As I sign off for the week, a light hearted story from British Airways with a serious intent.

There will be Red Noses on the ground and in the air at British Airways this week, in support of Comic Relief's Red Nose Day on 13 March.

(Picture by Nick Morrish/Seven Squared/BA News)

Staff will be encouraged to Do Something Funny for Money, by wearing Red Noses, and the airline has also painted Red Noses on a long haul Boeing 747, and two short haul Airbus aircraft.

The airline is asking all eagle-eyed photographers to send their uploaded pictures of the British Airways Red-Nose planes in flight to its Twitter page.

Comic Relief spends all the money raised through Red Nose Day to give extremely poor, vulnerable and disadvantaged people in the UK and Africa a helping hand to turn their lives around. For more information on Red Nose Day, go to their website www.rednoseday.com.

In this spirit of giving, I seek your support of Bangalore Aviation. Advertising income is donated to the Rotary Club of Bangalore for education of under-privileged gifted children. It only takes a couple of seconds of your time.

This has not been a very pleasant 24 hours.

The crash of Continental 3407 in Buffalo, derailment of the Coromandel Express at Jajpur, Orissa, India which killed 15 persons, and now a British Airways Cityflyer British Aerospace Avro RJ-100, registration G-BXAR performing flight CJ-8456 from Amsterdam, Netherlands to London City, UK with 67 passengers and 4 crew, experienced the collapse of the nose gear while landing on runway 28 at London City around 19:40 local (19:40 GMT).

The airplane came to a stop on the runway centerline. All people were evacuated from the the airplane using slides, one passenger is reported to have been brought to hospital with minor injuries.

The airport was closed, 11 incoming flights were diverted to other London airports - Stansted, Heathrow, and Luton and Southend.

London Ambulance Services said, they dispatched 6 ambulances and several single responders to the airport and treated 4 passengers on scene, but nobody was brought to a hospital.

The Air Accident Investigations Board have launched an investigation into the accident.

Thanks to Simon at The Aviation Herald for the details.

British Airways released it performance figures for January 2009. In the month, passenger capacity, measured in Available Seat Kilometres (ASKs), was 2.6 per cent below January 2008. Traffic, measured in Revenue Passenger Kilometres (RPKs), fell by 1.3 per cent. This resulted in a passenger load factor increase of 1 per cent, to 73.2 per cent.

Reflecting the deepening impact of the recession and cost cutting by passengers, premium traffic (first and business class) dropped 13.7 per cent compared to a 1.4 per cent rise in non-premium traffic. A direct barometer of industrial manufacturing ouput, cargo performance, measured in Freight Tonne Kilometres (FTKs), fell by 16.7 per cent, which should be a cause of concern to all of us, as even post 9/11, when global airline fleets were grounded, cargo output fell only 13.7 per cent. It appears global manufacturing has just stopped, because we consumers have stopped buying.

We have to fight the "FUD factor" (Fear Uncertainity, Doubt).

Also, British Airways has re-cast its financial performance and restated it performance for the 9 months ending December 31, 2008

• Operating profit of £89 million (2007: £744 million - restated) down 88 per cent
• Loss before tax of £70 million (2007: Profit £816 million - restated)
• Revenue £7,046 million (2007: £6,634 million - restated) up 6.2 per cent
• Passenger revenue at £6.2 billion was up 6.6 per cent
• Cargo revenue at £537 million up 18.8 per cent, before the recession kicked in
  
• Cargo performance, (measured in FTKs) down 1.7 per cent primarily due to effects in last quarter of 2008
  
• Passenger Capacity (measured in ASKs) up 0.2 per cent
• Passenger seat factor 78.4 per cent down 2.3 per cent
• Fuel costs £2,244 million up 48.4 per cent

Cash at the end of December was £1.6 billion, £278 million lower than at March 2008. Net debt was £2.2 billion, up £0.9 billion since the year end, £0.6 billion of this increase due to exchange.

British Airways has responded by adding more discounted fares to its World Offers sale for travel between January and September 2009 with reductions on a range of longhaul destinations including New York, Cape Town and Grand Cayman and shorthaul destinations including Paris, Venice, Milan, Vienna and Prague.

Statements from British Airways clearly indicate the airline is looking at the medium to long term.

The new Club World longhaul cabin has been fitted on 19 of 42 Boeing 777s in addition to all 57 of Boeing 747s. The fitments will be completed by the end of 2009.

For shorthaul passengers, Club Europe will be in a new configuration to guarantee a window or aisle seat from February 23, 2009, with the removal of the use of the middle seat.

Fitments of the new First class cabin will start later this year and will added to the pending Boeing 777-300s due for delivery in 2010.

The One World alliance is celebrating it's tenth anniversary, and its member airlines have unveiled a special livery on their fleets. Hope you will enjoy the images. Click on the images to see the high resolution versions.

American Airlines Boeing 777

British Airways Boeing 747

Japan Airlines Boeing 777

Finnair Airbus A340

Royal Jordanian Airlines Airbus A319

Iberia Airbus A320

LAN Chile Boeing 767

Malev Boeing 737
Cathay Pacific Airbus A340
QANTAS Boeing 747

Oneworld has also announced 10% reduction in airfares, a new Circle Atlantic fare, and a free business class tickets contest.

The proposed merger of British Airways and Iberia are threatened, and may be heading for the rocks, after the UK carrier warned it was not prepared to merge with its Spanish counterpart on the basis of current market valuations for the airlines.

Thanks to good performance by Iberia shares, poor performance by British Airways shares, and the sharp decline of the British Pound against the Euro, the market value of Iberia on Thursday exceeded that of British Airways for the first time since the carriers began merger negotiations in July 2008, to form Europe's third largest airline behind Air France-KLM and Lufthansa-Swiss-Austrian-Brussels.

When the merger talks between the two began at the end of July, the respective market capitalisations indicated a share exchange ratio of 65 per cent for BA and 35 per cent for Iberia. The ratio has plunged to only 49.6 per cent for BA and 50.4 per cent for Iberia.

During a visit to Hyderabad, BA CEO, Willie Walsh said

The present valuation was unacceptable. Our shareholders would not accept it; The Iberia share price had "performed well in recent times", I would argue it is overpriced. We will look at this in the negotiations. That work is still to be done. I am not at all concerned about not doing a deal with Iberia. I would walk away if it does not make sense.

Bangalore Aviation readers will recall that valuation disagreement, was a dominating reason for the recent collapse of merger talks between British Airways and QANTAS.

The rising deficits in BA's pension scheme is also a cause of concern for Iberia, and it is due to receive a report by financial consultants, Mercer, by the end of the month.

Iberia executives are realistic, and acknowledge that the recent shifts in market valuation are not reflective of the true values, of the two airlines, but simplest corporate governance demands them to take fullest advantage of the situation, and get a good deal.

The talk from Willie Walsh may be tough, but British Airways is in a tight spot. It is rapidly falling behind in the airline consolidation race; a crucial strategy during these bleakest of times. Their anti-trust waiver requests with American Airlines, are far from through, and if the merger with Iberia fails, I do not see many available options for them.

British Airways today, reported its performance for December 2008. The airline's performance is in line with IATA's November 2008 report, which highlights a deepening of the global economic slowdown.

Capacity declines are in line with actual performance. Compared to December 2007, passenger capacity, measured in Available Seat Kilometres (ASK), was down 3 percent, Actual passenger performance, measured in Revenue Passenger Kilometres (RPK), fell by 3.4 per cent, passenger load factor decreased by 0.2 per cent to 76.7 per cent.

It also appears that corporate passengers are belt tightening, and moving to the back of the plane. Premium passenger traffic (first and business class) decreased by 12.1 per cent while economy decreased by a comparatively modest 1.7 per cent.

The alarming fall, which highlights economic slowdown, is in cargo performance, measured in Freight Tonne Kilometres (FTK), fell by 14.3 per cent.

Globally air cargo transports about 35 per cent to 40 per cent of global trade, by value. Globally, air cargo FTK fell by 13.5 per cent in November 2008, when compared to a year ago. The December fall by British Airways, highlight the continuing and rapid decline of global trade, and deepening of the already significant economic slowdown.

2009 will see economies become a lot worse before improving.

British Airways is having a New Year sale starting from today, December 23.

Fares to New York for as low as £259 (saving £78). Boston, Philadelphia and Washington from £279 (saving £79, £69 and £69 respectively). Los Angeles and San Francisco are on sale from £339 (saving £63 each) and Chicago is available from £289 (saving £89).

New Delhi from £359 (saving £121) and Mumbai from £329 (saving £91). Its a pity Bangalore is missing.

The Middle East offers include Dubai starting from £299 (saving £56), Abu Dhabi from £329 (saving £43), Muscat from £339 (saving £36), Riyadh from £369 (saving £93) and Jeddah from £329 (saving £96).

Caribbean islands Antigua, Barbados and St Lucia start from £479 (saving £73, £66 and £64).

Singapore and Bangkok from £589 each (saving £105 and £102 respectively) and Sydney from £699 (saving £106).

Short-haul destinations include Dubrovnik from £59 one-way (saving £24), Thessaloniki from £65 one-way (saving £18) and Helsinki and Istanbul from £79 one-way (saving £29 each). Berlin and Rome are on offer from £55 one-way (saving £21 each).

Some of the fine print of the offer :

• The sale runs from December 23, 2008 to January 27, 2009 for selected travel dates between January and September 2009.
• All long-haul ticket prices are return fares and include all taxes and charges.
• All short-haul ticket prices are one-way fares and include all taxes and charges.
• Purchase needs to be made online at www.ba.com.
• All tickets purchased by phone will be subject to a £5 offline booking charge.
• All tickets are subject to availability.

Happy holidays!!

British Airways has placed firm orders on Embraer for eleven fuel efficient E-Jets, comprised of six Embraer 170 and five Embraer 190SR jets, with options for an additional three 190SR jets. The Embraer 170s will be powered by General Electric CF34-8C5 engines and the 190SRs will be powered by CF34-10E5 engines.

The airline's wholly owned subsidiary BA CityFlyer, which operates from London City airport, is expected to take delivery of the first of its new aircraft, in September 2009.

The contract value of the E-Jets firm orders is US$ 376.5 million, at list price, and could reach US$ 489 million, if all options are confirmed.

The E-Jets will replace the current fleet of 10 Avro RJ100 and two RJ85 aircraft operated by BA CityFlyer. The fuel efficiency of the new E-Jets over the the current RJ fleet appears to have been a key consideration, with the Embraer 170 being 56% more fuel efficient and the 190SR being 28% more efficient.

The Embraer 190SRs and Embraer 170s will operate on routes from London City Airport to Scotland, Ireland and Europe.

The 170 will be configured with 76 seats, and the 190SR with 98 seats. Both will have a single-class layout with 4 abreast seating, benefiting from the 'double-bubble' fuselage design which offers more personal space for passengers, and affords BA CityFlyer, the marketing pitch of not having a middle seat.

Due to its very short runway and the high levels of noise restrictions, London City, is considered a very demanding airport, by aircraft manufacturers.

The 170 obtained steep approach certification to operate at London City Airport in June 2007. The 190SR is currently undergoing a series of engineering evaluation tests and expects to receive its steep approach certification by the end of 2009.

For more information on Embraer E-Jets click here. For more information on British Airways click here.

Bloomberg has an interesting analysis of the risks to British Airways after the failure of its merger talks with Qantas, and why BA must pursue its long dragging discussions with Iberia to success. Click here to read the article.

British Airways Plc and Qantas Airways Ltd are announcing that after detailed discussions about a potential merger, talks have ended.

Despite the potential longer term benefits to both British Airways and Qantas, the airlines have not been able to come to agreement over the key terms of a merger at this time.

British Airways and Qantas will continue to work together on their joint business between the UK and Australia and as part of the Oneworld alliance.

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.

British Airways announced today, it is making significant changes to its in-flight entertainment brand High Life with an upgraded system offering customers a greater choice and more control over their entertainment on board.

The system, known as audio and video on demand, or AVOD, is a huge step forward for the airline boasting the ability to run over 200 entertainment choices, with 100 films and TV programmes, 50 CDs and 20 games as well as radio channels and audio books.

Using on-screen menus, at the touch of a button, customers will be able to select their entertainment as and when they choose. They can pause or stop the programming whenever they like and even fast-forward and rewind, preventing them from missing crucial parts of the programme when food is served or when they want to stretch their legs.

There will be a greater selection of the latest blockbuster movies, a movie library with classics and all time movie greats, foreign language films, and a dedicated 'Skyflyers Kids' section with films, TV programmes, music and stories especially for younger customers under the age of 12.

For those passengers more interested in an auditory experience, the system enables them to compile a customised list of CD tracks from the wide selection on-board or choose from audio books ranging in topic from fiction to educational titles.

There will also be 20 interactive games such as bowling, roulette, and 'Who Wants to be a Millionaire'. These are available for customers in First, Club World and World Traveller Plus.

A 'Your Journey' section has been developed to enable travellers to browse through screens detailing the on-board service, in-flight retail outlet 'Highlife Shop!', tax-free shopping promotions and arrivals videos.

The system is currently being rolled out across the airline's long-haul fleet.

As per a Bloomberg article, in the face of continuing declines in global air travel,

British Airways Plc, Europe’s third- largest airline, will cut more than 100 jobs at London’s Gatwick airport as it reduces services there by 15 percent from mid-2009.

The number of aircraft based at the airport will be reduced to 37 from 41, the Harmondsworth, England-based airline said today in an e-mailed statement. The cuts to ground operations staffing will be on a voluntary basis, according to the statement.

The story also refers to the ongoing merger discussions between British Airways and fellow OneWorld partner Qantas.

In parallel I read about a PTI report about Malaysian Airlines seeking global partnerships. As per the report

Malaysia’s national carrier, Malaysia Airlines (MAS), is seeking partners to grow further but has not commented on reports that it is seeking a merger with British Airways and Australia’s Qantas. “We are in talks with a number of airlines on collaborating and creating synergies for growth. This ranges from Joint Ventures and code shares to interlining partnerships. For example, we have signed a memorandum of understanding with Qantas on a joint venture on maintenance, repair and overhaul,” Idris Jala, Managing Director and Chief Executive Officer, MAS said in a statement day before yesterday.

In Malaysian, Qantas will get access to the lucrative ASEAN, and intra-Asian routes, and will fulfill it's goals of becoming a truly global carrier. A Malaysian merger or partnership with also give the behemoth base level access to the ultra-large and very under-utilised Kuala Lumpur International Airport (KLIA). KLIA does have the potential to become a formidable competitor to Singapore's Changi Airport, a purpose for which former Malaysian Prime Minister Dr. Mahathir Mohammed championed its mammoth construction. It just needs the right amount of traffic, the amount a global carrier British Airways-Qantas-Malaysian will give.

British Airways commenced operations to Rajiv Gandhi International Airport (RGIA),
Hyderabad, today.

The new route provides a direct flight from Hyderabad to London Heathrow Terminal 5 and is aimed at the IT segment of Hyderabad, with its connections to 22 destinations in North America.

British Airways will operate five weekly Boeing 777-200ER non-stop flights between Hyderabad and London, with a three long-haul cabins on the route: Club World (business class), World Traveller Plus (premium economy class) and World Traveller (economy class).

While airlines have seen one of their biggest expenses, fuel, come down in price, they are still struggling to find demand as the world's major economies contract, and tis the season of industry consolidation.

British Airways on Tuesday said it's holding merger talks with Australian national carrier and fellow OneWorld alliance partner, Qantas Airways, in a deal that could combine two of the world's best-known international carriers.

British Airways, in a brief statement, said

In response to recent media speculation, British Airways Plc confirms that it is exploring a potential merger with Qantas Airways Limited via a dual-listed company structure.

The discussions between British Airways and Iberia are continuing.

There is no guarantee that any transaction will be forthcoming and a further announcement will be made in due course, if appropriate.

British Airways shares shot up 12.1% in London. Qantas shares ended 4.3% lower in Sydney.
Iberia shares added 5.3% in Madrid.

British Airway possessed a 25% stake in the early 1990s which it sold in 2004. The British Airways talks with Iberia have languished because of Iberia's concerns about the U.K. airline's pension liabilities.

British Airways has been a very busy airline lately. In addition to the Qantas and Iberia negotiations, it is seeking antitrust immunity, from U.S. and European regulators, on its proposed partnership with American Airlines for which it is seeking. A proposal vehemently opposed by arch rival Virgin Atlantic.

Virgin has a presence in Australia in the form of low cost carrier, Virgin Blue. It will be interesting to see how the rivalry will carry over down under.

Like in the United States, Australia limits foreign ownership of domestic carriers. But the BBC was reporting that that may change:

It [the merger statement] follows indications from the Australian government earlier in the day that it may be prepared to relax the rules on foreign ownership.

Under current Australian law, Qantas must be at least 51% Australian-owned.

Any individual foreign airline can only own up to 25% of it and only a total of 35% may be owned by foreign airlines.

Transport Minister Anthony Albanese proposed earlier on Tuesday that the rules be changed so that while 51% must still be Australian-owned, the remaining 49% may be owned by a single foreign airline.

The Australian government recently released a key industry blueprint that would cap foreign ownership at 49% in a bid to keep Singapore Airlines out of the lucrative U.S-to-Australia route.

The possible BA-Qantas link-up occurs as the industry consolidates. Delta has recently merged with Northwest, and on Monday, Ryanair Holdings launched a fresh offer for fellow Irish carrier Aer Lingus, which was rejected by the Aer Lingus board.

The Air France-KLM combine have shown the aviation industry how to combine functions while maintaining separate brands.

British Airways will resume flights to Jeddah and Riyadh in Saudi Arabia from March 29, 2009.

The airline will fly five times each week from Heathrow Terminal 5 to both Jeddah and Riyadh. Flights to Riyadh will operate on a Boeing 777 and Jeddah flights will be on a smaller Boeing 767.

This is definitely unwelcome news to British Midlands (BMI) who has stepped in to fill the gap vacated by British Airways four years ago. Riyadh is under-connected to the rest of the world. London and North America are favourite destinations for many Saudis. Thanks to its extensive transatlantic links, and global network, British Airways will have a significant edge over BMI.

British Airways will also have something that BMI does not have - a first class; and in a status concious society like Saudi Arabia, that is a huge differentiator.

Robert Boyle, British Airways' commercial director, said: "Resuming these flights makes commercial sense. The oil market is increasingly important globally and inward investment into Saudi Arabia has risen considerably in the last couple of years.

"We can start these flights now because the aviation market between Britain and Saudi Arabia has recently been liberalised."

British Airways suspended services to Riyadh and Jeddah in March 2005 claiming "poor commercial performance on the route", but it is widely believed that security concerns were a major factor.

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.

More bad news on the aviation front. CNN-IBN reports that British Airways will suspend its flights between Kolkata, Dhaka and London from March 28 next year as it finds the route unprofitable, an airline officer said here Friday.

"The decision to suspend flights between Kolkata and London has been a difficult one to make. However, the route is not making a profitable contribution to our business and we are unable to sustain it," said Amanda Amos, British Airways' area commercial manager South Asia.

Amos said India would remain an important market for the airline, which would continue working on its growth plans in the country.

"India remains an incredibly important market for British Airways and we continue with our growth plans on routes that we believe will be profitable. We continue to offer our customers an extensive network in India. There will be options for both our passenger and cargo customers in the Kolkata region to join our services via other Indian gateways."

Customers booked to travel with British Airways from Kolkata after March 28, 2009, will be contacted by the airline so that alternative arrangements can be made.

The airline currently operates three flights a week between Kolkata and Heathrow airport in London.

British Airways has operated flights to Kolkata intermittently since the 1930s.

According to a PTI report, British Airways' (BA) multi-million pound takeover plan of Low Cost Carrier (LCC) GoAir got derailed and the Europe's leading carrier may now negotiate for a marketing alliance instead.

The report, which quoted UK’s The Sunday Times, “British Airways planned an audacious, multi-million pound takeover of one of India's leading airlines - but the scheme was derailed by problems with industry-ownership laws.” However, the daily said that it is understood BA may negotiate a marketing alliance with GoAir instead, with the LCC using BA flight codes on its domestic network.

Quoting senior industry sources, The Sunday Times said, “BA wanted to take a controlling or significant minority share, and was ready to pay up to USD 600 million for the stake.” As the commercial aviation sector in India has tough rules preventing foreign nationals from owning or taking control of airlines, BA aimed to get round the restrictions by setting up an Indian intermediary company to hold its investment in GoAir, the newspaper said.

The current Foreign Direct Investment (FDI) Policy of India does not allow foreign carriers to hold equity, directly or indirectly, in domestic airlines. BA's decision to pursue an Indian tie-up has piqued the interest of rival airline executives, who have been focused on the stuttering progress of its planned merger with Spain's flag carrier, Iberia, The Sunday Times said.

Quoting one rival airline executive, The Sunday Times said, “I think it indicates where they think the real future of the airline industry lies, and where their next deal might come from India or China.” BA has had franchise agreements with South African carrier Comair, Glasgow-based Logan Air, Scandinavia's Sun Air and Kenya-based Regional Air.

This raises an interesting question. The Indian airline industry is loosing over $2 billion per year. Like it or not, this requires deep pockets; pockets much deeper than Mr. Goyal or Dr. Mallya have. Also, integrating in to extensive global networks is not just a "must have", but it is vital to an airline's survival, again something neither Jet or Kingfisher have. Is it time for the FDI norms for the airline industry to be reviewed ? Will the review survive intensive lobbying by industry heavy-weights like Mr. Goyal or Dr. Mallya ?

To move Mumbai flights to Terminal 5 at Heathrow Airport
TBM Staff | Mumbai

British Airways (BA) has announced the launch of direct flights from Hyderabad to London from December 7, 2008. The airline is scheduled to operate five flights a week and will operate a Boeing 777 aircraft on the route. The aircraft to be deployed on the Hyderabad route will have a three class configuration with Economy, Premium Economy and Club World class. The flight from Hyderabad will connect 19 American cities from London.

The airline currently operates to five Indian cities namely Mumbai, New Delhi, Kolkata, Chennai and Bangalore. The frequency of the airline to India will increase from 43 flights a week to 48 flights a week once the Hyderabad route is operational. “India is the second largest market after US in terms of volume. We have been evaluating the possibilities of connecting Hyderabad to London for the past two years,” stated Amanda Amos, Area Commercial Manager, South Asia, British Airways.

The airline, which inaugurated its dedicated terminal (Terminal 5) at Heathrow Airport, London in March this year, will move Mumbai flights to the terminal from the 17th of next month. Bangalore flights were the first to move to Terminal 5 in July this year, whereas flights from the remaining cities of India will be moved by October 22, this year. “The Terminal had issues when inaugurated; however, these issues are solved. All the global flights including ones from India will move to Terminal 5 by October 22, 2008,” stated Amos. Internationally, the airline is currently working on a joint business agreement with American Airlines, which will allow both airlines to co-ordinate routes, pricing structures, loyalty programmes etc. BA is also working on the merger with Iberia Airlines.