The expansion of Kingfisher Airlines' much publicised and recent launch international operations, appears to be heading for a cutback even before it has really taken off.

AviationWeek's Neelam Mathews reports "Kingfisher Airlines is likely to stop its international operations following the deepening financial crisis that has hit the Indian airline industry". She also reports that "Expat pilots and crew at Kingfisher that have been waiting since March for international operations to take place, are expected to be laid-off following this decision."

UK Flights
Currently, the sole international flight of Kingfisher is a daily Airbus A330 on the Bangalore-London Heathrow route. This flight is reportedly performing very poorly, with an average of 35 passengers per flight. However, the flights for Diwali week are reportedly sold out.

The Mumbai-London Heathrow daily Airbus A330 flight is scheduled to commence on October 26th, but as on date, this appears to be a non-starter, since, the flight has not even been loaded on to the reservation system, with less than 2 weeks to go.

US Non Stop flights
The ambitious plans to link the two "Silicon Cities" of Bangalore and San Francisco are definitely off, at least for now. Middle level managers have been informed the dates have been postponed, but no new dates are indicated. All plans are being kept close to the chests of the top most brass at Kingfisher, and nothing is being revealed.

Kingfisher had planned to use its 5 ultra long range Airbus A340-500 aircraft on the Bangalore San Francisco and Bangalore New York route. The astronomical price of oil, coupled with the global economic meltdown, has sent these plans up in smoke.

Unable to take deliveries of the aircraft, both Kingfisher and Airbus were desperate to sell these five aircraft. Three of these aircraft have been sold to Nigerian carrier Arik Air. Rumours abound that Portuguese carrier HiFly has taken the two aircraft and will wet lease the aircraft to Arik, but it is not sure whether these two are from the three aircraft bought by Arik, or the balance two A340-500's left with Airbus.


Photo (C) Airbus

With the sale(s), it is obvious that Kingfisher will not have the A340-500 aircraft to offer the non-stop service. In my opinion, it is a smart move. The two other Asian operators of the A340, have dramatically scaled back or stopped their US non-stop flights. Thai Airways has grounded its A340-500 fleet and Singapore Airlines is converting its fleet to all business class. I am sure that is just to keep the public image. Those flights are haemorrhaging money. Dubai based Emirates could not care about the price of oil, they control it.

Now that Jet Airways has cut back on its Mumbai-Shanghai-San Francisco route, Kingfisher should use this opportunity to provide a Bangalore-Shanghai/Hong Kong/Taipei/Tokyo-San Francisco flight using its A330-200s.

Aircraft Orders
Kingfisher Airlines has taken deliveries of 5 Airbus A330-200 aircraft. 2 are deployed on the BLR-LHR route, 3 others are lying idle. Rumours have it, that these aircraft will be deployed on Hong Kong, Dubai, and Singapore routes, from Bangalore and Mumbai, but there is no concrete information on when.

Even at Toulouse, the home of Airbus, there is a veritable parking lot of undelivered Kingfisher liveried aircraft, as this photo by a380spotter shows.

Things are most definitely not rosy at Kingfisher, and the King of good times, needs to find some "good times" fast.

The deepening economic crises are forcing the hands of the private airlines in India.

Manisha Singhal of the Business Standard reports that airlines have sought a bailout of almost $1 billion (Rs. 4,700 Crore) amidst losses expected to reach $2 billion this year. Take a cue from the recent $440 million (Rs. 2,000 Crore) bailout of NACIL, the national airline, airline chiefs recently made a presentation to the Prime Minister’s Office to this effect and government sources said some of their demands may be accepted.

What airlines want

• Interest-free loan with a “bullet” (one-time) repayment after three years
• ATF be put under ‘declared goods’ for uniform sales tax
• Reduction or withdrawal of duty on spare parts for aircraft maintenance
• Scrapping customs and central excise on ATF
• 50% reduction in airport landing, route and terminal navigation charges for 24 months
• Freeze on further increases in airport service charges

The concessions requested include an interest-free loan with a “bullet” (one-time) repayment after three years, putting aviation turbine fuel (ATF) in the “declared goods” category for sales tax relief and scrapping customs (5.15 per cent) and central excise (8.54 per cent) on the fuel.

The industry has also asked for a reduction or withdrawal of duty on spare parts for aircraft maintenance. Airlines have also asked for a 50 per cent reduction in airport landing, route and terminal navigation charges for 24 months for domestic operations and a freeze on increase in airport service charges, sources close to the development said.

While the civil aviation ministry hopes that its finance counterpart will soon accept the demand to bracket ATF in the declared goods category, to ensure uniformity and help the airlines save on fuel costs, it is unlikely demands to reduce airport charges, and route and navigation charges will be considered.

Airline companies have been unable to garner investor interest or raise money from institutions to fund their losses and expansion plans.

Private carriers like Naresh Goyal-promoted Jet Airways have commenced "re-organisation" of international operations. Today it annouced, effective January 13, 2009, it will discontinue its Mumbai - Shanghai - San Francisco route, and serve its SFO bound passengers on codeshares with United via London.

No sympathy
While, the airlines are hoping for some positive response from the government soon, they do not have much sympathy from either industry experts or the general public.

Many aviation experts say airlines are themselves to be blamed for the financial crisis. “Could they not see the writing on the wall that crude, as a commodity, will go up? They made their biggest mistake when they started competing with the Indian Railways,” said an aviation analyst who did not wish to be identified.

Just last week, the airlines appeared to be willing to add special fees in the ticket price to cover travel agents' commissions costs, earning them the ire of the travelling populace.

Impact on airports
Delhi International Airport Limited (DIAL), has joined the ranks of other airports in India, Bengaluru International Airport (BIAL), and GMR Hyderabad International Airport (GHIAL), to demand imposition of User Development Fees on passengers. Aviation experts are cautioning about the exaggerated negative impact of these fees, on the Indian aviation industry especially in these tough times. Airports are stuck between a rock and hard place, with no easy options available.

Related articles :

Fuel Populism killing Indian aviation

Air passengers to pay yet another fee

The Karnataka state government is tripping over itself trying to expedite the High Speed Rail Link (HSRL) to the new Bengaluru International Airport (BIA), conservatively expected to cost Rs. 5,200 - Rs. 5,700 Crore by completion date, somewhere by 2012.

The HSRL project has been put on the fast track, and the Karnataka State Industrial Investment and Development Corporation Limited (KSIIDC) has already published a Request for Qualification (RFQ) document on its website. KSIIDC is expected to announce the short-list by October 21. The letter of award to the bidder is estimated for February 16, 2009. Delhi Metro Rail Corporation (DMRC), is the project consultant.

The City Airport Terminal (CAT), the starting point of the HSRL is on Parade Ground next to the Chinnaswamy Stadium on M.G. Road, with stations at Hebbal and Yelahanka. The final station will be at BIA. The first three stations will be elevated, and the BIA station is has not been determined as yet.

I am confused on some aspects of the HSRL when trying to do a sanity check.

Sanity Check 1: Who is the target customer of the HSRL ?
In 2012, assuming the global economy revives in the next 12 months, oil prices reduce drastically, and BIAL's ambition of a south India hub comes true, I can project a maximum growth to 30 million passengers. Which translates to about 500,000 passengers, up and down, per week. Assuming 60% of passengers use the HSRL, this translates to a maximum of 300,000 trips per week.

Assuming 20,000 workers at the airport, if airport workers are added, then the number of weekly trips can increase 50% to 450,000 trips.

The time-table of "airport city" where another 100,000 people are expected to work is unknown at this time. When airport city reaches peak capacity we can assume another 250,000 trips per week.

Each category of person has differing needs.

Sanity Check 2: Convenience
The Central Business District (CBD) which includes M.G. Road area is completely choked with traffic. How many travellers are willing endure the pain and hardship to come to the CAT, and then take a train.

HSRL passengers from Central, South and South East part of Bangalore can still be expected to use the CAT, since it is on the way to the airport. Those from the western, eastern, and north-western suburbs are not going to spend enormous amounts of time deviating from the shortest possible route to come to the CAT. It is unclear if there is a park and ride facility at Hebbal.

Sanity Check 3: Close integration with Namma Metro and BMTC
A lack of close integration with the Metro is another area due for a sanity check. Integration with the Metro is vital for the long term success of the HSRL as it will provide the distributed connectivity to various parts of the city. As per my understanding, the Minsk Square metro station will be connected by a 200 meter walkway to the CAT. 200 meters with luggage does not remotely qualify as integration. There is no information available on whether the Vayu Vajra service will be linked to the CAT.

Sanity Check 4: Affordability
Passengers want to get to the airport in the shortest amount of time and are willing to pay a premium, but the airport worker wants affordability. BMTC has been forced to offer monthly passes on its much vaunted Vayu Vajra service for Rs. 2,500 per month, which translates to Rs. 50 per trip (compared to a planned Rs. 200 on the HSRL), and even this most workers and businesses find expensive.

Sanity Check 5: Financial Viability
If the HSRL will not cater to airport workers, then traffic will drop to 300,000 trips per week. Even at 500,000 trips per week, and at Rs. 200 a trip, the gross revenue will be about Rs. 520 Crore per year. A profit after tax (PAT) of 10% will result in an annual profit of just about Rs. 52 Crore, ridiculously small for a 5,000+ Cr outlay.

I have tremendous regard for Mr. E. Sreedharan, especially his construction achievements on the Konkan railway and DMRC, but DMRC does not enjoy the best of reputations on financial transparency. Sunil Jain's Rational Expectations article in today's Business Standard is a good reality check on how DMRC manipulates or suppresses figures to project a rosy picture, when in reality, it is not.

I am the first person to stand in the Yes column when it comes to better connectivity to BIA, including the HSRL. However, at a time when Karnataka has more pressing infrastructural and social needs, a detailed sanity check is required to ensure the HSRL does not turn out to be another white elephant draining the precious public coffers.

Krupa Vora of TravelBizMonitor reports, of a significant development, which has national implications. Travel agents will continue to receive commissions on the sale of airline tickets till the Calcutta High Court passes judgement in the suit filed by a TAFI member agent in Kolkata.

The TAFI member agent (plaintiff) filed a suit in Calcutta High Court early last week against National Aviation Company of India Limited (NACIL), International Air Transport Association (IATA) against the abolition of agency commission on the grounds that the IATA Passenger Agency Sales Agreement does not permit an airline to reduce agency commission to zero per cent.

The zero commission regime was to due to be implemented from November 1, 2008.

The High Court, according to industry sources, in its first hearing of the suit (case number: G.A. 3257/2008 and C.S. 197/2008) had passed an order to maintain status quo stating, “Having heard and considered the facts and circumstances of the case, the reduction of remuneration to zero per cent cannot be justified as the term 'Service rendered' postulates payment for work done. Zero per cent contemplates services rendered for free and the rules of IATA do not postulate such a situation. Neither the rules have been amended nor has the agreement been terminated. Therefore, there is no justification for reduction of the commission to zero per cent. Parties are directed to maintain status quo as on date till 30th September 2008.”

At the hearing of the suit yesterday, where according to sources, the airline representatives did not show up, the High Court directed the parties to maintain a status quo till the next hearing.

The date for the next hearing, according to sources is November 5, 2008.

As the plaintiff in his petition had also advised the court that this was a matter affecting numerous IATA agents across the country, the Hon'ble Court, according to sources has, therefore, given leave to all agents interested in the matter to become a party to the suit by making an application to the Court. A newspaper advertisement to this effect will be published shortly in two major dailies. According to sources, in order to become party to the suit an agent will be required to submit an affidavit, stating the same, along with a copy of his/her Agreement signed with IATA.

The Centre for Asia Pacific Aviation reports that the International Air Transport Association (IATA) released international traffic data for Aug-08 that confirmed a continuing downturn.

International passenger demand growth slowed to 1.3%, following disappointing growth of 1.9% in July. Passenger load factors fell to 79.2% a sharp drop-off from the 81% recorded during the same period last year as capacity growth outpaced demand.

International freight traffic saw its third consecutive month of contraction with a 2.7% decline following drops of 1.9% in July and 0.8% in June.

Giovanni Bisignani, IATA’s Director General and CEO said, “Passenger traffic grew by 5.4% in the first half of the year. That slowed to 1.9% in July and 1.3% in August. The contrast between the first half of the year and the last two months is stark.” “The slowdown has been so sudden that airlines can’t adjust capacity quickly enough. While the drop in the oil price is welcome relief on the cost side, fuel remains 30% higher than a year ago. And with traffic growth continuing to decline, the industry is still heading for a US$5.2 billion loss this year.”

Bisignani said, Air freight has declined for the past three months, led by Asia Pacific carriers that posted a 6.5% decline in July and a 6.8% decline in August. “Airlines carry 35% by value of the goods traded internationally. The three-month decline - led by weakness in Asia-Pacific markets - is a clear indication that global trade is slowing down. This shows that the impact of the financial crisis is broad geographically and will worsen before it gets better.”

Passenger

• Asia Pacific carriers reported a 3.1% contraction, following a 0.5% decline in July. Economic distortions surrounding the Olympics in China and a weakening Japanese economic outlook contributed to the decline. While some recovery in this weak performance is expected in coming months, clearly the region’s economies are feeling the impact of the turmoil in the financial markets.
• Middle Eastern carriers saw traffic growth drop to 4.3% following 5.3% in July and well below the 10.6% growth recorded during the first 6 months of the year.
• In contrast, international passenger traffic carried by North American airlines accelerated from 4.2% growth in July to 5.2% in August, in Latin America from 8.1% to 11.9% and in Europe from 1.3% to 1.6%.
• August is usually the second strongest month of the year, but the 79.2% load factor achieved was 1.8% points lower than last year although scheduled capacity is planned to slow very sharply to the point where it barely grows by the end of the year.

Cargo

• The 6.8% decline in international freight shipped by carriers in the Asia Pacific region had the greatest impact as they comprise 45% of the global air cargo markets.
• The other big market players also showed weakness. European carriers experienced a 0.9% decline, while US carriers reported weak growth of 0.8%.
• Sharp declines in freight traffic in Latin America (-13.2%) reflect restructuring in Brazil with cuts in capacity.

Bisignani added,“The industry crisis is deepening and no region is immune. Urgent measures are needed. From taxation to charges and operational efficiencies, all areas impacting the business must be examined for ways to reduce costs and drive efficiencies. It’s a matter of survival.”

Despite this slowdown, foreign carriers are still bullish on India, and Bangalore in particular. Emirates in is the process of adding its 3rd daily flight, and is today the dominant foreign airline in Bangalore.

I read the following story in the TravelBizMonitor (TBM) with a big pinch of salt.

In paragraph two of the TBM article, Dr. Vijay Mallya, Chairman, Kingfisher Airlines, is quoted as saying he is completely against charging the UDF as part of the ticket. Yet airlines are perfectly at ease over-charging passengers a "transaction fee" to cover the travel agent commission, even when you do not fly and turn the ticket in for a refund (See my articles 1 and 2 on this subject).

Travel agents too are an external agency just like BIAL would be. What justification do the airlines have to offer for this blatant discrimination against BIAL ?

Bengaluru International Airport will charge UDF for domestic passengers
Implementation date and amount to be decided
By TBM Staff | Bangalore
Bengaluru International Airport (BIA) will charge a User Development Fee (UDF) for domestic passengers but the amount and the date of implementation is yet to be decided. The decision is still being reviewed by the Ministry of Civil Aviation (MoCA) and the operator is awaiting the decision. “Although it is a new concept for Indian domestic passengers the concept was agreed upon while signing the concession agreement. We realise that the aviation industry is witnessing a slow down and the carriers are facing constraints but the airport too requires the UDF for its functioning and future growth,” informed Albert Brunner, CEO, Bangalore International Airport Limited.

The Directorate General of Civil Aviation (DGCA) had earlier issued a notice to all domestic airlines asking them to collect the fee while issuing their tickets. The GMR Hyderabad International Airport in Hyderabad is already charging UDF of Rs 375 for domestic passengers as part of the ticket cost. The passenger is allowed to pay the fee either before checking in or after collecting the boarding card. It is yet to be seen how Bengaluru International Airport will collect the fee from passengers. “We are not against the concept of UDF for domestic passengers but we will not incorporate it as part of the fare. BIA can collect it on their own,” said Vijay Mallya, Chairman, Kingfisher Airlines, at a recent press conference announcing the launch of the airlines’ international operations.

In the same article, TBM reports
Meanwhile the expansion plans of BIA are still going strong. The first expansion of the apron is already underway and is expected to be completed shortly. The second phase of expansion will include extending the current terminal building to accommodate the increase in passenger traffic. The operator is confident of handling the passenger traffic for the next couple of years with the existing infrastructure. It will also construct a second terminal and runway, which will take at least another three to four years.

I do not know if something has changed in the last month. When I visited BIAL on the 6/Sep, all work on the apron was stopped. (See my visit report). Quoting from my visit report :

While driving around, I observed that the apron extension to the west of the PTB, is on hold. I was told "we are waiting for the UDF issue to be resolved". For brief while, I had the disturbing question floating in my head. Is BIAL out of money ?

I later learnt from some people at the airport (who shall remain anonymous), the apron expansion was given to some fly-by-night contractor and not L&T who constructed the first apron. Cost was the reason, for awarding the contract, and also the contractor fleeing, when he realised the true magnitude of work.

Can some from BIAL confirm, via a comment, if the apron expansion work has re-started.

TravelBizMonitor has provided a break-up on the Travel Agent Transaction Fee.

As per the decision, travel agents will now charge a Transaction Fee of Rs 350 per ticket on domestic Economy Class, Rs 500 per ticket on domestic Business Class, Rs 2,500 per Economy Class booklet and Rs 3,500 per Business Class booklet. Interestingly, tickets purchased for SAARC, which include Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka will be included under domestic travel. On international tickets, Economy Class that falls under TC1, which includes North and South America, Australia and New Zealand and TC2, which includes Europe, Taiwan, Japan, Korea and Africa and South West Pacific will be charged Rs 2,500 and TC3, which includes Middle East, South East Asia and China will be charged Rs 1,200. On international Business tickets for TC1 and TC2, the charge will be Rs. 5,000 while for TC3 will be Rs 2,000. International First Class tickets will be charged a fee of Rs 10,000 on TC1 and TC2 (Including South West Pacific) and Rs 5,000 on TC3 category.

But what is positively disgusting is that the transaction fee will not be refundable and can be charged over and over again.

It has also been decided that the Transaction Fee will not be refundable and will be retained by travel agents, even when a ticket is processed for refund. The agents can charge a fee over and above the cancellation charges for any modification or cancellation. The airlines will also charge the same Transaction Fee at the City Traffic Office, Airport Traffic Office and the website.