.

One frequently hears the term "fuel hedging". May not be much in India, since airlines are not allowed to import fuel directly, and the government controlled oil marketing companies Indian Oil, Bharat Petroleum, Hindustan Petroleum, etc., do not practice hedging.

Fuel Hedging is a contractual tool used by some airlines to stabilize jet fuel costs. A fuel hedge contract commits an airline to paying a pre-determined price for future jet fuel purchases. Airlines enter into such contracts as a bet that future jet fuel prices will be higher than current prices or to reduce the turbulence of confronting future expenses of unknown size. If the price of jet fuel falls and the airline hedged for a higher price, the airline will be forced to pay an above-market rate for jet fuel.

Southwest Airlines is touted as a model fuel hedger. Southwest's aggressive fuel hedging has helped the airline avoid some of the pain of the recent airline industry downturn resulting from high fuel costs. Between 1999 and 2008, Southwest saved approximately $3.5 billion through fuel hedging.

In short fuel hedging is hard to understand and even harder to get right, especially in the past year with prices as volatile as they have been. We have seen the complete crumbling of the Indian airline industry due to rampant fuel prices.

Flightglobal has put together an interesting selection of articles in case you are interested in fuel hedging.

This article from John Bowker at Reuters sets out the current state of play on airline hedging.

Flightglobal's Kerry Ezard's article sets out what airlines were doing when oil was at or around its peak of $140+ a barrel.

There are the US carriers like Southwest and United that have had to account for losses in their fuel hedge contracts.

And while oil prices have retreated, this article raises the disturbing question "Can airlines survive $200-a-barrel oil?"

As ever, when people try to second guess the market, the potential for error is huge, but the events of the past year have made the topic of fuel hedging so critical.

Coupled with the recent terror attacks in Mumbai which will hit air traffic, this step by Air India (merged with the old Indian Airlines), will definitely increase the pressure on private carriers Jet and Kingfisher to reduce air fares by pruning the fuel surcharges.

Air India announced a reduction in fuel surcharge for all domestic sector flights by INR 400 with effect from 02-Dec-08. The fuel-surcharge is presently INR 2,350 for sectors below 750 kms and INR 3,100 for sectors over 750 kms. The average reduction in fuel surcharge will be over 14.5%.

The cut-back in fuel-surcharge is a consequence of the reduction in ATF prices from Sep-08 onwards, including the reduction announced by Oil Companies for Dec-08. Domestic air travel demand has been slow in recent months, and the reduction in fuel surcharge is expected to stimulate domestic air travel market during the winter peak season.

Mr. Raghu Menon, Chairman and Managing Director, Air India, said, "We have decided to bring down the fuel surcharge, now that crude prices have fallen globally, thereby bringing down ATF prices. Although crude prices are still volatile, we hope it will stabilize at the current levels, so that there is a short to medium term relief in ATF costs. This decision takes into account the reduced prices of ATF announced for the current month by the Oil Companies. While the airlines are no doubt going through difficult times, it is necessary for us to react positively to pass on some concession to passengers and generate demand."

State run oil marketing companies (OMCs) have reduced Aviation Turbine Fuel (ATF) prices by Rs. 5,580 per kilolitre (KL) in line with global reductions in crude prices.

This is the fifth cut in ATF prices since August 2008, when rates rose to an all time high of Rs 71,028.26 per KL. ATF prices have reduced by more than 30% during the month of November itself.

As of today, prices are at par with September 2007 prices, at Rs 38,163.23 per KL.

The reduction is part of the government's response to pleas by airlines for help. The government had instructed the OMCs, to adjust prices on a fortnightly basis instead of the previous monthly basis.

Airlines, especially full service carriers, however, remained non-committal, preferring to pocket the savings, rather than passing on the benefit to passengers.

They said they would watch the situation for a little longer before deciding on cutting fares.

The turmoil in the Indian airline industry during the month of October has produced results that can be, only mildly described as, significant. In just four weeks, castles built over the last four or more years, have come crashing down.

By the end of 2008, the Indian airline industry which accounts for less than 2% of the global airline market, will contribute about $2 billion, or over 33%, of the total global losses. This dire, lop-sided situation, which can be attributed to only primary factor – gross imbalance. It is ironic, that the demand – supply imbalance in the Indian airline industry, is resulting in this imbalance between market share and losses share.

How did the situation become so dire?

Over the last 4 years, the Indian airline industry has created this imbalance thanks to rampant and blind expansion. It was all on auto-pilot, thanks to low fuel prices and a robust economy.

In 2008, along came the “perfect storm” and the reality struck home. Skyrocketing fuel prices since late 2007, married to a populist fuel pricing policy by the central and state governments in India which grossly overtaxed aviation turbine fuel (ATF), and sent the already high fuel prices in to the stratosphere, followed by a slowing economy thanks to the global financial credit crises and subsequent meltdown of demand, and uncontrolled costs.

Capt. G.R. Gopinath’s Air Deccan believed in bring airlines to the masses. To expand customer base Air Deccan expanded in to the smallest of cities, and given that, India is an extremely price sensitive country, offered fares that were at par with, or just marginally above, that of the Indian Railways, known to be one of the most economical railways in the world.

Along with with Air Deccan (now Kingfisher Red), low cost carriers (LCCs) Air Sahara (now JetLite), SpiceJet, IndiGo, and GoAir commenced. India seemed destined for low cost paradise, as even full service carriers, Indian Airlines (now Air India), Jet Airways, and Kingfisher Airlines, scrambled to develop low cost fare models of their own.

Thanks to the unbridled expansion, HR costs went in to orbit. From expatriate flight crews to the ground handlers, people were at a premium, and airlines paid, and paid way to well.

Another problem is, India does not have adequate full service airports, let alone, separate low cost airports like Europe and North America.

At all major airports across the country the skies became heavily congested, and it was not uncommon to hear an announcement from the Captain “Ladies and Gentlemen, welcome to Delhi. We are 25th in line for landing, and should land 2 hours from now”. This on a 1.5 hour flight.

The higher costs of full service airports, these delays, and systemic inefficiencies eroded the advantage LCCs in Europe and North America enjoy, i.e., making 9+ flights per day per aircraft, compared to 6 or less in India, and only added to the operating cost burden on all airlines, particularly the LCCs.

As global fuel prices rose, thanks to the fuel taxation policy in India, which makes ATF about 70% costlier than global standards, the impact on airlines was even more severe.

The airlines began to bleed profusely. Unable to sustain, airlines have been raising their prices over the last year, in some non-metro routes, by over 100%. The price sensitive Indian market, particularly in Tier II cities began to slow down.

In parallel, along came the economic slowdown. Demand slowed, and passengers across the board began tightening their belts. The bottom fell out of the market, as passengers shifted from the skies back to rail and bus. At the same time, new airports at Hyderabad and Bangalore were commissioned in the first half of 2008, these airports are far away from the city, and the long and costly commute, along with the rising air fares, totally erased demand in the regional routes, the demand-strength on which LCCs had based their massive expansion plans.

Domestic traffic has contracted over the last four months, declining by as much as 19% in Sep-08. Growth has fallen from 33%+ to over -20% within the span of just six months.

Indian domestic passenger numbers and passenger numbers growth: Jan-07 to Sep-08

Source: Centre for Asia Pacific Aviation & Ministry of Civil Aviation

In desperation, airlines have been resorting to steps, hitherto unthinkable, to stop their bleeding and cash burn.

To bolster yields per flight, airlines have cut capacity by 17% in the six months Apr to Sep 2008, and the further increase in prices have had even more impact on demand. Jet and Kingfisher entered in to an alliance, which left the jaws of most Indians agape on the floor, given the severe competition between them. Staff, including precious flight crew, started getting the axe. CEOs of three airlines are no longer there. Despite a 20%+ reduction in fuel prices (thanks to taxation cuts and falling crude prices), no fare reductions are being passed on to the passenger. The massive fleet expansions have been put on hold. Aircraft deliveries are being delayed. Aircraft already produced are being sold off to other global airlines. Aircraft in the fleet are being returned back. Disagreements and litigations will ensue, but the airlines have no choice. Their backs are against the wall.

The reduction in fuel prices will provide short term relief, but the outstanding fuel bills of the airlines are gigantic. Capacity reduction will have its impact only if properly rationalised with demand.

While, domestic demand crashed through the floor, the one bright spot was international traffic growth, which has remained consistently robust at 10% year-on-year for the first half of FY 2008-09. However, as the global economic slowdown has started taking its toll on international travel, many carriers, such as Singapore Airlines, Finnair, Austrian, British Airways, and KLM have announced capacity cuts and withdrawal of service. At the same time, with the Middle East being a robust market, Gulf carriers continue to grow. Emirates has become the largest foreign carrier in India and will aggressively expand from 132 to 163 weekly services over the next six months.

I am reminded of the Chinese saying “may you live in interesting times”. The rest of 2008 and whole of 2009 is going to be very interesting indeed. The medium term growth for the Indian airline industry is bright, but only for those who survive.

Kapil Kaul, CEO, Indian Subcontinent & Middle East, The Centre for Asia Pacific Aviation, gives us a look behind the scenes…

Jet-Kingfisher alliance - the unthinkable happens

The Jet Airways-Kingfisher alliance, which although unthinkable just a few weeks ago, is a reflection of the current fragile state of the market. The primary objective of this arrangement is to bring together the two largest players in the market, with overlapping networks, to reduce capacity and align it with demand, whilst at the same time being in a position to influence fares. At this stage, it would appear that this alliance will lead to extensive engagement and integration between the two carriers.

Key elements of the alliance will include code-sharing; interline and special prorate agreements; network rationalisation; joint fuel management; common ground handling; GDS integration; frequent flyer reciprocity and human resource sharing.

The alliance is yet to take-off in any meaningful way, to date there have been some initial meetings, but it is too soon to expect any concrete steps. The initial focus will be on network, commercial and revenue management issues. Both carriers are hoping that a reduction in capacity, optimisation of their respective networks, higher yields and lower fuel prices, together with the generally strong demand in the third quarter, should reduce losses. The future of the alliance depends on both carriers seeing equal and measurable improvements in performance.

Jet Airways restructuring

Jet Airways is similarly restructuring its domestic and international operations. Jet has reduced its capacity in H1 2008/09 by 13%. The combined seat production of Jet and JetLite has declined from around 56,000 daily seats in April 2008 to 50,000 in Sep-08.

Jet is actively pursuing a cost reduction strategy - staff rightsizing is a key element of this and has been implemented actively at JetLite. The recent attempt to do so at Jet Airways was poorly timed and managed, resulting in a significant media and political uproar. However, other measures include a zero commission structure, a focus on direct distribution and e-commerce, renegotiating GDS fees and other measures. Maintenance and operational issues are currently under intensive review.

On the other hand, investment is being made in strengthening areas considered weak, such as the overseas sales network which has not been making a sufficient contribution to the international routes. Targeted sales and marketing initiatives are being pursued to enhance revenue and yield.

The integration of Jet Airways and JetLite continues and although the process has been longer and more challenging than anticipated, positive results are expected to be seen shortly.

As a result of focusing on core operational and commercial issues over the last six months, the Jet Airways/JetLite combine has increased its market share lead over Kingfisher/Kingfisher Red and has posted much healthier load factors in the last quarter.

Seven B737s are being returned prior to the end of this year, while five B777s are being leased to Turkish Airlines, allowing for capacity on North American routes to be better aligned with demand. These routes have been under significant pressure. Deliveries due in the next 12-18 months are being deferred and no new international routes are expected during this period.
JetLite is expected to operate with a full strength of 24 aircraft shortly with the return of two CRJs from maintenance.

Kingfisher rationalising its capacity

The first steps of rationalisation can already be seen: Kingfisher Airlines has sold five A340-500s, which would suggest that plans to launch non-stop services to the US have been shelved for the time being. The current fleet of five A330s has two aircraft being used for the Bangalore-London route, with the remaining three aircraft yet to be deployed: routes under consideration are Mumbai-London; Mumbai-Singapore and Mumbai-Hong Kong.

On the domestic front, seven A320s are being returned in Nov/Dec and further reduction is still expected. Some A320s may be redeployed on short-haul international routes, primarily to the Middle East, where they can be used for back-of-the-clock operations. The ATR fleet is also under review, Kingfisher is reportedly not happy with the performance of the regional aircraft.

No expansion in the fleet is expected for the next 12-18 months.

The focus is on achieving commercial stability, stemming cash losses and addressing issues related to the integration of Kingfisher Red. The next 12-18 months will be a time of consolidation in terms of people, systems, operations and commercial issues and to restructure the cost base to compete more effectively.

SpiceJet and IndiGo consider their futures

The two largest independent LCCs are taking a cautious approach with respect to capacity expansion, SpiceJet has leased five of its aircraft to other airlines and is operating with a fleet of 15 aircraft. Its second quarter results were significantly below expectations and continued performance at this level will set the stage for further realignment.

IndiGo has also leased two A320s to Turkish Airlines and is evaluating fleet induction plans for the next 12-18 months.

Both carriers will benefit from lower oil prices and are launching some fare initiatives to stimulate the market. SpiceJet is currently the more vulnerable of the two carriers, despite its recent cash injection by a US-based private equity firm.

Air India ill-equipped to handle current environment

Air India is expected to show continued weakness in its domestic operations. The Jet-Kingfisher alliance will further accelerate this.

Air India is possibly the only domestic airline in India which does not have a modern yield management system - most fare decisions are taken manually.

Internal issues related to the merger between Air India and Indian, staff morale and a public sector mindset, continue to play havoc with its operations.

A massive cost-cutting exercise is under way which includes:

• Fuel conservation measures, for which IATA is assisting with an efficiency gap analysis;
• Older, less fuel-efficient B747s and A300s are being retired and leases on B747s and A310s are not being renewed. Of the 111 aircraft on order, 38 have been delivered, which has reduced the average age of the fleet from 14 years to ten years;
• International operations are being reviewed and the network is being restructured, including the suspension of certain loss-making routes;
• Reduction in weight and category of inflight catering.

However, Air India lacks the management strength to navigate the significant issues which it faces to be able to effectively challenge other players. Furthermore, with political impediments to rightsizing its workforce of 35,000, achieving a viable business model will remain tough.

PTI reports, state-run oil marketing companies on November 3, cut jet fuel prices further by Rs 2,100 per kilolitre on top of the 17 per cent reduction, which was announced last week after the government exempted Customs Duty on fuel last week.

Oil majors like Indian Oil Corporation (IOCL), Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL) from the 1st of this month have cut Aviation Turbine Fuel (ATF) price by Rs 9,429.87 per kilolitre to Rs 47,017.93 per kilolitre in Delhi.

Following the fall in international oil prices, ATF price for domestic airlines reduced further by Rs 2,100 per kilolitre from last night. For international airlines, who do not pay local taxes or Value Added Taxes (VAT) the reduction will be USD 35 per kilolitre.

Thanks to the global reduction in crude oil prices, and reductions in Customs duty (in response to desperate pleas by airlines), Aviation Turbine Fuel (ATF) prices in India, have retreated back to earlier levels of 8 months ago.


Today, ATF is priced almost the same as in March 2008, but air fares show no sign of retreating. Airlines had almost doubled their fuel surcharges in June 2008, citing massive increases in ATF prices by the oil companies.

Yet, despite the prices reducing drastically, airlines are following a dangerously greedy business strategy, and refusing to reduce their fuel surcharges. Not only is this impacting the volume of passengers, but it increasingly alienating airlines' supporters, passengers and politicians', alike.

Instead of abating, the short-sighted approach by airlines, is on the increase. From November 1, 2008, all airlines removed the 5% commission they used to pay to travel agents, but have kept the savings, instead of passing it on to our customers. Naturally, the travel agents, are levying additional service charges on the tickets they sell to us. It is a perfectly acceptable situation till this point, but in addition to this indirect fare increase, Jet, Air-India, and Kingfisher are imposing a "transaction fee" on all ticket sales sold by THEM!!!!. In fact the transaction fee will be levied even on refunds or changes!!!

Across the globe, companies are going all out to retain their customers. Airlines in India, seem to be taking their customers and supporters for granted, adding new unreasonable fees, and hoarding their cost savings, instead of sharing it with their customers.

It is little wonder, why passengers continue to desert the skies and take to trains and buses.

A rollback in the fuel surcharges to March levels, and non-imposition of the ridiculous transaction fees, will bring the passengers back to the skies and improve load factors, which will increase the airlines' incomes. Keep the fares high and passenger numbers will just continue to dwindle, and that, my friends, is the download spiral to oblivion.

The battered India airline companies received a lifeline from the government on October 31.

The 5% Customs duty on Aviation Turbine Fuel (ATF) has removed. In addition the government controlled oil marketing companies have announced a price reduction of Rs. 6,000 per kilolitre on ATF.

These two steps, will result in an about 17% reduction in prices, but predictably, airlines have chosen to hoard the price reductions to buttress their shattered financials, and say it is too early to say whether the drop can be passed on to customers in the form of lower air fares.

Adding insult to injury, airlines will force, their customers to start paying the "transaction fee"on air tickets from November 1, 2008. The fee will hike domestic fares by up to Rs. 500 and international travel by up to Rs. 10,000 a ticket. This fee will be payable even on refund tickets.

Please see the tags "Transaction Fee" for articles on this subject.