Thursday, February 5, 2009
issue of FDI participation by foreign airlines in the domestic aviation sector threaten to derail their strategic alliance.
It was known that all was not well between the airlines, but it now appears that the issue is now out in the open. The tussle between the carriers on the FDI issue may have a bearing on their alliance that was formed last October to streamline capacity, rationalise routes and to bring about a code-sharing arrangement.
“We don’t see any value in the FDI policy currently as airlines globally are bleeding. Jet Airways is neither discussing stake dilution with any foreign airline, nor is it referring the case to the government,” Jet Airways CEO Wolfgang Prock-Schauer told ET recently. Kingfisher Airlines chairman Vijay Mallya earlier wrote to the government to allow FDI in domestic carriers. Interestingly, Kingfisher is believed to be discussing a stake sale of 25% with three foreign airlines.
“At this juncture, a difference in opinion between them (Jet and Kingfisher) may hamper the alliance, which is yet to take off after three months,” an analyst with a Mumbai-based domestic brokerage firm said, on condition of anonymity.
Naresh Goyal, Jet Airways’ promoter, and Vijay Mallya had a closed-door meeting in London in December to look for ways to avoid duplicating flights on domestic and overseas routes. The meeting did not yield anything of consequence. With the Jet-Kingfisher alliance not progressing too smoothly, a difference in opinion on the FDI issue is not the best piece of news at this juncture.
Current regulations do not allow foreign carriers to hold equity, either directly or indirectly, in domestic airlines. Importantly, India is the only country where foreign institutional investors are allowed to invest in the aviation sector with a FDI cap of 49%.
Most Indian carriers are already sitting on significant debt and raising additional resources may not be easy in the prevailing conditions. United Spirits (USL), a UB Group company, has pledged its shares to fund Kingfisher’s expansion plans.
Jet Airways is the largest air-carrier in the country. Naresh Goyal's Tail Winds holds 80 per cent stake in it.Jet's assertion comes in the wake of the Union Government's proposal to allow domestic airlines to sell stake to foreign carriers.
Last year, Goyal was looking at diluting his stake to raise funds. But the stock markets have been on the downslide since January 2008, leading to a slump in Jet Airways stock prices, too.
"Low valuation was the reason for not going ahead with Goyal's dilution last year, too," the Jet official said.
Even industry experts feel that it would not be a good move for the air carrier to go for equity infusion from overseas in view of the prevailing market conditions.
"It is correct on Jet Airways part not to go for equity infusion from foreign airlines and rather manage cash on their own," an aviation analyst from a brokerage firm said on anonymity.
The market cap of Jet is currently Rs 1,500 crore, which is too low valuation to dilute the stake, he said.The current FDI norms prohibit overseas airlines from picking up stake in Indian carriers.
Kingfisher Airlines Chairman Vijay Mallya had sometime ago written to the Union Government to allow FDI in domestic carriers to make them internationally competitive.With mounting losses, liquidity crunch, Mallya is scouting for foreign funds to keep his airlines afloat.
carrier Jet Airways is actively concluding the final negotiations for hedging about 25% of its aviation turbine fuel (ATF) requirement with two oil companies. During that period, oil prices rose to an all-time high of $147 per barrel but tapered off to as low as $35 per barrel in recent times.
The hedging deal is almost final and is expected to go through anytime now. When contacted, Jet Airways CEO Wolfgang Prock-Schauer told ET: “We are discussing with oil companies for hedging and it will go through in the next few weeks.” He declined to give any more details.
Hedging is a process wherein buyers lock in on the prices of final products for settlement at a future date to insulate margins from price volatility. Hit by high expenditure on ATF, the Naresh Goyal-promoted airline incurred a net loss of Rs 214 crore in the quarter ended December 31, 2008.
Said senior consultant with KPMG India Mark Martin: “A historical analysis of ATF prices indicates that airlines could have benefited by hedging against their exposure to ATF price volatility.”
Last fortnight, oil marketing companies announced a 3.4% hike in ATF prices following a rise in international prices of ATF. This is the first time since August last year that aviation fuel prices have recorded an increase. In Mumbai, home to the nation’s busiest airport, ATF costs Rs 32,447.65 per kilolitre as of Saturday night. “At these prices, when crude is hovering around $45 and expected to touch $80, it makes sense to hedge. Airlines can take a partial long hedge to lock into prices, otherwise unexpected volatility may result in losses,” said Daljeet Kohli, head of research at Emkay Global.
ATF accounts for 50% of the operating cost of airlines, which are expected to post a combined loss of $2 billion for fiscal 2009, primarily due to high ATF prices. India is among the most expensive places to buy ATF due to higher and differential sale-tax structure in different states.
Jet Airways operates a fleet of 87 aircraft, which includes 10 Boeing 777-300 ER aircraft, 12 Airbus A330-200 aircraft, 51 classic Boeing aircraft and 14 ATR 72-500 turboprop aircraft. It flies to 63 destinations at home and abroad, including New York, Toronto, Brussels, London, Hong Kong, Singapore and Colombo.
Tuesday, January 20, 2009
SpiceJet yesterday launched an innovative promotional offer- �SpiceJet Happy Hours�. To kick start the �SpiceJet Happy Hours�, there is a Two for One offer available on SpiceJet.com. The booking to avail the offer started yesterday and is open till today. Under this offer, if a ticket is booked for two or more people in a single transaction, every second passenger gets to fly free. Passenger on free ticket will have to pay Passenger Service Fee (PSF) ranging between Rs 200 and Rs 233. There will be an additional charge of Rs 350 on flights from Hyderabad.
Bookings made under this offer cannot be rescheduled or cancelled. The offer cannot be clubbed with any other offer or discount from SpiceJet. The offer is not open for infant bookings and is available for a limited period. Announcing this, Sanjay Aggarwal, Chief Executive Officer, SpiceJet Limited said, "We are delighted to launch the SpiceJet Happy Hours promotion which is available only on our website. This will bring exciting options for all who book online. The Book for Two and Pay for One offer is an innovative promotion that will stimulate the market. The individual travellers now have an opportunity, to take their companions when they are travelling. Families who want to get away for a long weekend will now be able to do so easily, availing this offer.�
For short sectors, defined as less than 750km travel distance, GoAir will charge Rs1,700 a ticket and Rs2,700 for longer distances, a GoAir statement said. In effect, a Mumbai-Delhi ticket on GoAir bought 21 days in advance can be bought for Rs2,700 instead of the base fare of at least Rs1,000 plus Rs2,925 of surcharges and airport fees.
GoAir�s new offer is in reaction to the re-introduction of a Re1 fare by the Delhi-based rival IndiGo, run by InterGlobe Aviation Pvt. Ltd, on certain routes and SpiceJet Ltd�s Rs99 base fare for tickets booked at least 21 days before travel.
Three major airline groups of the country have also resorted to price cuts to stimulate the passengers. The quarter ended 31 December witnessed an 18% decline in domestic passenger growth.
Others such as Jet Airways (India) Ltd, the country�s largest private carrier by passengers carried, and its unit JetLite (India) Ltd have also introduced 21-day advance fares. Jet has offered Rs250 base ticket fares while JetLite started at Rs9 base fare for travel in January. It has similar schemes for its business class too.
Rival carrier Kingfisher Airlines Ltd has slashed fares between 21% and 65% on various routes from 1 January.
State-run National Aviation Co. of India Ltd, which runs Air India, has announced an average reduction of 52% in basic fares for domestic travel on 20 major routes.
Airlines such as Jet Airways expects a 15% increase in passenger traffic, but CLSA Group analyst Anirudha Dutta is sceptical. �With yields coming under pressure again and load factors unlikely to increase to break-even levels in a difficult macroeconomic environment..., we do not believe low fares will stimulate passenger growth as in 2003-07,� Dutta wrote in a Monday report.
Reactions to the entry of two foreign carriers -- Indian Kingfisher Airlines and the Malaysian budget carrier AirAsia Berhad -- have been mixed. One local airline said it feels the pinch of a decline in traffic to Kolkata and Kuala Lumpur destinations.
Other local private airlines seem unruffled.
Of the two entrants, Kingfisher Airline of Indian liquor baron Vijay Mallya seeks to operate on the Dhaka-Kolkata route beginning in mid-February. Kingfisher will be the sixth airline on the route, blessed mainly by Bangladeshi medical treatment seekers, tourists and business people.
One of the biggest low-cost carriers in Asia, AirAsia or AirAsia X, won government approval and aimed to start Dhaka-Kuala Lumpur flights in early March.
The carrier said it would operate seven flights a week on the route, where Bangladeshi workers destined to Malaysia are the main travellers.
But aviation analysts said the share of the aviation pie becomes smaller for the airlines due to slowing recruitment of workers in Malaysia, and an increase in alternative travel means between Dhaka and Kolkata, such as bus and railway.
�We want to begin the Dhaka-Kolkata services by February 16. Initially, we want to operate daily. But we have to operate two flights a day,� said a senior official of Air Galaxy Ltd, general sales agent for Kingfisher in Dhaka, yesterday.
Kingfisher, one of the fastest growing carriers in India, seeks to attract travellers from Biman Bangladesh Airlines, GMG Airlines, United Airways, India\'s Air India Express and Jet Airways.
The entry of Kingfisher will enhance the overall capacity of the route, resulting in over 200 air-travellers a day. Aviation industry analyst Kazi Wahidul Alam believed that the volume of passengers on the route has not increased, but the increase in alternative travel modes likes the bus and the rail has dispersed passengers.
�The market appears saturated. The available seat capacity of the carriers will be more than the market demand, after entry of another carrier,� he said, cautioning local airlines that overall traffic might be hurt.
The Air Galaxy official however believed that Kingfisher would have an edge over others thanks to its "reliable services".
Budget carrier AirAsia X initially wants to operate five flights a week, after its Bangladesh debut in early March, said Enam Ahmed Chowdhury, managing director of AirAsia\'s local partner Dahmashi Tours and Travels Ltd.
With the entry of AirAsia X, the total number of airlines on the Dhaka-Kuala Lumpur route will be five. Other operators include Biman Bangladesh Airlines, GMG Airlines, Best Air and Malaysia Airlines. All of them depend mainly on Bangladeshi people working in Malaysia.
But the trend in hiring chunks of workers from Bangladesh is nearing an end. Starting in August 2006, Kuala Lumpur recruited over four lakh Bangladeshi workers.
Officials said the number of workers going to Malaysia is gradually declining and signs of a boost in manpower exports to Malaysia appear dim.
Enam however expected that the carrier would be able to attract traffic because of the relatively low fare. �Still there is some recruitment in the pipeline. We will also work for attracting tourists,� he said.
But an official of Biman Bangladesh Airlines said the carrier counts a drop in outbound traffic to Malaysia.
Aviation industry analyst Kazi Wahidul Alam also pointed to slowing recruitment in Malaysia. �Overall, competition in the market will be intense."
Kingfisher Airlines has appointed Colombo based Royal Spence Aviation Pvt. Ltd. as the sole GSA (General Sales Agent) for Sri Lanka. This was announced at a press conference held yesterday in Colombo during the launch of the daily services to Colombo.� Shiva Ramachandran, Vice President � Global Sales, Kingfisher Airlines Limited; Sasha Sebastian, Country Manager � Sri Lanka, Kingfisher Airlines Limited; D H S Jayawardena, Chairman, Royal Spence Aviation Pvt. Ltd.; J M S Brito, Deputy Chairman, Royal Spence Aviation Pvt. Ltd. were present at the conference. Speaking at the press conference, Ramchandran said, �Colombo is our second international destination after London. We have selected Colombo because it is a short haul destination and the demand is increasing every year. We are looking at connecting more Indian destinations with Sri Lanka in the near future to enhance the connectivity between both countries.�
According to Ramachandran, the demand on Chennai � Colombo route has recorded an immense growth since two years. The route is showing positive growth despite the economic slowdown. He said, �Chennai � Colombo is already a mature market and we are improving the connectivity and looking at enhancing the passenger experience. Bangalore � Colombo route is still not up to the mark, but we are working in that direction to improve it in the coming years.�