"You Matter" from Kingfisher Airlines

I received below email from Kingfisher Airlines last night.

Dear Mr. Chauhan,	Membership No. *********
On behalf of Kingfisher Airlines, I am grateful to you for your support and patronage of our services. I would like to take this opportunity to update you on recent developments at Kingfisher Airlines vis-a-vis media reports on our performance.
As you are aware, the Indian Aviation Industry has been faced with the difficult task of coping with high costs and lower yields. Post considerable thought and deliberation, Kingfisher Airlines has rolled out initiatives that aim to drive the long-term profitability in our efforts to meet these challenges.
As announced earlier, we have decided to focus on the full-service market; to this end Kingfisher Airlines has initiated reconfiguration of its aircraft. This exercise will require few of our aircraft to be out of service for the next few weeks. Ergo and in line with maximizing productivity we have rationalized our network, resulting in a temporary discontinuation of approximately 50 flights out of our current operating schedule of approximately 350 departures per day. Once the reconfiguration is complete, these aircraft will be pressed back into service immediately. Clearly the report about our flights being cancelled owing to the supposed exodus of pilots appears to be falsified.
Our service commitment to you remains sacrosanct, and we have taken every measure to reduce any inconvenience caused due to the temporary changes in schedule. Please accept my sincere apologies in case you have been inconvenienced on this account; I truly appreciate your support, and thank you for your understanding.
I look forward to your continued patronage and remain,
Yours sincerely

One of my reader (I would call him "V") owes this mess on the Merger of Air Deccan & Kingfisher Airlines, he has following interesting points. He was with Air Deccan at that point -

In Kingfisher - Deccan merger there was no exact plan of merger at all. All the plans were by the junior level staff (DGM and below) to kick out efficient and better staff Deccan. The loss of Kingfisher is mainly because of un necessary expenses and un controlled number of Managers with heavy pay.

For ex -In Deccan Flt Ops was running with 10 staff with a Single Manager. Manager can contact any department directly and report to Chief pilot/VP.

I agree the number of Dispatchers are less than required, since the self briefing system is introduced, all the related issues where addressed to HQ dispatcher and effectively very less problem observed.

In Kingfisher a normal base dispatch was with 9 Dispatchers 14-16 Ops officers, 5-6 peons, 1 Manager or 2-3 Asst managers, On SM+ Base vise roaster 7-8 people .SM will report to DGM then to GM Then to chief pilot. This is regarding staffing.

If you look into the flight planning there is no effective tankering was there more over too many pilots used to take additional fuel saying some reasons.

Layover was another issue. Without lay over or with reduced lay over company can use 9 to 9.5 crew ratio effectively and the usage will be more.

Well, these are some points to consider, V also says that one can make a PhD Thesis itself why the merger was a failure.

I feel its a very tragic end to a well nourished Brand (Its brand is more powerful than the company).

How Kingfisher, Jet made a hash of their business models

Via - Firstpost.com

Running an airline in India is a mugs’ game. Once defined as the simple business of “getting bums on seats”—more “bums” means better bottomline—the way the Indian industry is being run, one wonders if the “bums” are paying enough for the seats they sit on.

Thursday’s newspapers said Kingfisher’s auditor was tut-tutting about the poor state of its balance-sheet. Without owner Vijay Mallya putting in more equity, the airline is on a crash course, with accumulated losses eroding more than “50 percent of its net worth.”

Look at the carnage. Kingfisher hasn’t seen black since 2005. Market leader Jet Airways hasn’t sniffed profits since 2007-08. SpiceJet has got a whiff, but has accumulated sackfuls of losses (Rs 720 crore) in the past. In the first quarter of 2011-12, Jetmade a loss of Rs 123 crore after many accounting adjustments, Kingfisher lost a whopping Rs 264 crore, and SpiceJet Rs 72 crore.

A Jet Airways aircraft (R) and Kingfisher Airlines (L) are seen on the tarmac at the airport in Mumbai. Punit Paranjpe/Reuters

One figure tells it all. Between last year and now, the three listed companies – Jet, Kingfisher and SpiceJet – destroyed Rs 6,600 crore of shareholder wealth, a drop of 59 percent when the overall market (as measured by the Nifty index) fell only 13.48 percent.

As for Air India, the less said the better. When last heard of, it had racked up losses of Rs 22,000 crore against a shrinking market share – and its management is accumulating frequent flier miles to-ing and fro-ing between Delhi and Mumbai, trying to wangle thousands of crores in equity infusion. What it needs is an infusion of cyanide.

The airline business is clearly a value destroyer. And it’s doing it all by itself, without help from Praful Patel.

Or is it? In India, there is clear line dividing successful (or near successful) airlines from the rest. And that line is drawn in sand. It divides the pure low-cost carriers (LCCs) with a clear business model (SpiceJet, Indigo) from the ones who operate both full-service and low-cost carriers (Jet, Kingfisher, Air India).

It’s the full-service carriers (FSCs) that are bleeding profusely for they have a confused business model. They have fallen between two stools.

The world over, there are five keys to airline success: costs, costs, costs, costs, costs. This is where the LCCs score over the FSCs.

The first cost in this bums-on-seats business is a four-letter word – CASK, or the cost per available seat kilometre. It helps to have more bums on seats, but the critical thing is to have the lowest possible seat cost per possible bum. CASK is a metric that measures what it costs to fly every seat for each km of distance.

Indigo and SpiceJet are the industry champs in CASK, though clearly comparable figures are not available. A Forbes India report quotes

Citibank’s airline industry analysts Jamshed Dadabhoy and Arvind Sharma as saying that “the capital costs per passenger for full service airlines have jumped several fold over the last few years, while those of budget airlines have remained stable or moved up very little. SpiceJet, for instance, has a CASK of between Rs 2.30-2.40 while the number for Jet Airways is around Rs 3.60.”

The second cost to control is debt. Debt brought Air India down, with some help from Praful Patel, who was the Civil Aviation Minister when the airline suddenly ordered 50 medium and long-range aircraft for $7.2 billion when the management thought 18 would do. The resulting debt laid the airline low. It current debt: a crippling Rs 42,570 crore.

Contrast that with what Indigo and SpiceJet have cannily done. Both take aircraft only on lease. Even if they buy them, the aircraft are resold to financiers and leased back. Says Antique Stock Broking, which put a buy on SpiceJet in July: “The company has used an asset light model for business growth with sale and leaseback strategy. Its entire fleet is currently leased and the strategy has helped the airline to keep its debt levels to minimum, avoiding debt burden. This strategy has paid off SpiceJet very well and it stands out distinctly amongst its competitors. The company has managed to survive the downturn and grow, while competing players are finding it difficult to expand the fleet due to heavy debt burden.”

Jet is better off compared to Air India, but it is still tottering under debt. In a recent interview, Jet’s Senior Vice-President (Finance) Mahalingam Shivkumar agreed that debt exceeded its airline assets. He said: “We have a debt of about Rs 13,400 crore, out of which Rs 9,000 crore is our acquired aircraft. Against that, we have an asset worth Rs 9,000 crore and we have a balance of Rs 4,000 crore.”

The market agrees. Rs 4,300 crore is the value of Jet’s drop in market capitalisation over the last one year.

The third cost is fuel. Thanks to rising fuel prices over the last one year, SpiceJet’s fuel costs as a percentage of sales have moved up from 37 percent to 56 percent of sales, but if its balance-sheet is looking prettier than its competitors’, its not because it is able to drive better bargains with the oil companies. Aviation fuel costs the same for everybody. So what makes the difference?

Aircraft age. Keep your aircraft fleet young, and you get fuel savings. Says the Forbes article on Indigo: “Indigo has six-year sale and leaseback agreements for most of its planes. The lessor takes the planes back after this and the airline can induct a brand new one in its place. Though at a cost, this is effectively like a perpetual elixir of youth. The most important financial implication is that it never has to undertake the ‘D’ check, where the aircraft is completely stripped down and airlines often discover the need to spend on major repairs. This check is usually done when the plane is about eight years old.”

The average age of Indigo’s fleet, as indicated by aviation website www.airfleets.net is 2.4 years. It’s a fleet-footed toddler in Indian airspace. Go Air’s average fleet age is also a stripling 2.5 years. SpiceJet’s birds are a bit older at an average of 4.7 years.

But the three airlines with a mix of full-service and low-cost operations—Kingfisher, Jet and Air India—had the oldest fleet mix. Kingfisher and Kingfisher Red had 4.6 years and 5.9 (making for an above 5 average for the company as a whole), Jet had 5.8, and Air India had a gerontocratic 9.8 years.

Age is beginning to tell on the big boys.

The fourth cost relates to aircraft maintenance. Globally, airlines have to maintain and service airlines to strict safety standards. This is why airlines with a diverse mix of aircraft tend to have higher costs, because they need separate staff to maintain Boeings or Airbuses or whatever.

The low-cost carriers (LCCs) have cannily focused on having only one basic aircraft (or sometimes two, with the second one connecting the smaller towns). SpiceJet uses Boeing 737s (NextGen). And Indigo Airbus 320s. But the big boys use several types. Kingfisher uses many different Airbuses (from A319-321 to 330) and ATRs. Jet uses Airbuses, Boeings and ATRs. Air India uses Airbuses, Boeings and even a Lockheed L-101 Tristar (anyone’s heard of them?)

In this business, diversity is weakness.

The fifth cost is the cost of idling. Getting bums on seats is one half of the challenge, but there’s no point getting them seated till you can fly them. In short, you have to fly more bums more often and for longer – and this means airlines which keep their aircraft flying for longer hours get better revenues. The figure to watch here is the aircraft utilisation rate – the time the aircraft spends in the air in a 24-hour cycle.

Indigo tries to keep the idle time between two journeys to 30 minutes and manages an aircraft utilisation rate of 11.5 hours a day. Air India’s? Don’t ask. It’s 9.1 hours.

Apart from costs, the full-service carriers compounded their problems by making fundamental strategic errors in their desire to scale up and raise market share.

Domestic market shares in 2001 stood at 26 percent for Jet (including JetLite), 19 percent for Kingfisher, 18 percent for Indigo, 16 percent for Air India, 14 percent for SpiceJet and 7 percent for Go Air, according to data from the Directorate General of Civil Aviation.

Two areas are worth mentioning. Mergers and branding.

All the full-service boys messed up their mergers. Coincidentally, all three—Jet, Kingfisher and Air India—went in for acquisitions and mergers in 2007-08. While Jet bought Sahara, Kingfisher bought Air Deccan and Air India merged with Indian Airlines. The traditional logic of mergers is cost savings and synergy, where two and two equals five.

But, surprise, two plus two ended up as three for all of them. While some cost rationalisations did come through from route swapping and capacity and code sharing, all three made branding and HR errors.

Air India never fully consummated the marriage with Indian Airlines as its human resources issues did not get sorted out (pay structures, etc). Jet and Kingfisher committed cardinal branding errors by renaming their low-cast carriers in their own image.

While Jet renamed Sahara as Jet Lite, consumers wondered what the difference was. Kingfisher converted Air Deccan into Kingfisher Red – and duly landed deeper in the red.

The issue is simple: when two brands—one full-service with all the frills of flying, and another, with low fares—are given the same or similar names, how is the consumer to know the difference? It is easy to assume that Kingfisher Red’s service is no different from Kingfisher’s, when the fares of the former are far lower. If Rolex were to buy Titan and name the latter Rolex Lite, will Rolex’s sales go up or Titan’s?

It is more than likely that many air passengers downtraded to the LCCs due to this brand confusion.

The full-service carriers have clearly to rethink their business models and branding. Or else, they can kiss goodbye to profits forever.

The Praful Patel Guide to destroying AI – Revised Edition

Air India, India’s national carrier-turned-cadaver, is waiting for its last rites. When last heard of, the airline had turned in a loss of Rs 7,000 crore in 2010-11, and was investing in an oversized hat to hit the government for yet another bailout masquerading as a turnaround package.

Only, the amounts this time are too staggering for Pranab Mukherjee to agree to without a fight. According to a report in The Times of India, the airline will need equity support of Rs 43,255 crore just to stay afloat over the next 10 years. Mukherjee is hoping to raise that kind of money by selling public sector equity this year. If he agrees to bail out Air India, it’s as good as kissing goodbye to this moolah.

With liabilities of over Rs 47,000 crore, the airline is on the verge of defaulting on its loans.

Mukherjee will thus have to chip in with some money willy-nilly – even if he is not asked for the full sum that SBI Caps has suggested as part of its revival plan for the airline. The newspaper says Air India will require Rs 8,372 crore this year itself – Rs 6,600 crore to pay its bills for 2011-12 and Rs 1,772 crore to keep up with loan payments.

But for all this, the airline still won’t be able to make a profit till 2017-18. Air India, it seems, has been fixed – and fixed for good – by former Civil Aviation Minister Praful Patel, who has been often been accused by the unions of batting for Air India’s rivals till the ministry was prised away from his grip last January.

When Patel took over as Minister of State for Civil Aviation in 2004, the domestic carrier (then Indian Airlines) was market leader with a 42% share, but slipping. Today, it is No 5 – behind Jet, Kingfisher, IndiGo and SpiceJet – fighting extinction.

Here’s how Praful Patel did it – ruin Air India that is – and there’s nothing his successor Vayalar Ravi can do to rescue it.

First, load it with debt so high that it can never raise its head again. It is now clear the Air India’s financial problems began in 2004 when Praful Patel chaired a meeting of the board in which the airline suddenly inflated its order for new aircraft from 28 to 68 without a revenue plan or even a route-map for deploying the aircraft, says an India Today report.

An airline with revenues of Rs 7,000 crore was being asked to take on a debt of Rs 50,000 crore. Today, it’s losses themselves are Rs 7,000 crore. And the bailout it is seeking is as big as the cost of those 68 aircraft. The government might as well have gifted those birds to Air India.

Second, Patel presented a merger of Air India with Indian Airlines as the panacea for all ills. It is surprising how often ministers suggest mergers when public sector companies head for ruin. When telecom company MTNL was sliding, then Communications Minister Dayanidhi Maran was suggesting a merger with Bharat Sanchar Nigam Ltd. That didn’t happen, but both MTNL and BSNL are in the sick bay anyway. Praful Patel used the losses of Air India and Indian Airlines to push for their merger, claiming there would be cost savings from synergies. Worldwide, mergers usually destroy value. The Air India-IA merger has been the biggest man-made disaster in aviation history – thanks to their varying cultures and employee costs.

Says Gustav Baldauf, former COO of Air India who fell foul of Patel’s successor and had to quit: “The management never resolved the pending human resource (HR) issues related to the merger. I had warned the Chairman-cum-Managing Director and the Aviation Ministry of the consequences of introducing a single code without resolving issues first. But they never listened,” he told Mid-Day.

Third, Patel seemed to be batting for Air India’s rivals. He handed over lucrative routes to private players. Though Air India had no birthright to every lucrative route, Patel’s overnight manoeuvres in this regard suggested that he had a clear conflict of interest by being both Aviation Minister and board member in Air India.

A Tehelka report quotes Capt Mohan Ranganathan, an aviation expert, as saying that the airline handed over “flying rights on lucrative sectors in the Gulf to foreign airlines, including Etihad Airways, Qatar Airways, Air Asia, Singapore Airlines and several others…” One glaring instance of a sudden handover could not have come without Patel’s nod. Tehelka says that in October 2009, the airline sent “letters…to its stations in Kozhikode, Doha and Bahrain stating that it was withdrawing operations on the route” – a route in which the airline was making money hand over fist. Very soon, Jet and Etihad stepped in to fill the gaps, and so did Emirates.vate players. Vijay Mathur/ Reuters

Fourth, Praful Patel’s ownairline preferences made it clear who he favoured. According to replies received under the Right to Information Act by one Jagjit Singh, Patel used mostly private airlines. Between June 1, 2009 and July 2, 2010, 26 of the 41 flights he took between Delhi and Mumbai were with Kingfisher. “It is intriguing that the minister who stresses the need for revival of the national carrier himself chooses to ignore it,” said Singh. And this happened just when the Finance Ministry was asking all government employees to use Air India for their official travel to help revive the carrier.

Patel’s haughty reply when asked about this preference of private airlines: “I am the Union Civil Aviation Minister and not the minister in charge for Air India. As a minister, it is not binding upon me to fly only one particular airline. I fly according to my convenience.” But when he ordered so many places for Air India, was he acting as Minister or superboss of the airline?

Fifth, Patel used his clout with Air India often for personal ends. Another RTI query showed that Patel’s kin used the Air India Managing Director’s office to regularly upgrade from economy to business class. Business class is a cost Patel’s family, which is rolling in wealth, can easily afford. So what does this say about Patel’s attitude to the airline?

But is the new Civil Aviation Minister going to reverse the rot set off by Patel?

According to a Financial Express report, the new turnaround plan does not look any more viable than the deadweight Patel cast on Air India by getting it to buy planes it could not afford. The newspaper quotes a Deloitte review of the SBI Caps revival plan which says it’s simply not viable.

Reason: Air India again wants to buy too many aircraft, just like Patel did. “Aviation consultancy Simat Helliesen & Eichner, which carried out a detailed route planning and capacity exercise, has suggested 87 narrow-body aircraft for Air India by 2015, but the carrier has proposed 143, according to Deloitte’s report dated February 11, 2011,” says the newspaper.

Deloitte’s comment: “The only justification that one can have for going in for such capacity expansion can, therefore, be the adoption of a strategy of buying market share through deploying high capacity into the market (with corresponding lower yields and consequent financial implications).”

This means Air India is planning to sink further into losses for years to come.

Over to you, Mr Ravi. Do you want to go down the same path Praful Patel pushed Air India?

The government’s best bet now is to cut its losses. Air India should be privatised or closed down.

My Opinion -

Is Govt. or say ministers really doing justice to PSU's. Take example of telecom (2G scam), petroleum ministry where just to support Reliance & other companies the PSU's like ONGC, IOCL, BPCL, HPCL has been so much burdened that there market value is peanuts now compared to five years now.

Even look at latest financials of SBI a reduction of 99% in profit in one go. I mean it simply says SCAM...

Low-cost carriers drive Indian revival

Indian low-cost carrier IndiGo's order for 180 Airbus A320s in January has thrown the spotlight back on the country's airline industry, amid growing confidence that the sector could finally be putting behind its troubles of the last few years.

This time, however, it is the low-cost airlines that are leading the way. Privately held IndiGo's memorandum of understanding was for 150 of the new re-engined A320neo and 30 regular A320s, with the deal likely to be confirmed in the coming months. The aircraft, set for delivery between 2016 and 2025, and the move for the Neo, marked the first public commitment for the airframer's re-engined narrowbody.

Another of the country's low-cost carriers, SpiceJet, the airline taken over last year by Indian media tycoon Kalanithi Maran, firmed up an order for 30 Boeing 737-800s featuring blended winglets in late 2010. These aircraft will be delivered from 2012. The carrier, which already operates 24 737-800s and 737-900ERs, has also ordered up to 30 Bombardier Q400 turboprops that will be delivered from the second quarter of this year.

Both are expanding to take advantage of the growth in the price-sensitive domestic market, to increase their network within the country as the infrastructure catches up with demand, and to begin international operations. Under Indian government regulations, airlines must be in business for five years before starting international services. SpiceJet met that criteria last year, and IndiGo will do so later this year.

The three main full-service carriers - state-owned Air India and the publicly listed Jet Airways and Kingfisher Airlines - are in various stages of recovery. All of them made excessive orders for aircraft in 2005-07, and then dumped capacity in the following years in an attempt to capture market share. But with falling yields, all began to report losses that worsened during the downturn. The capital investments also drained their balance sheets, and all have tried to raise funds through different sources. All three also operate a hybrid business model, with a full service airline supported by a low-cost carrier that they incorporated later partly in response to the emergence of the budget airline market in the country. However, a failure to fully separate the two businesses has meant that the inherent inefficiencies and high costs from the full-service business have seeped into the subsidiaries. They have paid the price.

Air India has been making a loss for years. Beset by internal resistance to change and public objection to the state using tax dollars to bail it out, it is still trying to overcome its many problems. Jet and Kingfisher also reported losses, but appear to be faring better after cutting capacity and costs, and as the recovering economy boosted demand. All of them want to begin new services and say that they are ready to compete once again. But the low-cost carriers, despite their significantly smaller fleets, are holding their own. Indian airlines carried 4.88 million passengers in November, up 5.9% from October. While Jet Airways and its subsidiary JetLite were the domestic market leaders with a 26.2% share, followed by Kingfisher with 19.1%, IndiGo edged ahead of Air India with the third largest share at 17.3%. And IndiGo led the pack with a seat factor of 91%, ahead of SpiceJet with 87.5%, closely followed by Kingfisher.

While infrastructure remains a problem, the Airports Authority of India plans to build and upgrade airports in various secondary cities. It also has plans to build the infrastructure in smaller upcoming cities, citing a growing population and rising demand. That would mean greater demand for new aircraft as airlines renew and add to their fleets.

Boeing said in its 2010 market outlook that India would need 1,150 commercial jets over the next 20 years, while Airbus forecasts demand for 1,032 aircraft over the same time period. Boeing also believes that the airlines are finally getting a handle on the situation after the highs and lows of the recent years.

"Airlines have matched capacity more closely to demand, especially on newly launched international routes," says the airframer in its recent 20-year outlook for India. "Measures like [leasing out] have proved effective in mitigating the near-term effects of the [economic] downturn and will, in the longer term, facilitate the return of leased airplanes to Indian carrier fleets."

Airbus predicts in its latest global forecast that domestic Indian traffic volume is set to soar at 9.2% a year, the overall figure exceeding 250 trillion revenue passenger-kilometres by 2029. It also predicts traffic from India to China, South-East Asia and North America as being among the fastest-growing flows.

Low-cost carriers such as IndiGo and SpiceJet are likely to be the major beneficiaries of this growth, suggests the Centre for Asia Pacific Aviation.

"India will also undoubtedly offer an enormous international short-haul market in its own right. The Indian diaspora has traditionally been underserved and, as new regional centres open up, the opportunities for low priced non-stop travel are magnified," it adds.

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.

Airlines see blue skies in FY11 on cost cuts, improved traffic

India’s airlines are expected to post aggregate losses of around $2 billion (Rs9,260 crore) in 2009-10, largely on account of excess capacity and high fuel prices, but most of them are looking forward to a better, even profitable, 2010-11 on the back of their own cost-cutting measures and an increase in passenger traffic. The growth has already started coming in. If the current situation prevails, the next financial year will be good for airlines. Most importantly, the gap between demand and supply will disappear in the year. Demand could outstrip supply by 2014. That marks a significant turnaround for a sector plagued by overcapacity in 2008-09 and part of 2009-10. The aggregate loss of India’s airlines rose 44% to Rs8,557.37 crore in 2008-09 and the airlines expect to post a loss of a similar magnitude this year. Meanwhile, passenger traffic in the country, the fourth highest in the world after that in the US, China, and Japan, fell in 2008-09 on the back of high tariffs; it also fell in the first part of 2009-10. (Negative outlook: The aggregate loss of India’s airlines rose 44% to Rs8,557.37 crore in 2008-09 and the airlines expect to post a loss of a similar magnitude this year.) However, most airlines have started posting better results in recent months. Jet Airways (India) Ltd, the country’s largest airline, showed a 33% increase in its domestic passenger traffic in November, compared with the same period last year. The airline’s international passenger traffic has also registered a growth of 19% in November. Even in what is typically the lean season for Indian airlines, Jet Airways managed to clock an operating profit of Rs44.24 crore for the quarter ended 30 September. However, its net loss in the quarter widened to Rs406.69 crore from Rs384.53 crore a year earlier, largely on account of a five-day pilots’ strike and lower airfares. The Indian aviation market is growing realistically at 4-5% currently, compared to the levels of 2007-08, which was the boom period. The issue of overcapacity has been addressed. That’s an opinion that is seconded by analysts. The airline sector is exhibiting strong recovery, with an increase in passenger traffic and bottoming of yields. This, along with stable oil prices, is expected to lead to (the) sector turning profitable by next year. “I have always been very optimistic about the Indian market. All signs are that traffic is improving but we also need to see an improvement in yields. The yield improvement will come as capacity is constrained and I am sure we will see another wave of orders (for planes) in 2011-12,” said Kiran Rao, executive vice-president, marketing and contracts, for aircraft manufacturer Airbus SAS. Not everyone agrees with that. Airline CEOs (chief executive officers) are always optimistic and they will expect profit every year. As long as the growth is artificial and fares do not cover the cost of operations, profitability will be a question. An industry analyst, who did not want to be identified, pointed out a potential problem arising from Indian carriers cancelling or deferring orders for aircraft. “Most of the carriers have deferred their aircraft acquisition plans. If the revival is true and if they fly back to black, they will miss the wave of next boom.” Over the past month, shares of Jet Airways have risen 19.68% and closed at Rs560.45 each on Wednesday on the Bombay Stock Exchange. Shares of Kingfisher Airlines Ltd rose 15.06% to close at Rs60.35 each, and those of SpiceJet Ltd zoomed 31.22% to close at Rs55.90 each in the same period. The exchange’s benchmark Sensex index has risen by 3.8% in the same period and ended Wednesday at 17125.22 points.

DGCA deregisters 3 Paramount aircraft...

Directorate General of Civil Aviation (DGCA), has deregistered three of the five aircraft in the fleet of Chennai-based Paramount Airways Pvt. Ltd. This is the second time since last year that the regulator has deregistered aircraft at the behest of lessors owing to defaults in lease payment. GE Commercial Aviation Services (Gecas) last year confiscated three aircraft from Kingfisher Airlines Ltd, the country’s second largest private airline, for this reason. In October Gecas had sought to de-register Paramount’s aircraft and DGCA was considering the move. Four-year-old Paramount, with a market share of around 2%, largely flies within southern India, using its leased fleet of Embraer 70-75 seater aircraft. “Air traffic control (ATC) has already been informed of the registration numbers of the aircraft today,” said one of two top government officials. The second government official said the airline has told DGCA that the aircraft should not be deregistered as the carrier has won a case over lease payments in London against Gecas. “We will not go on hearsay,” the official said. “When the original copy of any such order comes, then we can register them again with the relevant charges.” A Paramount Airways official who spoke on condition of anonymity confirmed that there was an order to deregister the aircraft but reiterated that the airline has won a case over the issue in London. Paramount will present its case to DGCA, this official said, adding that he expects the planes to keep flying. Paramount’s aircraft carrying the registration numbers VT-PAD, VT-PAE and VT-PAF have been deregistered, according to the officials. The three aircraft were part of a lease agreement with Gecas dated 29 July 2005. The airline is currently operating around 20 daily flights after two of its aircraft were grounded in the past three months due to engineering issues, said another airline official who asked not be named as he is not authorized to speak with the media. Gecas’s spokesperson could not be reached for comments by email or telephone. DGCA’s spokesperson was not available to comment.

Paramount Airways flying in rough weather

Aircraft lessor GE Commercial Aviation Services (Gecas), an arm of General Electric Co. (GE), has asked India’s aviation regulator to de-register three Embraer jets leased to Chennai-based Paramount Airways Pvt. Ltd, after the airline defaulted on payments for the aircraft. Indian carriers have been under financial strain with at least $1 billion (about Rs4,800 crore) in losses in the fiscal year ended March, resulting in defaults on aircraft payments. Simultaneously, the global economic recession has meant that lessors suffering a credit crunch are pushing hard to extract payments. Last year, Gecas confiscated three aircraft from Kingfisher Airlines Ltd, the country’s second largest private airline, owing to non-payment of dues. In a letter dated 25 September to Paramount and the Directorate General of Civil Aviation (DGCA), Gecas says the airline “has failed to remedy the events of default referred in the notice and as at the date of this notice there still remains $215,540.18” in dues. Paramount has informed DGCA that it has already paid 65% of the sum and has a deposit of about $15 million with Gecas, including a $5 million safety deposit and the balance towards maintenance reserve. “As per the contract, Paramount is entitled to refund to the tune of $1.27 million,” it said. A Paramount official said on condition of anonymity that the airline has asked Gecas “to offset the rentals against the reserves”. He added that the matter is being resolved through talks. Paramount, which has a 2% share in the domestic market, runs a fleet of five leased Embraer jets. It has kept its operations limited and manageable so far, unlike other carriers that have outpaced the local industry’s growth. Gecas has sought back three of these aircraft, leased as part of a 29 July 2005 agreement. Gecas said in its letter to DGCA that it has the option to terminate the leases if Paramount continued to default on payments and operate the aircraft in breach of its grounding notice dated 24 September.

India's Airline Industry Goes From Boom to Bust...

A few years ago, India's airline industry was flying high. A booming economy made India one of the fastest growing and most competitive aviation markets in the world. Six new carriers launched while established airlines laid on new routes and bought new jets. In the last four years, Indian carriers ordered 400 Boeing and Airbus jetliners worth about $37 billion.

Brace for impact. The global recession has hit air carriers everywhere, but a sharp decline in passenger numbers is especially bad news for India. With oil prices rising to $73 a barrel, Indian airlines — which carry just 2% of the world's passengers — could sustain more than $2.5 billion in losses this year, accounting for one-fourth of the projected $9 billion in losses for the entire industry, according to the International Air Transport Association. Weighed down by overcapacity, debt and the government's refusal to provide bailouts, Indian carriers are being forced to slash their operations and reduce ticket prices. "Indian aviation is undergoing a regime change in just four years," says chief executive officer of the Center for Asia Pacific Aviation.

That change includes deferring aircraft deliveries, cancelling orders, rationalizing routes and trimming staff to stave off financial collapse. "It's going to be tough, but we mean business," says Praful Patel, India's civil aviation minister. At the same time, three of the country's largest carriers — state-owned Air India, and private players Jet Airways and Kingfisher — are trying to attract more passengers by turning their full-service domestic fleets into budget businesses. In January, India's budget airlines fleet totaled 75 jets, compared with 120 full-service planes. The Center for Asia Pacific Aviation's Kaul reckons that by the end of the year, the skies will be dominated by up to 160 low-fare jets as companies switch to budget operations.

Hardest hit by the economic downturn has been national carrier Air India: It reported annual losses of $1 billion in the fiscal year ending March 31, along with an accumulated debt of $3.5 billion; that debt load is expected to rise to $7 billion by 2012 if it takes delivery of 111 new aircraft already on order. Air India alone accounts for 10% of the total projected losses for the global airline industry this year — even though it carries just 0.35% of global traffic. Air India is suffering from an aging fleet and a bloated staff roster of 31,000 permanent employees and 20,000 contract staff; its labor costs amount to 18% of its total operating expense, the highest ratio in the world, according to Patel.

With no bailout help from New Delhi in sight, Air India is bidding to bring its profitable international budget brand — Air India Express — to Indian turf. Air India Express, which has been flying routes to the Middle East and Southeast Asia for the past five years, will configure 10 of its 57 planes for budget flights by September, says Air India managing director Arvind Jadhav. The company plans to increase the number of budget flights a day from 25 initially to 43 by October. Ticket fares will be down 25% making it attractive for fliers. The logic, says aviation minister Patel, "is to fill up seats and operate at lower costs." Unlike its parent, the profitable Air India Express operates as an independent company with lower overheads. Besides, with no business seats they will be able to pack in more people at a time when the passenger count for all airlines is down 30% since last year.

Following similar logic, private players Jet Airways and Kingfisher, owned by the liquor baron Vijay Mallya, are expanding existing budget operations to try to increase business during the economic downturn. They aren't starting from scratch. Both airlines already had rechristened budget carriers — Jet Lite and Kingfisher Red — acquired in 2007. Now they are transferring capacity to the economy fleets. Kingfisher Red jets are flying more routes; as a result, about 75% of all domestic passengers that now fly with Kingfisher are traveling budget class, up from 50% a year ago. Meanwhile, Jet Airways, India's oldest private player, has converted some of its jets by removing all business-class seats and rebranding them as JetKonnect — giving the company two budget brands. "It gives us the flexibility and speed to deploy capacity and reverse it to meet changing trends," said Sudheer Raghavan, chief commercial officer of Jet. Launched in May, JetKonnect offers 40% lower fares and plans to take the current 130 flights a week to 160 by October.

Officials for both carriers say they hope to resume normal operations once the economy rebounds. But analysts say that may be difficult because the industry has yet to solve a basic problem: too many airlines flying too many flights in a country that, despite its economic growth, is relatively poor. India's airlines are now crowding into the budget market, just as they crowded into regular and premium air travel services a few years ago. "With everybody fighting for the same piece of business, this could once again create overcapacity and fuel fare wars," says Ankur Bhatia, executive director of Bird Group, a New Delhi company that provides technology to the travel industry. Lowering fares may attract more travelers but it may not improve the overall financial health of the industry. "To make profits while shifting business models, the airlines have to think, act, breathe and be low cost," Amitabh Malhotra, managing director of investment bank NM Rothschild & Sons in Mumbai. "That doesn't happen overnight." Adds Patel, India's aviation minister: "This time every airline will learn a lesson the hard way."

India as Global Aviation hub...

India’s aviation industry is in a mess.

Pick up any of India’s main papers and stories abound about India’s airlines losing $2 billion in the last financial year. NACIL, the publicly-owned company that runs Air India is in particularly bad shape. The government has rejected a request for a $3 billion bailout package. Instead, the government wants to overhaul AI’s management within a month and has started the hunt for an experienced chief operating officer. With accumulated losses as of March 31 that total a staggering $1.5 billion, for the first time in its history the airline delayed paying its salaries in June. None of the other large carriers, including Jet Airways and Kingfisher, are faring much better. Those two have taken excess capacity out of the market and reduced overheads. Airport operators, oil companies, hotels and others have either threatened to introduce or already are operating cash-and-carry regimes with carriers that have, in some cases, significantly exceeded their credit limits. The spectacular growth rates of 30% to 40% that enticed airlines to ramp up aircraft orders and to devise unsustainable (but until not too long ago universally followed) strategies of buying market share by discounting tickets and adding capacity are now history.

In such a scenario, is there any chance that India will emerge as a global aviation hub?

Looking at its metropolises, including the megacities of Delhi and Mumbai, India should already sport at least one major global aviation hub. Both cities have populations approaching 20 million inhabitants. Delhi is the country’s political capital and arguably its second most important commercial hub. It also does not suffer from the severe space constraints afflicting Mumbai’s Chhatrapati Shivaji International Airport. In fact, the masterplan for Delhi’s Indira Gandhi International Airport envisages a capacity of 100 million passengers at the end of its development. The capital hosts embassies of most of the world’s countries, international schools, good hotels and entertainment facilities, a rapidly growing infrastructure and, if one includes the satellite towns of Gurgaon and Noida, more head offices of multinational companies than any other city in India. Until today, infrastructure has been a major handicap. Lack of efficient connectivity between the domestic and international terminals made transfers from domestic to international flights (and vice versa) an unpredictable nightmare for passengers and airlines. With the airport’s development and the construction of an integrated domestic/international terminal this problem will be resolved by the middle of next year.

“Capacity reduction is still lagging behind demand.”

However, their poor shape and the relatively small size of India’s airlines compared with majors such as Emirates, Lufthansa or Singapore Airlines — all with their already well-established hubs and route networks — will make it difficult for any desi carrier to assert itself. The merger of Air India and Indian Airlines was conceptually the right way forward. It was aimed at giving the state carrier the size and route network to effectively compete with its domestic and international challengers. Unfortunately, the marriage between the two airlines was never properly consummated and hardly any of its envisaged synergies have materialized.

So what should India’s aviation industry do to extricate itself from this mess?

To begin with, the airlines will have to start addressing the problems that they themselves have caused. This process has already started with Jet and Kingfisher deferring orders for new aircraft, mothballing new deliveries or, where possible, leasing or selling them to foreign carriers. In short, with the exception of some of the low cost operators, a significant amount of capacity has been taken out of the market. Jet has transferred much of its remaining capacity to its economy-only Jet Konnect product as well as to its low cost subsidiary JetLite. Kingfisher has followed the same strategy by shifting passengers onto its no frills Kingfisher Red product. On another front, a truce in the price wars has yet to be reached. Yet capacity reduction is still lagging behind demand. With all airlines chasing bums on seats, charging prices that will cover costs and hopefully leave a margin for profit remains difficult in such a hotly-contested market. We will surely see more consolidation or bankruptcies in the medium term. This is precisely an area where the government should step in. Before the elections, the Ministry of Civil Aviation contemplated allowing up to 49% foreign domestic investment in domestic airlines. This would include foreign airlines as potential investors – something that is currently explicitly prohibited. It seems obvious that in an industry where average profit margins do not exceed 1.5%, the most likely investors would be other airlines seeking to strengthen their market position, increase their route network or realize economies of scale. Since the elections, however, nothing more has been heard of this proposal.

Another deterrent: The cost of fuel, which in India is among the highest in the world. At current prices, fuel accounts for 45% to 50% of operating costs in India. While the central government has instructed the public-sector oil companies to provide generous credit terms to the airlines, it could do more by naming fuel a declared good which attracts a uniform 4% sales tax.

At present, it is up to individual states to charge fuel taxes as they see fit. Some of them are charging well over 30% – a figure that keeps on rising in absolute terms as fuel prices go up. Internationally, aviation fuel does not attract any levies in many major markets. For India, this means a distorted market, putting its carriers at a relative disadvantage especially on international routes and making technical or fuelling stops in India for international carriers non-viable.

Furthermore, service tax and other levies have been a bone of contention between the airline industry and the government. A review and streamlining of the entire tax regime would surely be a sensible thing. Getting the fundamentals right is obviously a prerequisite for the establishment of a successful hub. To date, India has been fairly liberal in its approach to so-called bilateral agreements which regulate how many flights and/or to which points carriers from two contracting countries can serve. This is a good thing. An open bilateral regime stimulates competition and traffic growth as the examples of Singapore and Dubai have shown. It is also instrumental in bringing down the cost of travel and promoting economic growth.

For the sake of its national economy, the current plight of the national carrier should not discourage India from keeping its aviation market open. Instead, liberalization should be used as a tool to make its industry more competitive and its national carrier a leaner, more focussed and especially a more customer-centric organization.

Air India has taken a couple of encouraging steps. It has selected a European hub at Frankfurt, its first outside India. It is phasing out its unreliable fleet of old B777s and B747s. It has been selected as a member of the Star Alliance and is in the process of joining. That will give Air India a greater reach into the coveted U.S. market in addition to its flights from India. It is through its alliance membership that Air India could widen its appeal and route network from India to the rest of the world.

Overall, India either has or is building the necessary ingredients for establishing a successful aviation hub, most likely in Delhi. But to fulfil that promise will require a broader partnership involving alliance partners, regulators, airport operators and local authorities to overcome the many hurdles that remain.

India's struggling airlines

“FLY the good times,” urges the slogan of Kingfisher airlines. But for India’s commercial-aviation industry, these are far from good times. On July 31st the Federation of Indian Airlines (FIA) threatened a one-day strike to put pressure on the government to save its seven members from going bust. As the government mulls a bail-out for one of them, the moribund state-owned Air India, the FIA is demanding that it also help privately owned airlines by lowering taxes on jet fuel, which are especially high in India. In response, the government warned airlines against inconveniencing passengers and offered talks. The FIA said it would put the strike, scheduled for August 18th, “on hold”.

Until recently India’s private-sector airlines, which carry more than 80% of domestic passengers, were lauded as a symbol of the country’s spectacular economic growth. But growth began to stall in 2007, when rapidly rising fuel prices pushed up fares and the economy slowed. In the first half of this year, airline passenger numbers fell by 8% to 21.1m. Last year India’s aviation industry lost more than $2.5 billion—about 25% of total world airline losses despite accounting for only 2% of global traffic. This year is set to be as bad.

For Kingfisher and its main competitor, Jet Airways, both full-service carriers, times are especially tough. Kingfisher, which reported a net loss of 2.43 billion rupees ($51m) in the quarter to June, owes more than 9.5 billion rupees in unpaid fuel bills and is surviving on bank loans. Jet Airways recorded a net loss of 2.25 billion rupees in the same period.

High fuel costs certainly exacerbate Indian airlines’ woes. Fuel tax is set by most of India’s states at 28%, whereas in much of the rest of the world aviation fuel is untaxed. The airlines want it to be declared an “essential commodity”, making it eligible for tax at 4%. A handful of states, most recently Rajasthan, have cut jet-fuel taxes to 4% in a bid to encourage airlines to establish local services. But others, including two of the most important, Maharashtra (home to Mumbai) and Delhi, are reluctant to follow for big airports: the tax is a valuable source of revenue out of which fuels used by the poor, such as kerosene and diesel, are subsidised.

But burdensome though the taxes are, they are not the only reason why India’s private airlines are suffering. Over-capacity should take much of the blame. “India’s airlines grew too big, too fast,” says Centre for Asia Pacific Aviation. Anxious to chase market share, the airlines priced tickets well below cost. By some estimates, they bought twice as many aeroplanes as the market could support. As competing airlines poached pilots and mechanics, staff costs soared. “It was all about ego rather than business,” says Captain G. R. Gopinath.

Today those egos are badly bruised and, in line with trends elsewhere, it is low-cost airlines that are taking an increasing share of the market. Of India’s three listed airlines, a budget carrier, Spicejet, was the only one to turn a profit in the most recent quarter. The other two are Jet and Kingfisher. Fighting back, Jet launched a no-frills subsidiary, Jet Konnect, in May; last year, Kingfisher took over Air Deccan to create Kingfisher Red. The budget carriers are hoping to ride the economic downturn by offering better value to corporate travellers. But in the longer term they are eyeing a much bigger opportunity: the 98% of Indians who have never flown.

Firemen declare Delhi's new airport terminal 'unsafe'

The Delhi Fire Service has declared the brand new departure terminal 1 D at the capital's Indira Gandhi International Airport (IGI) unsafe.

Delhi Fire Service chief R.C. Sharma has refused to provide a no-objection certificate (NOC) for terminal 1 D, citing many shortcomings during the two inspections conducted by his team in the past few months.

In his last report on May 13, Sharma cited six shortcomings. He said the ventilation system in the VIP lounge, baggage area and the office area was yet to be completed. Further, he stated, the exit route in the retail area should have a separate staircase or passage.

"In some places sprinklers are hidden in the false ceiling, which should be brought down. Some of the restaurants are under construction and are using wooden material. The wood works need to be painted with fire retardant chemicals. Necessary fire alarms or sprinkler system should be extended to these areas," Sharma noted in his report.

He further said systems at the new departure terminal could not be checked due to passenger movement and asked for arrangements to test the systems whenever possible.

But so far the Delhi International Airport Ltd (DIAL), a joint venture between the state-run Airports Authority of India and a consortium led by infrastructure major GMR, has not made any arrangements for the inspection of the systems.

In his report Sharma concluded that "terminal 1 D cannot be considered safe from the safety point of view till safety arrangements are fully completed."

Terminal 1 D, which is spread over 33,000 sq m, has replaced 1 B, the old terminal. It was opened for operations April 19. Kingfisher, Kingfisher Red and IndiGo, Jet Airways, JetLite and Spice Jet are operating from the new terminal, while GoAir, Air India and others are operating from terminal 1 A.

According to the airport officials, around 200 flights operate daily from the new departure terminal, which has been built at a cost of Rs.500 crore ($100 million). The terminal is able to handle 10 million passengers annually and is equipped with 72 check-in counters. It was inaugurated by Civil Aviation Minister Praful Patel.

The airport authorities had first invited the Delhi Fire Service officials April 8. At that time, the fire service wrote in its report that fire pumps and the fire control room were yet to be fully operational and that the sprinkler line was not charged with water at many places.

DIAL sent a report to the fire department May 4 stating that measures suggested had been complied with. The fire department again conducted an inspection and highlighted fresh shortcomings.

When asked why necessary clearance was not sought before the new terminal came into operation, DIAL spokesman Arun Arora said the terminal was absolutely safe for operations and for passengers.

"DIAL is very much alive to the required fire safety norms. We have been following all fire safety norms (domestic as well as international) for all equipment and procedures".

"All necessary documents have been submitted to the fire department and inspections have been carried out by the Delhi Fire Service officers. All observations and suggestions made by them were carried out by DIAL. The suggestions made by them during their subsequent visit to terminal 1 D are also being carried out," he added.

Arora said to ensure fail-proof fire safety DIAL has taken many initiatives.

"We have deputed 18 well trained firemen who keep patrolling all areas of the terminals - like the check-in area, airline ticketing areas and security holds. More than 50 fire hydrant outlets have been deployed inside and outside the terminal for greater safety," Arora said.

Though DIAL has been running the new terminal without fire safety clearances, the Delhi Fire Service was silent on why no action was being taken against the airport authorities. As per the powers conferred upon the fire department, it can cut electricity and water supplies to a building or even shut it down if the fire safety norms are not met.

Airline-Sector Woes Slam India's Highflier

Running an airline is a reliable way to lose money. The turbulent ride of India's Jet Airways shows why. Naresh Goyal shook up Indian aviation when he founded Jet in 1992. With punctual flights, new planes and friendly service, Jet was the first carrier here to truly modernize air travel.

Jet controlled nearly half the domestic market by early this decade, with most of the rest going to state-owned Indian Airlines. In Jet's 2004 fiscal year, as many of the world's carriers were still recovering from the Sept. 11 terrorist attacks on the U.S., it outpaced the industry with net profits of $33 million. Jet's initial public offering, in 2005, valued Mr. Goyal's 80% stake at $2 billion. Now, Jet is scrambling to stay aloft. Low fares from no-frills competitors ravaged revenue. Staff costs soared as rivals poached pilots and mechanics. Airport congestion in India made for a logistical nightmare -- forcing Jet to open an international hub 4,000 miles from home, in Brussels. Amid a glut of capacity, Jet's market share slid from a high of almost 49% in 2003 to roughly 25% this year. The airline started posting sharp losses in late 2007. Jet eked out a net profit in its latest quarter by selling assets, slashing costs and booking tax credits, but the outlook remains tough. "It's been hard," said Mr. Goyal, the 59-year-old founder, in an interview at his $15 million London townhouse. "We were making so much money, and now we're losing money." The carrier's woes began as India's economy boomed in 2005, thus highlighting a broader problem for the global airline sector: Even in good times, the industry struggles to generate sustainable profits. Jet Airways has struggled to capitalize on growth as it got squeezed between uncontrollable costs and increasingly unfettered competition. Jet's slide can be traced to a sea change in the global aviation business. Deregulation, the rise of Internet ticket sales and other factors have made it easier than ever for upstarts to challenge bigger, established carriers. In India, where state-run carriers and government policies stymied air travel for decades, the sudden transition proved tumultuous. Last year was particularly rough. The airline business floundered as fuel prices surged, the credit crunch hit and world-wide travel plunged. Jet is reacting by cutting staff, closing offices around Asia and reducing flight frequencies. Searching for profitable routes, Jet recently took planes from India's crowded domestic market and expanded service to Dubai. It soon plans to start flying to Saudi Arabia. Mr. Goyal cut his teeth in the airline business by working -- and sleeping -- at his uncle's New Delhi travel agency while he was an 18-year-old student. Seven years later, in 1974, he started his own agency, bankrolled by personal savings and a gold bracelet of his mother's that he pawned. As the Indian sales agent for overseas carriers including Air France and Hong Kong's Cathay Pacific Airways Ltd., he learned the ins and outs of upscale air travel. Jet was one of several carriers launched after India began deregulating domestic aviation in 1991, and initial competition was fierce. Jet survived as rivals failed, thanks in part to Mr. Goyal's longstanding links to foreign carriers with which Jet cooperated to fly international passengers. Although Indian law had granted state-owned Air India a monopoly on foreign flights since 1953, Mr. Goyal prepared for the day that Jet would be allowed to extend its network overseas. He entertained politicians, aviation officials and travel professionals in his London townhouse overlooking tony Regents Park. "I was convinced one day India would have to open up," he says. Anticipating the change, Mr. Goyal focused on creating a passenger experience to rival the world's best carriers. He poured tens of millions of dollars into cabin entertainment systems, ergonomic seats and staff training. He also turned the trend of outsourcing to India on its head by hiring American pilots, recruiting managers from leading Asian and European carriers, and unabashedly aping the innovations of up-market trailblazing airlines such as Singapore Airlines Ltd. "Naresh Goyal's policy of hiring expats broke the mold in India -- he was a pioneer," says Craig Jenks, president of Airline/Aircraft Projects, a global aviation consulting firm in New York. In 2004, India allowed private airlines to fly overseas. Mr. Goyal jumped at the opportunity. He ordered 10 Boeing 777s, and fitted the first-class cabins with spacious private compartments modeled after those created by Dubai's upscale Emirates Airline. Jet's initial public offering in 2005 was 16-times oversubscribed amid national enthusiasm for the airline and its whole industry. But Jet's success also spawned competition. Vijay Mallya, chairman of brewing and distilling giant United Breweries (Holding) Ltd., launched upscale Kingfisher Airlines. It was meant to double as a flying promotion for his top beer brand, Kingfisher. A tiny upstart launched in 2003, Air Deccan, proved even more damaging to Jet. Copying the no-frills approach pioneered by Southwest Airlines Co., it served secondary cities that Jet didn't touch. Deccan opened a floodgate by showing the low-cost model could work in India. In 2005, a group of entrepreneurs started a similar low-cost carrier, SpiceJet Ltd. That same year, a major Indian travel-services company started its own budget carrier, IndiGo. Mr. Goyal fought back by acquiring no-frills competitor Air Sahara, which he rebranded as JetLite. Indian carriers grabbed the spotlight at the 2005 Paris Air Show, the aviation sector's big industry event. There, they announced orders for planes valued at more than $15 billion. IndiGo ordered 100 Airbus airliners even before it secured government permission to start flying. Although Kingfisher had only been flying for two months, Mr. Mallya splashed out by ordering five Airbus A380 superjumbos, the world's largest passenger planes. India's growing middle class was helping tug the global aviation industry from its post-9/11 slump. "Everyone is talking about China," observed Airbus Chief Operating Officer John Leahy at the Paris Air Show that year. "But the biggest growth story we see is India." Foreign investors, financiers and leasing companies, all hungry for new markets, raced to bankroll India's breakneck airline expansion. Indians who had long squeezed onto wheezing, sweaty trains began jetting about the country. Jet soon faced another hurdle: India's outdated aviation infrastructure clogged up. Air-traffic delays added 10% to flight times and cost $80 million in wasted fuel during 2006, Jet executives said, and things were getting worse. "The average 70-minute domestic flight spends another 35 minutes circling," Mr. Goyal complained last spring. The lack of modern aircraft-maintenance facilities in India forced Jet to send planes overseas for routine upkeep, adding millions of dollars to its bills. The cost of retaining veteran mechanics, flight attendants and pilots soared as new rivals poached qualified staff. Even Jet's budget subsidiary, JetLite, and other no-frills carriers struggled. "There are no low-cost airlines in India, only low-fare, no-profit carriers," Mr. Goyal said at a Jet media gathering in 2007. Yet Indian carriers kept chasing market share by slashing fares and adding planes, even as losses ballooned. By last June, Mr. Goyal saw that competition had made business untenable. "We're all in trouble," he lamented at an industry conference, saying each domestic carrier should slash capacity by 30%. Kingfisher's Mr. Mallya scoffed that Mr. Goyal "doesn't know how to do math." But Kingfisher was losing so much money that it soon canceled airplane orders and new routes vital to its overseas expansion. In a sign of the industry's distress, the bitter rivals last October announced an alliance to share airport facilities, coordinate schedules and reduce capacity. The deal still faces regulatory approval. Mr. Goyal had enjoyed a major edge over rivals in one key battleground: overseas flights. Indian deregulation in 2004 opened up international routes only to private carriers that had flown domestically for at least five years. Jet's experience allowed Mr. Goyal to move first, launching flights to Singapore, London and Kuala Lumpur in 2005. Jet quickly grabbed traffic from state-owned Air India, which had struggled to compete globally due to its poor service. Wealthy Indians who had preferred foreign carriers such as British Airways PLC were glad to have a local alternative. Ajit Balakrishnan, founder of India's largest Internet portal, says Jet staff "deliver a superb product" on the domestic flights he takes weekly from Mumbai, and so he jumped at the chance to fly Jet overseas. The 60-year-old veteran advertising executive often books on Jet, which began offering service to New York-area airports in August of 2007. He recommends Jet to foreign friends for its "modern luxury." But Mr. Goyal's intercontinental ambitions faced huge obstacles at India's overtaxed airports. Flights from India to the U.S. or Europe require big planes to carry sufficient fuel, and big planes need lots of passengers to run profitably. In mature markets, airlines generally fill long-haul flights with traffic from many smaller planes arriving at a hub for connections. To coordinate this, airlines need lots of boarding gates, airplane parking spots and runways slots. India's major airports lacked all of them. Anxious to expand, Mr. Goyal hit on an unlikely option during a state visit to India by the King of Belgium in 2005: using the Brussels airport as a hub for North American-bound flights. The facility had sat largely empty since the collapse of national carrier Sabena four years earlier. Talks with Belgian officials at Mumbai's luxurious Taj hotel quickly yielded an action plan. "It was a proper business meeting with an agenda," recalls Mr. Goyal, who was more accustomed to India's glacial bureaucracy. Winning regulatory approval for the unusual arrangement from Belgium and the U.S. took months, but by late 2007, Jet's wide-body airliners were arriving in Brussels each morning from Delhi, Mumbai and Chennai, mixing passengers and departing again for New York's JFK International Airport, Newark Liberty Airport and Toronto. Another three planes did the same trip in reverse. The four-hour Brussels stopover lengthens passengers' trip time compared with a nonstop flight. It also forces Jet to move hundreds of passengers and their bags quickly through a foreign airport at great expense. But thanks to close cooperation with the privately owned airport, which was hungry for business, Jet was able to offer nine different connections between Indian and North American airports, compared with only three connections possible with nonstop flights. But as fuel prices rose in 2008 and America's financial problems rippled to India's outsourcing operations, Jet flights through Brussels grew emptier. Costs rose. Only weeks after adding a seventh Brussels flight last Oct. 31, from Bangalore, Jet reversed course on Nov. 25 and canceled the route, citing economic turmoil. Jet now serves 60 destinations, including 19 outside India. "The crisis has forced us to look much more closely at costs," Mr. Goyal said at his London mansion. Mr. Goyal says he remains committed to Brussels and predicts the North American operation will break even this summer. But many rivals doubt the long-term viability of a hub so far from home. "It doesn't work," says Pierre-Henri Gourgeon, chief executive of Air France-KLM SA, which operates huge hubs in Paris and Amsterdam. Successful hubs rely on big traffic volumes, which Jet cannot guarantee, he says In mature markets, airlines generally fill long-haul flights with traffic from many smaller planes arriving at a hub for connections. To coordinate this, airlines need lots of boarding gates, airplane parking spots and runways slots. India's major airports lacked all of them. Anxious to expand, Mr. Goyal hit on an unlikely option during a state visit to India by the King of Belgium in 2005: using the Brussels airport as a hub for North American-bound flights. The facility had sat largely empty since the collapse of national carrier Sabena four years earlier. Talks with Belgian officials at Mumbai's luxurious Taj hotel quickly yielded an action plan. "It was a proper business meeting with an agenda," recalls Mr. Goyal, who was more accustomed to India's glacial bureaucracy. Winning regulatory approval for the unusual arrangement from Belgium and the U.S. took months, but by late 2007, Jet's wide-body airliners were arriving in Brussels each morning from Delhi, Mumbai and Chennai, mixing passengers and departing again for New York's JFK International Airport, Newark Liberty Airport and Toronto. Another three planes did the same trip in reverse. The four-hour Brussels stopover lengthens passengers' trip time compared with a nonstop flight. It also forces Jet to move hundreds of passengers and their bags quickly through a foreign airport at great expense. But thanks to close cooperation with the privately owned airport, which was hungry for business, Jet was able to offer nine different connections between Indian and North American airports, compared with only three connections possible with nonstop flights. But as fuel prices rose in 2008 and America's financial problems rippled to India's outsourcing operations, Jet flights through Brussels grew emptier. Costs rose. Only weeks after adding a seventh Brussels flight last Oct. 31, from Bangalore, Jet reversed course on Nov. 25 and canceled the route, citing economic turmoil. Jet now serves 60 destinations, including 19 outside India. "The crisis has forced us to look much more closely at costs," Mr. Goyal said at his London mansion. Mr. Goyal says he remains committed to Brussels and predicts the North American operation will break even this summer. But many rivals doubt the long-term viability of a hub so far from home. "It doesn't work," says Pierre-Henri Gourgeon, chief executive of Air France-KLM SA, which operates huge hubs in Paris and Amsterdam. Successful hubs rely on big traffic volumes, which Jet cannot guarantee, he says. Mr. Goyal says falling Indian wages now give him a leg up, because labor accounts for only around 15% of Jet's costs, compared with more than 20% for most Western carriers. Still, he says Jet will refocus on cutting costs and expanding in less-competitive markets of Bangladesh, Nepal and Sri Lanka. "I want to learn how to buy my insurance for the next four years," Mr. Goyal said of his efforts to protect Jet. "I'm the biggest shareholder, so I suffer the most."