GoAir facing turbulence on the ground

The rapid expansion of seat capacity in the domestic aviation market is taking its toll on the players. Jeh Wadia's GoAir is undergoing a churn with some senior management people quitting, and its fleet size reducing from seven to five in the next two months. Further, there would be no network expansion over the next six to eight months, with at least two destinations going off air. The top management of the company terms the downsizing of operations, as “fleet optimisation” which would help reduce cash-burn in the lean travel months. “This will help us become cash-flow positive and profitable over the next two months,” Mr Jeh Wadia, managing director, GoAir, said. The short-term operating lease of two aircraft in the fleet — whose contracts end by March — will not be renewed and their replacements would only come in October when the first of the 20 - A320 aircraft joins the fleet.

February and March are lean travel months for the industry. According to Mr Wadia, the carrier wants to put in place a “flexible fleet management plan” by the year end where around seven aircraft would be part of a fixed long-term lease, while three to six aircraft would be available for use only in peak travel season. The airline plans to have 10 aircraft in its fleet by the end of the current calendar year. Also GoAir does not have plans to carry any of its new aircraft on its books. “We have decided to adopt the sale-lease model. All our aircraft would be on lease,” Mr Wadia said. Talks for entering into sale-lease-buy back agreements are on with potential investors. While conceding that there is some top management level churn in the company, Mr Wadia said most of them are “non-performance related”.

Industry sources said among others, GoAir’s chief commercial officer Raj Halve is said to be have put in his papers. However Mr Wadia insisted that Mr Halve was on sick leave and his association and future role in the company would be decided over the next few weeks. All these come at a time when the Wadia group promoted airline is looking at diluting up to 26% stake in the company to raise funds. This is expected over the next couple of months. Over the last three months, private carriers such as Air Deccan, Kingfisher and IndiGo have added over 35,000 fresh seat capacity. This has put pressure on passenger yield per seat for all airlines. The Indian aviation industry is expected to end the financial year 2006-07 in the red with losses to the tune of Rs 2,000 crore.

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Indian & Air India merger nears take-off

The group of ministers (GoM) on Monday “broadly approved the merger of Air India and Indian, taking a big step towards materialising the mother of all mergers in the Indian skies. However, the GoM, headed by defence minister Pranab Mukherjee, put off a final decision till human resources (HR) issues are resolved in consultation with the employees of the two corporations. “The GoM in its second meeting on Monday broadly approved the merger, but asked me to talk to the employees and address their issues before a final decision”, civil aviation minister Praful Patel said. Patel said he would undertake a dialogue with the employees of the two corporations within a week and the GoM will meet in a fortnight to give the final go-ahead for the merger, which then can be effected before the beginning of the next financial year.

The GoM, Patel said, endorsed the recommendations of the committee of secretaries (CoS) on the two key issues of income-tax and stamp duty. The revenue department has indicated that it will make the necessary exception under Section 72A of the Income-Tax Act to ensure that the merger of Air India and Indian into a new corporation does not impose a tax burden. On stamp duty payable to state governments on transfer of assets, the GoM noted that the estimated burden of about Rs 50 crore is “well within the merger costs” of Rs 150 crore. “In any case, we will talk to the state governments to lessen the burden,” Patel said, adding that the maximum incidence of stamp duty would be in Maharashtra where Air India has its “most valuable properties”. Patel said he is hopeful of taking the employees into confidence and resolving their issues through a dialogue. “I have already said that the merger will not lead to any job loss. We will ensure that no employee is worse off as a result of the merger,” he added.

Patel said the integration of the operations of the two airlines would be achieved over a period of time of six months to two years. “Immediately, just about 150 key personnel of the two airlines will be integrated to drive the merger process,” Patel said. Even in the case of these personnel, he did not envisage any problem of integration. “The merged entity would have enough room for these senior people.” Patel said the merged entity would have six separate business units dealing with separate functions such as aircraft maintenance, ground handling, cargo, catering services, domestic operations and international operations. The two low-cost subsidiaries of the two airlines - Air India Express and Alliance Airlines - will also be brought under one subsidiary of the merged entity to operate low-cost services.

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Air India Express flights land without baggage

Passengers of some Air India Express flights seem to have become one of the worst sufferers of Delhi's fog — even if the weather is clear. There have been instances this winter when the AI Express Dubai-Amritsar-Delhi flights have landed here without baggage. Then passengers have had to return to IGI Airport, Delhi, later to get their bags that came on other flights. The airline admits that this has happened "3-4 times" but gives an interesting reason, blaming Delhi’s fog for the problem. "AI Express uses a Boeing 737 on the Dubai-Amritsar-Delhi sector. Nowadays this plane has to carry extra fuel as fog in north India may force it go as far as Mumbai. To accommodate the extra fuel, some baggage may have not been carried on board," said an airline spokesperson. But he added that the baggage of such flights is brought here the same day — on a daily AI Dubai-Delhi flight.

"A bigger and wide body aircraft, Airbus A-310, is used on this route and we have brought the AI Express baggage on this flight the same day," the spokesperson said. Despite the airline’s claims of bringing baggage the same day, passengers are learnt to have faced a lot of problems whenever this happened. The airline says it will observe fog precautions till early next month. AI Express is not alone. This winter has seen passenger complaints mount primarily against low-cost carriers.The common complaints were: no provision of snacks or beverages for passengers of delayed flights; no timely information about delays and lack of facilities at IGI. "But planes coming without baggage is a new dimension to the problems faced by those flying low-cost carriers," said airport sources.

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Jet Airways may report profits soon

Jet Airways (India) Ltd., the country’s biggest carrier, may report its first profit in three quarters, helped by lower fuel prices and income from the sale of an aircraft. Jet Airways will post net income of Rs 138 million in the three months ended December 31, compared with Rs 610 million a year ago, according to the median estimate in a Bloomberg survey of seven analysts. The airline had losses totaling Rs 1 billion in the preceding two quarters. Billionaire owner Naresh Goyal needs to return Jet to profit to help raise $800 million for new planes, after losing market share to low-fare carriers and failing to buy Sahara Airlines Ltd. India’s carriers may lose $250 million this year as new entrants increase competition and force down fares. “Jet’s turnaround is primarily being led by lower fuel prices,” wrote N Krishnan, a Mumbai-based analyst at CLSA Asia-Pacific Markets, in a Jan. 8 earnings note.

“Jet will benefit from what is seasonally its strongest quarter,” wrote Krishnan, who expects it to earn Rs 290 million in net income. Indian jet fuel prices declined 18% to Rs 45,530 per 1,000 liter in the past quarter, tracking falling global prices, according to government data. Fuel is the biggest expense for airlines and accounts for almost one third of Mumbai-based Jet’s total costs. Indian government rules bar the carrier from hedging its local fuel purchases. The airline hedges some of the fuel it buys overseas. Higher fuel prices and the cost of starting international flights to London and Singapore contributed to losses, pushing down its shares by 46% last year. The benchmark Sensex index gained 47% in 2006. Jet Airways, which may have to write off losses from the failed attempt to take over Sahara Airlines, will report its earnings on Jan. 19 in Mumbai. The airline raised fuel surcharges three times last year and added a fee for airport congestion.

“Despite a fall in aviation turbine fuel prices, Jet managed to retain the fuel surcharges on its fares, which we believe will lead to the turnaround in financial performance,” wrote Nikhil Vora, a Mumbai-based analyst at SSKI Securities Private Ltd, in an earnings note. Vora rates the airline's stock as “underperform.” The stock gained 0.3% and traded at Rs 683 on the Bombay Stock Exchange on Monday. Jet Airways sold shares to investors in the country’s largest initial public offering by an airline in February 2005 at Rs 1,100 a piece.The fall in share prices made Jet Airways postpone its plans to sell stock and bonds to fund aircraft purchases. Net sales for the carrier may have gained 24% to Rs 18.33 billion, according to survey analysts.

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Airlines meet together to chart fog policy

Airlines are in favour of coming out with a common fog policy to counter the fallout of weather-related delays and cancellations. The idea is to put collaborative processes in place among various carriers to mitigate the impact of such disruption on air travelers. Also high on the discussion agenda of the association of carriers, Federation of Indian Airlines, which meets in Mumbai on Tuesday, is compensation to be paid to passengers due to delays and cancellation of flights beyond a certain time period. Honchos and senior executives from the airline industry, including those from Jet Airways, Air India, Indian, Air Deccan, Kingfisher, Spicejet, Go Air, Air Sahara, and IndiGo, are likely to attend the meeting. Some airlines are keen to flag the issue of escalation in rentals and landing charges in various new airports across the country, which directly impacts their bottomline.

Carriers are also in favour of bringing in more transparency while charging fuel surcharge from passengers. “As the jet fuel rates fluctuate, our fuel surcharge rates need to operate within a price band,” said CEO of an airline. Interestingly, the industry is already divided on the issue of the congestion cess. State-run carriers Indian and Air India are not in favour of the congestion cess, following a diktat by ministry of civil aviation while private carriers are pressing forward to continue it. However, there is possibility airlines may decide to do away with congestion cess in the lean travel months of February and March. The association has also been pressing for rationalisation of airline turbine fuel rates in line with international rates.

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