Tuesday, January 12, 2010

Airlines fly to smaller cities for growth in passenger traffic

India’s airlines are charting new routes to connect neglected, smaller cities that have some tourist or business potential, as the economy brightens and passenger numbers rise. Airlines saw a spurt in passenger traffic, growing by 5.45% to 39.96 million between January and November, according to the regulator Directorate General of Civil Aviation (DGCA). The figure for December is not yet available. The number had contracted as much as 4.84% to 42.85 million in 2008. Kingfisher Airlines Ltd and regional airline Jagson Airlines Ltd are among those planning to harness the potential of smaller airports. “The bigger airlines have a focus on category I (metro) routes by default, but category II routes like smaller capital cities make a lot of sense,” said Jagson CEO Koustav M. Dhar. Jagson plans to take to the skies from February with a 88-seater aircraft and subsequently increase its fleet to four by the end of the year. It will connect Srinagar to Leh with a daily flight starting April. So far, only Air India has a weekly flight between the two cities. “Those (connecting state capitals and smaller cities) are the sectors to be in and they are consistent all year around at Rs4,000-4,500 (average fare),” said Dhar, comparing the average fare on the Delhi-Mumbai route, which can drop below Rs3,000 due to competition. “(However), if you put 180 seats on category II, they are not viable.” Jagson will also connect New Delhi to Shimla and Dharamshala, and operate flights to Ranchi and Patna in summer on alternate days. Kingfisher Airlines, India’s second largest carrier by market share, has started flights between Chennai and the industrial town of Salem in Tamil Nadu, and Jharkhand’s capital Ranchi and Chhattisgarh’s capital Raipur recently. It has also received permission to start services to Uttarakhand’s Pantnagar from New Delhi. Also on the cards are flights to the hosiery and garments hub of Ludhiana in Punjab from New Delhi. A Kingfisher official said the airline is waiting for regulatory clearances before it can take off to Pantnagar and Ludhiana. “Since these are new airfields, DGCA is still to clear them,” he said.National carrier Air India already flies between several small towns in the country.

SpiceJet signs on i-Vista to build its brand digitally

SpiceJet, India’s most preferred low fare airline appoints i-Vista Digital Solutions to handle its online marketing initiatives. i-Vista Digital Solutions is a leading enterprise digital marketing company that has been entrusted with this national mandate. i-Vista Digital Solutions will provide the following solutions for SpiceJet: § Conceptualize, design and develop online collaterals. § Perform off-page and on- page optimization leading to enhanced visibility for the SpiceJet website. § Identify and effectively utilize social media platforms for increased customer- connect to build brand ambassadors. § Online reputation management and tracking of consumer sentiments. § Comprehensive search engine marketing programme to enhance visibility of SpiceJet text ads. According to Anish Srikrishna, Sr. VP and Head of Marketing, SpiceJet Limited, “We at SpiceJet believe that online engagement with our customers is key to our success. Our website continues to be a key channel of distribution and information for our customers. We wish to enhance our online presence to build our brand, understand our customers and drive more traffic to our site. i-Vista Digital Solutions has the relevant expertise in digital brand building and marketing and can offer creative and technology solutions for our current needs. We are happy to have them as our partners.” “We won the SpiceJet business because of our ability to deliver advanced solutions in the internet space. We help our customers leverage the power of the internet and leave an indelible impression through our unique and well-rounded approach to the business. Our solutions for SpiceJet range from a variety of brand building activities, social media strategy and comprehensive analytics to help the airline achieve their mission,” said Narayan Rajan, CEO, i-Vista Digital Solutions.“If you also take into account that 1 out of 3 TV watchers will also be accessing the internet at the same time, you begin to see how effectively combining your offline and online campaigns can ensure your message reaches your customer. i-Vista has been in the digital business for the last 13 years and has built an enviable track record.

Monday, January 4, 2010

Wings on fire

Paramount Airways is all set to enter the big aviation league. An airline that has been operating what it calls an all-executive-class fleet, is now in final stages of talks with Bombardier and ATR. In not more than two months, by February 2010, Bombardier's Q400s or ATR's turbo props - 10 aircraft in all - will adorn the fleet of the south-Indian carrier. The target for paramount is simple. All ground work is through to operate the turbo props predominantly in Tier II and Tier III cities. Some of the cities that have been shortlisted are Pondicherry, Mysore, Salem, Bellary, Rajamundry etc., all in south India to start with. The number of destinations the airline covers will then increase from the current 17 to 40 by 2011.With a bare minimum fleet of 5 aircraft (all Embraer) the company has maintained the best passenger load factor among all airlines in the country. Paramount is also the only Airline in India that have seen Rs 79 cr profits as of March 2009. Come October 2010, when the airline completes 5 years of its operations, it will spread its wings overseas. Negotiations are already complete with Airbus to buy 10 of their 321 aircraft. The planes are to be acquired at a list price of USD 90 million. The deal is to be funded by the European Central Bank through a 12 year loan.The Airbus 321s will all be used for the company's international flights. Initially, Paramount will fly to South-East Asian destinations like Singapore, Kuala Lumpur, Bangkok, Penang and Middle East designations like Dubai and Abu Dhabi.

Struggling Air India looks to soar again

Air India, the national flag carrier that has accumulated thousands of crores of rupees in losses, is set to fly over uncharted territory hoping to reverse its fortunes in the new year. Arvind Jadhav, head of the National Aviation Co. of India Ltd (Nacil) that runs Air India, says he will use a combination of cost cuts, outsourcing, restructuring and spinning off under-utilized divisions into separate businesses to rewrite the account books of India’s oldest airline. But aviation experts are sceptical, claiming some of Jadhav’s ideas are unlikely to succeed and others are unlikely to be implemented because of Air India’s state ownership. As chairman and managing director of the beleaguered Nacil, Jadhav has the unenviable task of salvaging an airline that saw losses of Rs7,226 crore in fiscals 2008 and 2009. Air India’s outstanding debt stands at Rs16,000 crore, of which Rs11,000 crore is high-cost. It also runs a monthly cash deficit of Rs400 crore. Nacil has asked the government for a loan and equity infusion of nearly Rs15,000 crore, and is already showing signs of revival. To begin with, Jadhav plans to turn two of Air India’s divisions into independent profit-making ventures: engineering, which will become a full-fledged maintenance, repair and overhaul (MRO) firm; and cargo handling, which will become an integrated end-to-end logistics firm. “By April, we would be spinning off our engineering business unit into a different company,” Jadhav said. “This will straightaway take around 20,000 employees out of Air India’s books and Rs1,200-1,500 crore salary bill (with it).” Air India’s annual wage bill for 31,500 employees stands at Rs3,300 crore. Branching out - The engineering division currently services 100 planes a year, or just half its capacity. It is also unable to attract much business from rival carriers, and earns about Rs100 crore annually. But once turned into a separate business, it could make as much as Rs3,000 crore annually. Air India has already entered a strategic alliance with Sharjah-based Aerostar Asset Management FZC for marketing its aircraft engine overhaul facility. The two have created an engine MRO brand called The A Team, which already provides engine repair and management solutions to West Asian airlines. Air India is also in talks with logistics firms to build the support infrastructure for “door-to-door” logistics. “The idea is (to) spin off our cargo airline division into a separate entity and convert that into a complete logistics company that offers door-to-door services,” said Jadhav. Nacil has also entered into an equal joint venture with Singapore Airport Terminal Services Ltd to handle ground services at various airports in India. “If the subsidiaries are hived off and start earning the projected revenue, we will be getting Rs360 crore a month,” Jadhav predicted. Cutting costs - In a market where airlines are selling tickets below cost, Jadhav agreed it was tough to enhance revenues. “You cannot cut salaries, airport charges or catering charges overnight. So one will have to look at cost savings,” he said. He is already attempting this through network restructuring, rationalizing routes and aircraft deployment, and shifting a good number of employees based in US and European cities to India. “These measures have (also) helped in increasing revenues,” Jadhav said, adding that the company was expecting a net benefit of Rs378 crore in terms of cost reduction during the winter schedule of 2009 and Rs563 crore for the entire year. The merger of Air India with other state-run carriers Indian Airlines, Air India Express and Alliance Air will bring down costs further. The government gave its nod to the merger nearly three years ago, but operational delays have hobbled the move. Air India now runs its aircraft on all four operating licences. Jadhav pointed out a merger of such a large scale was not an overnight process. He was, hence, prioritizing the “front end merger”, which will mean the customers will deal with a single airline for all practical purposes, while the merger of books, workforce and so forth—the back end—would happen over time. In India and abroad, the carrier has combined booking offices of Air India and Indian Airlines to save on establishment costs. The office at the Jeevan Bharti building in central New Delhi, a prime location, has also been surrendered, saving approximately Rs5 crore annually. Air India has also withdrawn from some sectors on India–Gulf routes and has transferred them to Air India Express, as part of route rationalization. Wage worries - One will have to see how much can Jadhav do, considering the constraints of a government-owned airline. In the past, he had to drop several ideas, including wage cut. Slashing the massive wage bill has been the toughest task. Aviation expert and aerospace journalist Hormuz P. Mama is more sanguine. “The fact that Air India is a state-run airline does not mean that nothing can be done about it. There needs to be a compromise from the unions regarding salary cuts, a very inconvenient point that has been put on the backburner,” he said. Unless unions were willing to accept realistic concessions now, they could have to settle for a lot less in the near future. He suggested “manpower rationalization”, saying the biggest single source of expenditure was the “grossly bloated staff strength”. But such a measure is not on Jadhav’s radar, given what he calls are the airline’s “social commitments”. Instead, he is looking to outsource some functions. “Since we are an aviation company, we may not be able to give career progression to IT people. Therefore, we may identify certain services for outsourcing to other company after reaching an agreement on terms and conditions,” Jadhav said. Equity boost - Even if they are not substantial in themselves, the cost cuts have had a ripple effect. The government has agreed to infuse Rs800 crore as equity based on various cost-cutting measures. The airline currently has an equity base of Rs145 crore. “Bankers are confident on Air India but have some pre-conditions for restructuring the loan,” Jadhav said. “If the shareholder, that is the government, is willing to infuse additional equity, I could convince the bankers to restructure my high cost loans.” Air India is also toning up his fleet. Air India has phased out 11 medium-sized and six wide-body planes from its system in the current fiscal while inducting 29 new aircraft. “We have operated winter schedule with 56 planes against 67 aircraft in summer schedule without losing passengers,” Jadhav said, adding that better utilization of aircraft had resulted in substantial savings of Rs200 crore. By March 2010, three more Boeing 777-200s, two Airbus A310s and eight Airbus A320s will be returned or retired from the fleet, allowing Air India to induct brand new aircraft. Airlines worldwide are projected to post $5.6 billion (Rs26,152 crore) in losses in fiscal 2011, according to industry body International Air Transport Association, or Iata. Jadhav said he expected Air India won’t contribute to that figure. He agreed both organizational and financial restructuring was difficult, particularly so for a government-run company. “But we are hopeful of both,” he added.

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