2008 was the year reality struck home in the Indian airline industry. One whiff of the downturn exposed the lack of robust business planning, and abundance of financial vulnerability of Indian carriers, leaving all of them battered and bruised, some more than others.

We saw mass-scale defaulting on payments by carriers in India to everyone from airports to aircraft manufacturers.

Touted as THE growth sector of the future by both Boeing and Airbus in 2007, in the last nine months, domestic airlines have slashed capacity and with very shallow pockets, pulled back at least one-third of their aircraft orders due for delivery this year.

India’s domestic airline capacity shrank by more than 8%, compared with 3.5% in Japan and growth of 18% in China.

As late as mid 2008 Boeing, Airbus SAS and Empresa Brasileira de Aeronautica SA (Embraer) were projecting delivery of 91 aircraft during 2009. They will now thank the stars if they can deliver the reduced quantity of 57 aircraft expected this year.

Both Boeing and Airbus are claiming that no airline has "cancelled orders", but this statement does not account for the deferrals in delivery and the diversion sales of aircraft by Indian carriers to foreign airlines.

In this highly competitive market, it appears that Boeing has the upper hand. It is facing deferral of only two of its 22 expected deliveries down 10%, while Airbus is down 53% expecting to deliver only 32 out of the expected 68 aircraft in large part due to Kingfisher. Embraer increased its delivery tally to five aircraft up 500% from the projected one thanks to the phenomenal growth of Paramount Airways their main customer

Boeing Customers

Jet Airways with fleet of 111 aircraft accounts for the two deferrals of Boeing. One 777-300ER and one 737. Jet has leased out a significant portion of its wide-body fleet. A total of seven of its eleven uber-luxurious Boeing 777-300ERs to Turkish Airlines THY and Gulf Air, and two each of its Airbus A330-200s to Oman Air and Gulf Air. Jet has called for a further ten per cent cut in seat capacity and is now trying to leasing out its narrow body Boeing 737s.

Image courtesy and copyright A.J. Best. Used with his permission. Please do not re-use without permission.

SpiceJet with 12.5 per cent growth will take delivery of 12 Boeing 737-800s/900s, one each quarter for the next three years adding to its fleet of 14 Boeing 737-800s and 900s.

Air India backed by the Government of India, will take delivery of its new Boeing 737-800s, four 777-300ERs and and three 777-200LRs by September, as scheduled. Air India (domestic and international combined) has a fleet of 150 aircraft. The combined order to Boeing and Airbus was for 111 aircraft.

Airbus Customers

The largest domestic carrier and most aggressive Airbus customer Kingfisher Airlines is in terrible financial shape. It led all Asian carriers with a 17.1 per cent capacity cut and has held its expansion to its existing 76 aircraft not withstanding the fracas with GECAS on four of its aircraft. It has diverted its three of its five A340-500s to Arik Air of Nigeria, the balance two have become "white tails" at Toulouse. Of the five A330-200s delivered, two are lying idle. Kingfisher is now in talks with Arik Air in an effort to lease them. The deliveries of the A380 have been deferred yet again. Even pending deliveries of ATR42s and 72s from the Air Deccan days are languishing at Toulouse. Kingfisher has been forced to defer delivery of 32 of 48 Airbus A320 planes that were due for delivery in late 2008 and in 2009 and is also diverting its narrow body A320 family orders to foreign airlines like Turkish THY. So while Airbus may deliver planes to an Indian airline, the aircraft may never come to India.

IndiGo along with fellow value carrier SpiceJet has been registered increasing market share, and has recently taken delivery of its 19th Airbus A320. It is maintaining a more conservative but steady delivery rate.

Air India domestic (formerly Indian Airlines) will maintain its delivery with Airbus for the narrow body A320 family having recently taken delivery of three each A321-200s and A319-100s. Airbus has also commenced discussions with Air India on the A380 superjumbo and hopes to convince the airline to buy a few.

While both Boeing and Airbus do not expect any new orders from the Indian market in the near to medium term, they continue to be bullish on India and maintain their market forecasts which estimates that the country’s airlines would buy up to 1,100 planes over the next 20 years.

A JetLite flight to Bangalore was delayed by 45 minutes and boarding on several flights had to be suspended for 10 minutes on Sunday evening after a passenger Saptarishi Basu, complained that his laptop had gone missing from the security hold.

Around 5 pm, Basu, who was to board the JetLite flight to Bangalore, went in for security check. On completion of his check, he found his laptop missing on the delivery side of the X-ray machine. He immediately lodged a complaint with the nearby CISF official.

5 pm is a peak travel hour, and there were over 400 passengers departing to Chennai and Delhi undergoing security checks. The CISF suspended all boardings, and started checking the CCTV footage to find the missing laptop. S.B. Hari, a Chennai bound SpiceJet passenger had mistakenly picked up Basu's laptop, thinking it as his own, since both passengers carried the same model.

The JetLite flight took off 45 minutes behind schedule. All other flights, for which boarding had been suspended, took off on time. Basu though, was not on the JetLite flight, since he had to complete formalities. He was accommodated on an Air India flight leaving at 7.55 pm.

This does raise some interesting questions to which I request comments.

• How do you protect and identify your laptop either during your travels on in public areas ?
• JetLite is a low cost carrier, and Air India a full service one. Who paid for the difference in fare ? If Basu or any of the airlines did, is it not unfair ? After all, it is Hari who picked up the wrong laptop. Should he not pay for the delays ?
  

As a part of its growing offerings to woo business passengers, SpiceJet announced the launch of a breakfast menu available for sale on all flights that depart before 9.30 am. The single type continental breakfast tray is available at a discounted price of Rs 100 ($2) if it is pre-ordered at the time of booking the ticket. The same is available on board for Rs 130. The extra Rs. 30 on-board is charged to cover for wastage.

The hygienically packed breakfast trays comprise a croissant, a portion of seasonal fruits, fruit yoghurt, fruit juice, butter and jam. Guests can finish their healthy breakfast with hot tea or coffee, served with cookies, for an additional Rs. 20.

Other items that are also available for sale on board are carbonated soft drinks (sodas), Orange Juice, and pre packaged cashew nuts all for Rs. 50 ($1) each.

SpiceJet has recently introduced a “sandwich of the day” where one type of sandwich is chosen from a selection of three to offer frequent travellers variety and range.

SpiceJet announced reduction of up to Rs. 600 per ticket on its already low fares, for all bookings made for 30 or more days in advance, across all its 119 flights in the new summer schedule.

The airline's Chief Commercial Officer Samyukth Sridharan claimed the fares will be comparable to IInd AC train fares. Clearly SpiceJet is targeting the summer family holiday passengers.

Did we not have an airline try this strategy before ? Ah.... yes, Air Deccan.

SpiceJet today announced its new schedule for summer 2009, effective March 29, 2009. Four new flights have been added to take the number of flights to 119 daily.

In addition to the current Bangalore Ahmedabad (via Mumbai), a new direct flight connecting the two cities is added.

Ahmedabad also gets a very convenient evening flight departing 18.35 to Mumbai and onwards to Chennai. This additional connection to Chennai now allows a second option for travellers between Ahmedabad and Chennai.

Pune will now be connected to Kolkata via Delhi. Mumbai will be directly connected to Coimbatore by a daily return flight. Delhi now has a convenient morning departure to Pune at 08:40.

Samyukth Sridharan, Chief Commercial Officer said

“Our On Time Performance remains around 88% and with a Technical Dispatch Reliability of around 99.6%, we are the airline with the least cancellations. These factors go a way to encourage people to fly us for both business and leisure travel. Our market share has shown a continuous rise over the last few months. We believe more and more people will choose SpiceJet for its connectivity, timing and customer experience.”

More information is available at SpiceJet's website.

In my recent interview with SpiceJet CEO Sanjay Aggarwal, he highlighted some of the innovative cost cutting methods adopted at SpiceJet.

These methods have won SpiceJet the coveted Institute of Cost and Works Accountants of India (ICWAI) award for Excellence in Cost Management. It is the only airline to win this award.

A distinguished jury of eminent persons from industry, academia and administration selected the winners, and on the basis of better practices for resource management, efficient utilisation of capacity and working capital, quality augmentation programs and R&D efforts, and precise information on performance.

Nandan Mimani, Vice President Finance and Financial Controller of SpiceJet received the award from The Ministry of Corporate Affairs, Government of India recently. SpiceJet was one out of three companies from the private sector who won this award.

Commenting on this Sanjay Aggarwal, Chief Executive Officer, SpiceJet Limited said,

“We are delighted with this award – it is a recognition of our collective efforts in the right direction. Cost consciousness has been an intrinsic part of our corporate culture – SpiceJet has one of the lowest operating costs in the industry. We are constantly evaluating how to manage our costs even better, while providing a better experience to our customers.”

I cannot but help compare the corporate culture of SpiceJet, which never loses focus on the passenger, with that of Ryanair, which will do anything to earn a buck or rather a Euro.

Kudos to the team at SpiceJet.

..... Continued from yesterday. Read the first part.

Financials
For the third quarter ended December 31, 2008, SpiceJet declared a profit of Rs. 19.48 million. In today's economic meltdown, any profit is welcome.

The financial statements have an explanation for a one time charge of Rs. 187.82 million.

The Company entered into a Memorandum of Settlement (MoS) on November 26, 2008 with its erstwhile promoter S K Modi Group to settle various ongoing litigations with them. This settlement was approved by the Hon'ble High Court of Delhi on January 16, 2009. This settlement has resulted in one time nonoperational loss of Rs.188 million in the current quarter, shown under Extraordinary items, after adjusting for 8 million shares received by the Company pursuant to the settlement, valued for this adjustment at market rate as on the date of approval by the Hon’ble Court. Consequent to above settlement, qualifications in the audit report dated June 30, 2008 on accounts for the year ended March 31, 2008 pertaining to matters explained in paragraph 3.1, 3.5, 3.6 and 3.7 of schedule XVII of the accounts stands resolved. In respect of qualification pertaining to unaccrued interest as further explained in the paragraph 3.3 of schedule XVII of the accounts, the amount of unaccrued interest stands reduced to Rs.73.28 million. Had it been considered for accounting purposes, the loss reported for the period would have increased to Rs.252.92 million and the accumulated loss would have increased to Rs. 8,595.15 million

Thanks to gently recovering performance as outlined in part 1 of this article, and the $100 million cash injection by Wilbur Ross last year, SpiceJet has adequate cash.

Unlike most of its competitors, it is current to all the Oil Marketing Companies (Indian Oil, Bharat Petroleum, Hindustan Petroleum, etc.), airport operators, and lessors Babcock & Brown, GECAS, and ILFS.

For an in-depth look at the quarterly results and other financial information, please visit MoneyControl.

The future
Sanjay Aggarwal expects the downturn to last at least another 12 months, with recovery expected only by mid 2010. From the recent developments in world financial markets, IATA reports, and reports of precipitous drops in industrial output, one could venture to think, even that date is highly optimistic.

SpiceJet will not undertake fuel hedging for now. Sanjay expects oil to remain in the $30~$40 band till June 2009, and depending on the economic recovery $65~$70 in the first quarter of 2010.



SpiceJet will continue its cost cutting efforts which includes the phasing out of the expatriate pilots. The Indian Directorate General of Civil Aviation (DGCA) has set a deadline of June 2010 for all Indian carriers to eliminate expatriate flight crew positions, and Sanjay Aggarwal is confident of SpiceJet meeting that date.

International operations
SpiceJet will be completing its mandatory five year minimum shortly and will explore international operations as soon as fleet capacity and market conditions permit. The airline will restrict itself to ASEAN and the middle-east in line with its Boeing 737 fleet, and there are no plans for the far east, Europe or North America as of now. I can only hope SpiceJet draws inspiration from Air Asia X.

Consolidation
As widely reported in the papers, Mr. Aggarwal feels the Indian LCC (low cost carrier) market is overcrowded with the current five airlines. He expects consolidation.

Speculation is also fuelled by the appointment of Wilbur Ross and Ranjeet Nabha as Directors of SpiceJet, which should strengthen its relations with its investor WL Ross. Should the Government of India ever decide listen to IATA and open up the airline sector to foreign investment, SpiceJet is well placed to benefit from its WL Ross relationship.

SpiceJet is not actively seeking, but will explore consolidation opportunities (both to acquired and to be acquired) if a good deal comes its way. I quizzed him on the fact that other than JetLite (formerly Air Sahara), all other LCCs operated Airbus fleets and how would this affect the SpiceJet mantra of a single aircraft type.

Sanjay Aggarwal feels that once a critical mass of about 20 aircraft is achieved the costs can be justified in operating two different manufacturer fleets.

I however doubt that either Jet would like to part with JetLite, after having paid such a high premium when it acquired Air Sahara. IndiGo is a strong competitor, flies much the same routes and have the same base of New Delhi as SpiceJet, may not offer synergies. Air Deccan has now been fully merged with Kingfisher Airlines, and I do not see Dr. Vijay Mallya parting with his beloved airline. That leaves only the puny Go Air (market share 2.4 per cent). The recently reported meeting between Jeh Wadia of Go Air and Sanjay Aggarwal, may be a step in that direction. However, with only four or five aircraft (best estimate since the Go Air website is silent on their fleet size), I do not see how the "critical mass" is achieved, but there may be other benefits to justify the deal.

The soft spoken, often enigmatic, and very elusive Sanjay Aggarwal is going to need every one of his 17 years of aviation industry experience to see SpiceJet through the next 18 months, which by any measure will be the toughest for any airline. However, all industry observers say, SpiceJet appears to have the best person for the job, already on the job.

SpiceJet has been quietly adjusting to the global meltdown in the airline industry and focussing on its profitability. With gentle yet deliberate steps it has built back its financial strength, and is now poised to benefit from the consolidation wave sweeping the industry. Something, its full service counterparts like Air India, Jet Airways and Kingfisher Airlines are struggling to achieve.

Bangalore Aviation was the only weblog invited to a face-to-face interaction with Sanjay Aggarwal, CEO, SpiceJet, recently. This is the first of a two part article.

Current fleet and operations
SpiceJet is operating 115 daily flights with a fleet of 19 Next Generation Boeing 737s. 14 737-800s and five 737-900ERs (extended range).

SpiceJet names all its aircraft after various spices and herbs. This Boeing 737-900 Next Generation is called Oregano. Visit our Flickr site for pictures of Cinnamon, Thyme and other SpiceJet aircraft.


14 aircraft are leased from Babcock and Brown, four from GECAS, and one from ILFS.

SpiceJet has 150 Indian pilots, and 50 expatriates (equivalent to 35 full time).

At present the fleet strength is completely utilised and further route expansion has been ruled out till new aircraft are inducted which will commence from February 2010. Between 2010 and 2012 SpiceJet will induct 12 Boeing 737-800s into its fleet, at the rate of four aircraft every year. The balance three delivery slots have been sold.

With revealing specifics, Sanjay Aggarwal informed me that SpiceJet's break-even passenger load factor was in the upper "60s" (65 to 69 per cent). SpiceJet is achieving load factors in the upper 70s to low 80s currently.

Market share has increased to 11.8 per cent in January, 2009. Overall low cost carriers (LCCs) had a 49 per cent market share and full service carriers (FSCs) had 51 per cent. Over the coming days, as economic woes continue, he expects this number to reverse as more passengers look for better value propositions.

SpiceJet at Bangalore
He also feels that Bangalore is over-serviced in terms of capacity, and given SpiceJet's current fleet constraints, the airline will not be adding any new flights to Bangalore in the near future. SpiceJet is planning to re-introduce the non-stop Bangalore Jaipur flight which is currently a one stop.

Low fares Yo-Yo
I quizzed Sanjay about the recent fare fluctuations, especially the low fares in January followed by the steep increases in February. He informed me that SpiceJet was offering an average fare of Rs. 2,300 during January, which was increased to an average of Rs. 4,000 in February.

In January most airlines had taken this deliberate step of a fare decrease, to ascertain if the market could be stimulated by low fares. The low fares were never intended to be permanent since airlines would need load factors greater than an impossible 100 per cent to break even. Despite the ultra-low fares, the airlines managed only a rather poor ten percent increase in load factors. This was the primary determinant in the fare raise. As a low fare airline, SpiceJet will always keep tweaking its fare to offer value propositions to its passengers, he added.

Indian low cost carriers (LCCs) cannot follow the traditional European and US LCC models. Indian LCCs are hampered by a lack of secondary airports which results in them having to pay the same astronomical airport fees as full service carriers, and suffer the same congestion and (in)efficiencies at airports. Unlike a RyanAir or EasyJet or JetBlue, SpiceJet and other Indian LCCs like IndiGo achieve only 12.5 hours a day. This is still higher than the 10.5 hours a day full service carriers like Air India, Jet Airways and Kingfisher Airlines achieve.

Innovative cost reduction
To overcome these inherent limitations of the Indian market, SpiceJet is resorting to innovative methods of cost cutting.

One example is the music SpiceJet plays during the embarkation, taxiing, and dis-embarkation process. Normally airlines pay professional musicians Rs. 2~5 million ($40K~$100K) to compose the music.

SpiceJet went the in-sourcing route rather than out-sourcing, and discovered Moin Wasil, their airport services manager at New Delhi, was also a proficient musician. Using his Roland Fantom XA workstation, with a state of the art software, Moin and his team of musicians put together a refreshing fusion of Indian notes and global tunes which is played on-board all SpiceJet flights.

Watch him compose the music



And his inspiration?

"The music was inspired by SpiceJet – its dynamic growth, vibrancy, warmth and elegance. The fusion resembles SpiceJet – Indian but with International standards. The warmth in the music comes from its employees who are motivated, helpful and caring. The freshness comes from our eagerness to do things better and do them differently. I hope my music brings forth the caring, warm culture of the organization.”

Hear the music.


Focus on additional markets
Currently SpiceJet passenger mix is about 40 per cent business fliers, and 60 per cent leisure. The global slowdown in air travel has impacted leisure segment, and has made SpiceJet accelerate its increasing focus on business passengers. In parallel, the airline is also on track in increasing its load factors from an average 100 passengers per flight, to 140.

Reaching out to business travellers, SpiceJet now offers services which it hopes will appeal to them.

• SpiceJet has introduced hot coffee or tea with cookies service for Rs 20.
• Business travellers can collect their boarding passes for a same-day return flight.
• Introduction of a corporate travel program with key account managers and other flexibilities (which normally means ability to change ticketed flight dates and times without surcharges).

While airlines in the US are charging for each check-in piece of baggage, SpiceJet is going the opposite way to woo customers by extending the free "two piece baggage" concept to international connecting passengers.

SpiceJet is also taking a cue from Air Asia X and is actively finalising pre-ordered (and obviously pre-paid) sandwich and snacks. This eliminates wastage of food and jet fuel which rather surprisingly, costs as much as Rs. 1,000 ($20) per meal.

"Word of mouth" advertising
All these steps fit in to SpiceJet's model of focussing on offering a superior value proposition, not just a low fare, to its passengers which will increase their reputation and help them not spend on advertising, instead relying on word of mouth referrals.

SpiceJet revenue share

Click on image for a larger view

Cargo
With a capacity of 300 tonnes per day, SpiceJet has also targeted a doubling of cargo revenue to five per cent of total revenue. A recent partnership with IBS Software to implement their iCargoLite cargo management system highlights SpiceJet's resolve. However, Sanjay Aggarwal was adamant that SpiceJet would not let cargo growth affect its passenger experience. SpiceJet would focus only on those cargo that permitted the airline to maintain its quick aircraft turn around policy.

Visit Bangalore Aviation tomorrow for Part 2 of this story. International operations, financials, and the future.

Jet Airways, Kingfisher Airlines and SpiceJet are the only three publicly listed airlines in India, and are required to release their quarterly results.

Using the results of the third quarter which ended December 31, 2008, I compiled three graphs to analyse their expenses. Depreciation and interest is included as part of expenses and other income is included as part of income.

It is important to realise each airline is compared against itself. For example, due to its low cost carrier model which forces lower expenses, SpiceJet will show a higher proportion of its operational expenses for fuel compared to the full service Jet Airways and mixed model (full and low cost) Kingfisher Airlines.



Graph 1 clearly shows that Jet Airways in the lead with the lowest expenses to income ratio at 117% up 16% from the same 9 month period from last year. The greater than 100% numbers indicate a loss. Kingfisher is spending 49% more than its income, up 10% from the same period last year. Is it any wonder the airline is in trouble ?

Click on any of the images for a larger version

Graph 2 goes a little more in detail on the expenses of the airlines. Due to the differing heads of accounts, I was forced to do a little consolidation. I have also included interest and depreciation as part of the expenses, Kingfisher and SpiceJet have managed to bring down their operational expenses by about 5%, clearly the effects on the plunging jet fuel prices.

Jet's expenses have gone up 5%. I can only surmise it is due to the cost of their uber-luxurious Boeing 777-300ERs. Now that Jet has leased out seven of its 11 777s, these expenses should come down.

Both Jet and SpiceJet have brought down their employee costs by about 2.5%. Something Kingfisher has not yet been able to achieve, and desperately needs to.

SpiceJet shows "other expenses" which includes legal, professional and consulting expenses, but the airline does not provide details in its statement.


Graph 3, shows a break up of the operational expenses as a percentage of total expenses including interest and depreciation. Kingfisher still leads the pack with the highest OpEx of 81.2%. Again Jet Airways has gone against the trend and increased its OpEx by a whopping 8% thanks to those empty international flights.

Do observe; jet fuel expenses constitute only about 36% of total expenses. So airline execs better be careful the next time they blame fuel prices for their woes.

SpiceJet with its low cost model enjoys a 16% advantage in "other operating expenses" when compared to its full service counter parts.


Unlike airlines overseas, no Indian carrier reports its performance in terms of Revenue Passenger Kilometres/Miles (RPK or RPM) or Freight Ton Kilometres/Miles (FTK or FTM). I think it is time for airlines in India to take analysts in to their confident and start sharing this information, if nothing else, it builds trust.

Please note, these graphs are copyright, but you are free to use them, unaltered, with due credit and a link to Bangalore Aviation.

SpiceJet has announced the return of its successful promotion scheme “Book for 2 pay for 1”.



This scheme is valid for bookings made from March 4 to 6, 2009 and only for bookings made through the SpiceJet website. There are conditions attached to this scheme.

SpiceJet in a bid to compete in the business segment with fellow low cost carrier IndiGo has announced some features:

• Passengers can buy hot coffee or tea with cookies for only Rs 20.
• Busy travellers can now collect their boarding passes for return flight, at the time of check in, provided they are coming back on the same day.
• Guests who land after travelling via an International airline, do not need to spend extra, to carry their “two bags”, while they fly with SpiceJet on domestic sectors
• Music is played as passenger boards and deplanes. This has been composed in-house by SpiceJet employee Moin Wasil.

Fellow low cost carrier IndiGo, has introduced special "all-inclusive" fares of Rs 1,600 and Rs 2,600 for journeys below and above 750 km. The over 750km Rs. 2,600 fare is attractive since, for example, for a Delhi-Mumbai flight the average full fare tickets cost Rs 5,500 or higher. For more details visit the IndiGo website.

Over the last year, IndiGo has been on a steady march, taking an increasing share of the Indian passenger market.

While most of its competitors contracted during the torrid 2008, IndiGo and fellow value carrier SpiceJet, have gained in actual passenger numbers.

The secret to IndiGo's success ? Read this article "Fine Strokes" by Business Standard.

All airlines in India have been slashing their fares since January. The sheer numbers of special offers, and schemes coming across my desk have overwhelmed me.

However, these appear to be coming to an end.

Despite a drastic cut in fares of nearly 50 per cent for full service airlines and over 40 per cent on low cost carriers the demand is still not picking up sufficiently to offset the reductions. At some of the current special fares levels, passenger load factors would have be greater than 100 per cent, which is simply not sustainable. Add to this, that March onwards the traffic naturally starts picking up.

Airlines have started complaining to the government about the "unrealistic fares".

So if you are planning to buy some tickets, do it right away.

SpiceJet CEO, Sanjay Aggarwal's interview with CNBC-TV18, gives us some clues on how airlines think.

Q: At a time when the industry is reeling under huge losses, should fares be a lot more disciplined in terms of getting into this aggressive price war?

A: The question is what they should be and what they are? Right now it is a competitive environment and there are competitive pressures. Even though we would like to keep fares higher, we have to stay in line with what the other carriers are doing and right now the fares are low and I think these are unsustainable fares. Some of the viewers who are looking at buying air tickets; they should do it sooner than later. In the near future I see fares going up.

Q: Have you seen any sort of a volume pick up post your decision to slash fares and has that at all offset the kind of losses that you’ve been sitting on?

A: First of all – have we seen pick up in demand? The answer is yes we have but not sufficient to offset the revenue loss. So for example the fares have come down 40-50% however the load factors have not gone up and the current fares, it will take us more than 100% load factors to break-even. So when I talk about these fears being unsustainable, it is not just we need to get 5-10% more load factors, it is just unrealistic. The second piece being, should we be more disciplined? Of course we should be. So we will see where the market goes but as I said my guess is the next few weeks, the fares should begin to move up.

See the complete interview video.

SpiceJet on Monday said Mr Wilbur Ross has been appointed director on the board of the company, along with Mr Ranjeet Nabha, of the private equity firm led by the billionaire investor.

“Mr Wilbur Ross and Mr Ranjeet Nabha of WL Ross & Co LLC have been appointed as directors on the board of the company with effect from January 31, 2009,” the company said in a filing to the Bombay Stock Exchange.

This development follows an investment of $80 million (about Rs 345 crore) the PE firm had made in the carrier last July. It was aimed at clearing the budget carrier's debt as well as meeting its working capital requirements.

Mr Ross holds foreign currency convertible bonds that can be converted into equity by December 2010. If he chooses to exercise his option, he could become owner of up to one-third (up to 32 per cent) of carrier SpiceJet by the next year. Government regulations currently allow only up to 49 per cent foreign direct investment and 100 per cent investment by a non-resident Indian through the automatic route. - PTI

SpiceJet also informed the Bombay Stock Exchange its unaudited financial results for the quarter ended December 31, 2008. SpiceJet shares have dropped 4.57% to INR 13.36 since opening this morning.

SpiceJet has made a small operating profit after tax of Rs. 8.17 million, but has taken a one-time charge of Rs. 188 million to settle on-going litigation with erstwhile promoter S.K. Modi, when the airline was ModiLuft.

For the 9 months ended December, the airline is still suffering from the oil shock and cumulative loss for the year stands at Rs. 3.48 billion (approx $69 million).

Obtain the full financial results here.

The Mint is reporting that GoAir recently started offering uniform fares, inclusive of surcharges and other taxes, for purchases made 21 days in advance.

For short sectors, defined as less than 750 kms travel distance, the airline will charge Rs 1,700 a ticket and Rs 2,700 for distances greater than 750 kms. According to the company statement, in effect a Mumbai-Delhi ticket bought 21 days in advance will be for Rs 2,700 instead of the base fare of at least Rs 1,000 plus Rs 2,925 of surcharges and airport fees.

GoAir’s new offer is in reaction to the introduction of Rs one fare by IndiGo on certain routes and SpiceJet Ltd.’s Rs 99 base fare for tickets booked at least 21 days before travel.

The quarter ended December 31, 2008 witnessed an 18 per cent decline in domestic passenger growth, and has prompted all major airline groups in India to resort to price cuts in order to stimulate passenger demand.

Jet Airways, and its low cost subsidiary JetLite, were one of the early adopters of the 21 day advance fares also called APEX fares. Jet Airways also recently offered Rs 250 base ticket fares, while JetLite started Rs nine base fare for travel during this month. It has similar schemes for its Business-Class too. Jet Airways is expecting a 15 per cent increase in passenger traffic.

Jet's alliance partner Kingfisher Airlines also slashed fares between 21 per cent and 65 per cent on various routes earlier this month while the state-owned and operated National Aviation Company of India Ltd. (NACIL), which runs Air India, also announced an average reduction of 52 per cent in basic fares for domestic travel on 20 major routes.

2008 was a torrid year for domestic airlines in India, as recently released figures by the Ministry of Civil Aviation (MoCA) show.

Domestic passenger traffic for the year 2008 fell 5% from 42.58 million to 40.77 million (Fig. 1), driven by the increase in fuel costs, and the massive hikes in air fares, which are yet to fully retreat, and capacity reductions by the airlines.


The Low Cost Carriers (LCCs) Indigo, SpiceJet, and JetLite, improved their market shares at the expense of Full Service Carriers (FCCs) Air India, Jet Airways, and Kingfisher Airlines. IndiGo is the big winner this year with a four per cent market share gain. Air India (the former Indian Airlines), gave up a big three per cent share. (Fig. 2)

The notable exception is Go Air (now called No Go Air due to its numerous flight cancellations), and the former Air Deccan, now christened Kingfisher Red after their acquisition. Kingfisher Red lost five per cent market share, while Kingfisher Airlines gained only three per cent, resulting in an overall loss of two per cent market share to competitors. Clearly the strategy at Kingfisher is not working.


While most airlines and airline groups lost in actual passenger numbers, LCCs IndiGo, SpiceJet, JetLite (the former Air Sahara now a subsidiary of Jet Airways), and Paramount, gained passengers. (Fig. 3).

The capacity swapping at Kingfisher group is clearly visible, and when performance of both Kingfisher Airlines and Kingfisher Red is combined, actual passenger numbers went down 10.5 per cent, from 12.56 million to 11.25 million.


The first two quarters of 2008, provided no clue to the excess capacity in the Indian airline industry. The "perfect storm" of increased fuel prices and reduced economic activity started rearing its ugly head towards the end of Q2 (April, May, June), and kicked the industry in it's teeth in Q3, with a mind numbing 25 per cent drop in traffic. (Fig. 4). Q4 has provided some seasonal relief, but Q1 of 2009 will see numbers dropping back again.


With the exception of Paramount, which has a small niche regional market, all the airlines saw massive drops in passengers in Q3. (Fig. 5). Most airlines staged a recovery in Q4, but the surprise is Jet Airways. It's passenger numbers tanked almost 20 per cent in Q3 and continued the downfall by another 15 per cent in Q4.


The market share of LCCs followed the increase in air fares, as passengers shifted from the FSCs. SpiceJet share in Q3 reflected its financial problems, prior to the Ross bailout. (Fig. 6)

It is an ignominious performance that the pioneer in the air travel bubble, Air Deccan (now Kingfisher Red) has lost over six per cent market share over the year. Clearly many of the "first time flier" passengers have chosen not to repeat, either returning back to trains and buses, or moving to other carriers like IndiGo and SpiceJet.


The data highlights the price sensitive nature of the Indian traveller. IndiGo appears to have a winning formula with its low prices and efficient service. Fancy gimmicks do not work. At a time of economic slowdown, the FSCs have to get their act together quickly. By holding fuel surcharges to unjustifiably high levels, they are surrendering ground to the LCCs and surface transport.

IndiGo, Jet Airways, JetLite, and SpiceJet have announced Advance Purchase Excursion (APEX) fares for all purchases made at least 21 days before the flight departure.

Jet Airways offers a fare of INR 250 while JetLite offers a fare of INR 9. The booking and sale validity of this offer is from January 1 to January 31, 2009.

SpiceJet is offering ‘Spicy Hot Fares’ starting INR 99 across its network and is valid till June 30, 2009.

IndiGo's APEX scheme is called 'Early Bird Fares' and start at INR 99.

All fares mentioned above are exclusive of taxes and surcharge, and this is where the kicker comes. The fuel surcharges are still around INR 2,000 for short distance (under 750km) and INR 3,000 for long distance.

I really wish that airlines respect their passengers' intelligence. These APEX fares while welcome, remind me of the earlier times when airlines used to offer a "fly free" concept. After all, we do know basic arithmetic.

SpiceJet has announced the re-launch of its services to Kochi, from New Delhi and Mumbai, from December 15.

The starting fare will be Rs.1,350 (Kochi-Delhi/Delhi-Kochi) and Rs.750 (Kochi-Mumbai/Mumbai-Kochi). The seats are available for immediate booking. The SpiceJet call center numbers are 1800 180 3333/987 180 3333.

Flight SG 101 will start from New Delhi at 6 a.m. and reach Kochi at 10.55 a.m. (via Mumbai). In the return direction, flight SG 112 will start from Kochi at 11.30 a.m. and reach New Delhi at 3.55 p.m.

The direct flight from Mumbai will start from Mumbai at 9.05 a.m. and reach Kochi at 10.55 a.m.

In the return direction, the flight will start at 11.30 a.m. and reach Mumbai at 1.20 p.m., the release said.

This incident reported by the Times of India Kolkata takes the cake for serious goof-ups.

Monday December 1, 2008 Time: 14:44 local (0914 Zulu). SpiceJet Bagdogra-Kolkata flight SG 324 is approaching Kolkata airport for landing. The pilot radios the air traffic controller on duty for clearance. The controller asks the pilot to align the aircraft to land on the secondary runway: "Confirm runway 19R in sight?" [19R means runway 19 Right] The pilot checks the instrument panel and replies he's in position: "Affirm (yes)." The controller gives the all clear: "Clear to land runway 19R"

Two minutes later, the pilot touched down and all hell broke loose.

Image courtesy The Telegraph
Instead of the secondary runway, the pilot had inexplicably landed on the primary runway that was shut for repairs.

"Roger Stop! Danger ahead, danger ahead," the controller screamed to the pilot. Barely 8,000 ft away from the touchdown point, 25 labourers stood dumbfounded in horror for a second and then began running helter skelter. A Boeing 737-800 aircraft was hurtling towards them at 250 kmph.

Meanwhile, realizing the mistake, the pilot put the engine on reverse thrust and applied the brakes and prayed that the aircraft stopped before disaster struck. After what seemed an eternity, but was actually a few seconds, the plane jerked to a halt 3,100 ft from the construction materials and machines.

Inside the aircraft, the 139 passengers felt the violent jerk and were flung ahead. But the restraining safety belt averted any injury. Little did they know that they had been yards away from a major mishap.

It was the second close shave for the airline in less than two years. On June 13 last year, Jammu-Delhi SpiceJet flight SG 851 carrying 171 passengers had similarly landed on the wrong runway in Delhi. Luckily, there were no men or machines on the landing strip then. Probe into the incident showed that the pilot did not use the instrument landing system but had opted for visual approach that led to the error.

Why the error was repeated in Kolkata on Monday is baffling as a notice had been issued to airmen that the primary runway would be shut from 1.15 pm to 3.15 pm. "A NOTAM (Notice To Air Men) was in place. An error should not have occurred," a senior captain said.

The usual protocol for the ATC is to cease voice messages after giving final landing clearance till 30 seconds after touchdown for the pilot to function without a lapse in concentration. But on Monday, the controller realized that 30 seconds could prove too costly and radioed the SOS message barely 12 seconds after touchdown.

"The air traffic controller showed great presence of mind and saved the day," said an airport official.

Incidentally, the controller realised the pilot's mistake just prior to touchdown. But it was too late to ask him to abort landing. "He (the controller) noticed the error when the aircraft was barely 50 ft away from the threshold or touchdown point of the primary runway. Asking the pilot to turn around from such short distance would have been extremely risky," an ATC official explained.

Aviation experts said Boeing 737-800 aircraft can come to a halt within 2,500 ft from touchdown point, but pilots use the runway length to slow down the aircraft gradually. "When using the primary runway, we slow down a Boeing 737-800 at a distance of 6,000 ft before entering the taxiway C," said the pilot.

After the SpiceJet aircraft halted, maintenance equipment were removed from the section of the runway to allow the aircraft to exit it through taxiway C. "Despite the scare, the airport staff acted promptly and the aircraft was able to move out of the runway in 10 minutes. There were no major delays due to this incident," said Kolkata Airport general manager (operations) Mahesh Kaul.

The JetLite flight to Delhi departed at 2.50 pm as scheduled using the secondary runway even as the staff were evacuating machinery from the primary runway for the SpiceJet plane to exit.

Following the incident, the director general of civil aviation has initiated an inquiry. Though prima facie evidence points to pilot error, the communication between the ATC and the cockpit that is recorded at both ends will be reviewed. Both the pilot and the co-pilot involved in the incident have been de-rostered .

SpiceJet chief executive officer Sanjay Agarwal said the airline was looking into the incident seriously. "The matter is being thoroughly investigated. We will certainly get to the bottom of this and take all necessary steps to prevent it from happening in the future," he said.

Ratan Tata's words say it all

We cannot replace the lives that have been lost and we will never forget the terrifying events of last night, but we must stand together, shoulder to shoulder as citizens of India, and rebuild what has been destroyed. We must show that we cannot be disabled or destroyed, but that such heinous act will only make us stronger. It is important that we do not allow divisive forces to weaken us. We need to overcome these forces as one strong unified nation

Stay strong Mumbai!!!!!

All domestic airlines report that their operations at Mumbai are largely unaffected and most flights are on schedule. Airlines clubbed their flights to accommodate the expected drop in passengers. Some international airlines like Lufthansa, Air France, Delta, KLM had flight disruptions or cancellations, but operations are expected to normalise by Friday.

As expected, security is extremely tight. All passengers are advised to carry valid official photo identification. If possible carry two pieces of identification. Also, please give yourself extra time to complete the enhanced security checks.

Jet Airways and JetLite have also announced the waiver of cancellation and re-issue charges on their domestic and/or international services into and out of Mumbai, on Thursday, 27 November and Friday, 28 November, 2008 on account of the current situation.

Passengers may contact Jet on 39893333 or the toll free number 1800-22-55-22 for further information or visit www.jetairways.com

SpiceJet CEO, Sanjay Aggarwal's statement is similar to Jet's:

"SpiceJet flight operations are not impacted by the unfortunate incidents in Mumbai. We are offering all passengers who have missed their flights or chosen not to take them from Mumbai, to Mumbai or via Mumbai, a choice of either rescheduling their flights or total refund or creating a credit shell with us. No change fee will apply on any of these transactions. In view of the current situation, we have also beefed up security at all the stations across our network."

I was unable to find any information or have received any similar statement from Kingfisher, IndiGo or Air India, but I suspect they too will follow a similar line.

After steadily loosing market-share, low cost carriers (LCCs) like IndiGo, SpiceJet, and Kingfisher Red (former Air Deccan), have clawed back from 41% during the July-September 2008 quarter, to 46.4% in October.

Indian domestic passenger numbers and passenger numbers growth
January 2007 to October 2008

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

While passenger number rose in October, in the slowing economy, passengers are tightening their belts and looking for lower cost travel options. Full service carriers like Air India, Kingfisher, and Jet, are reluctant to pass on savings like the reduction in fuel prices and reduction in congestion over busy airports, over the last few months. LCCs have removed the congestion surcharge, and have introduced lower fares on advance bookings.

The full service carriers have indirectly increased their incomes by withdrawing commissions paid to travel agents, and have further penalised paasengers by imposing a "transaction fee" of Rs. 350 to 500 to cover for the travel agents' commission.

While full service carriers like Jet typically charge Rs. 7,400 for a one-way ticket between Mumbai and Delhi, LCCs like SpiceJet typically charges Rs. 5,125. The gap between LCCs and full service carriers has grown back to Rs. 1,500 - Rs. 2,000 from a paltry Rs. 400 earlier, which had caused massive passenger defections from the LCCs to the full service carriers.

LCCs have also taken the battle up a notch further, now allowing corporate customers to reschedule and cancel tickets with little or no fees, in a bid to increase their penetration of the lucrative corporate traveller business.

IndiGo and SpiceJet led the LCC charge carrying about 1.2 million passengers each, while Kingfisher Red carried 0.74 million.