Jet Aiways feeling the pinch

[Sandeep G 1]

Jet Airways earnings slashed in second quarter. Jet Airways reported a USD27.6 million negative swing from a USD15.6 million net profit in the three months ended 30-Sep-05 to a USD12.0 million net loss in the same period this year. Staff costs surged 81% year-on-year and now account for 13% of total expenditure, while jet fuel costs rose 70% year-on-year representing 39% of total costs. Selling and distribution costs almost trebled. Yields rose a surprising 8% year-on-year, despite intense competition, but would have fallen 5% without the impact of fuel surcharges.

 

According to Jet, fundamental imbalances exist in the market between load factors and break-even points, although the problem is worse for the LCC segment, where the break-even load factor is estimated to be 88%, against current loads in the mid-60s.

 

India’s Domestic Market: Industry Load Factors vs Break-even Load Factors

 

Source: Jet Airways

 

 

The outlook for Jet in the second half of the year (ending 31-Mar-07) is challenging, with an average of five aircraft per month to be delivered to Indian carriers. Capacity addition on this scale could defer the resumption of rational pricing in the market. However, the sustained reduction in fuel prices could provide relief and demand in the second half of the year is traditionally stronger than the first half.

 

 

Jet Airways reports (17-Oct-06) the following financial/traffic highlights for the three months ended 30-Sep-06:

 

Revenue: USD396.6 million, +31.8% year-on-year;

Operating costs: USD412.4 million, +49.6%;

Profit before tax (loss): (USD15.8 million), compared to a USD25.2 million profit in the previous corresponding period;

Net profit (loss): (USD12.0 million), compared to a USD15.6 million profit in the previous corresponding period;

Passenger numbers: 2.5 million, +11%;

Capacity (ASKs): 4,386 million, +40%;

Load factor: 63.5%, -7.7 ppts.

 

With the failed bid for Sahara and the laucnh of a plethora of new carriers, what say you on the airline industry in India?

[Pieter C. 5]

what say you on the airline industry in India?

 

Even established carriers receive new and 'up-to-date' aircraft:

 

October 19, 2006

State-run Indian Airlines on Thursday received the first jet of a 43 aircraft order placed with Airbus, the first new purchased planes added to its fleet in 12 years.

Delivery of all 43 aircraft is expected to be completed by March 2010, airline officials said.

 

The airline placed the order -- for 19 A319s, 20 A321s and four A320 -- earlier this year at an estimated cost of USD$2 billion.

 

The A319 which joined the fleet on Thursday is the domestic carrier's 74th aircraft, 25 of which are Boeing planes.

 

The government aims to merge Indian Airlines and Air India during this fiscal year, civil aviation minister, Praful Patel, said at a ceremony marking the arrival of the Airbus aircraft.

 

Indian Airlines chairman and managing director, Vishwapati Trivedi, said the airline was targeting a net profit of INR1.04 billion rupees (USD$23 million) in the year to March 2007, compared with INR680 million (USD$15 million) in 2005/06.

(Reuters)

 

[Raj 0]

Saw this news on Business Times about Jetwairways wanting to Connect more Indian Cities with Malaysia..

 

http://www.btimes.com.my/Current_News/BT/T...06.txt/Article/

[Seth K 3]

Saw this news on Business Times about Jetwairways wanting to Connect more Indian Cities with Malaysia..

 

http://www.btimes.com.my/Current_News/BT/T...06.txt/Article/

Very good news, I hope when Jet gets all their fleets, they will send widebody to KUL. More cities from India means more economics improvement to both countries, or to cities in Malaysia, is even better.........I heard quite a lot of Indian traveliing to PEN via KUL. Iz there possible to have Jet, Indian to fly to PEN? I also smell AirAsia in India in near future too.

[Sandeep G 1]

Yes, AirAsia's eyes are definately trained on India.. in particular the Chennai market - that's a no brainer!

 

However, it will be interesting to see how the India-Malaysia O&D market matures in the coming years. With a larger indian middle class, and more disposable income, places like Kuala Lumpur and Bangkok are high on the holiday agenda for many indian families. And walking around KL, that ain't hard to tell!

 

But how will Indian carriers respond to AirAsia??? - the airline with the lowest costs in the world???

 

With other Indian LCCs prohibited from commencing international services for 5 years from date of inception (IIRC), then AirAsia will definately be able toget a jumpstart IF given the chance Will the Indian authorities accept on the basis of the present over-capacity crisis looming in the Indian sub-continent?

[Sanjay Thaker 0]

Yes, AirAsia's eyes are definately trained on India.. in particular the Chennai market - that's a no brainer!

 

However, it will be interesting to see how the India-Malaysia O&D market matures in the coming years. With a larger indian middle class, and more disposable income, places like Kuala Lumpur and Bangkok are high on the holiday agenda for many indian families. And walking around KL, that ain't hard to tell!

 

But how will Indian carriers respond to AirAsia??? - the airline with the lowest costs in the world???

 

With other Indian LCCs prohibited from commencing international services for 5 years from date of inception (IIRC), then AirAsia will definately be able toget a jumpstart IF given the chance Will the Indian authorities accept on the basis of the present over-capacity crisis looming in the Indian sub-continent?

 

 

Is it absolutely confirmed that there is a over capacity in the indian sub-continent because i always had a perception that there is a huge space for growth in that continent

[Sandeep G 1]

Is it absolutely confirmed that there is a over capacity in the indian sub-continent because i always had a perception that there is a huge space for growth in that continent

 

many new airlines cropping up and have a look at the figures released by CAPA above. ASK (Capacity) +40%, PAX numbers up 11% yet PLF down 7.7ppts... to me, without any formal training in the area, that would be indicative of over capacity..

 

There is plenty of market and space for growth in the sub-continent, but it's happened too quickly which is where the over-capacity crisis has come from.. remember, everything in moderation..

 

The Indian Government was so worried that they even planned to turn back the clock by implementing new regulations that would have hampered airiline growth potential in India.

 

But yes, it's an exciting place, but definately has a long journey to go in order to handle the new growth.. especially in terms of updating and improving their ATC..

Edited October 20, 2006 by Sandeep G

[Sandeep G 1]

Air Deccan yesterday released its quaterly earnings report (3 months ended 30-Sep-06).. and not to shabby despite massive gains in operating revenue (187% y-o-y)

 

USD9.5 million loss.

 

Main reasons cited: Higher aircraft lease and operating costs.

 

Here's a quote:

 

"With our strong market share, we are confident to cut down our losses going forward. Our fleet expansion plans and new route openings will be the force propeller for our future growth and profitability, besides insulating us from the turbulence in domestic aviation...We are expecting higher yields on the newer routes, which account for over 58% of all routes as of now, but these would flow in the next few quarters, typically new routes take a year to mature and start giving optimum yields," Capt G R Gopinath, Managing Director/Mohan Kumar, Director Finance. Source: Business Standard, 30-Oct-06.

 

Source: CAPA

 

[Andrew Ong 1]

Yes, AirAsia's eyes are definately trained on India.. in particular the Chennai market - that's a no brainer!

 

However, it will be interesting to see how the India-Malaysia O&D market matures in the coming years. With a larger indian middle class, and more disposable income, places like Kuala Lumpur and Bangkok are high on the holiday agenda for many indian families. And walking around KL, that ain't hard to tell!

 

But how will Indian carriers respond to AirAsia??? - the airline with the lowest costs in the world???

 

With other Indian LCCs prohibited from commencing international services for 5 years from date of inception (IIRC), then AirAsia will definately be able toget a jumpstart IF given the chance Will the Indian authorities accept on the basis of the present over-capacity crisis looming in the Indian sub-continent?

 

So AirAsia in looking into operating a Malaysia-India route ?

[Sandeep G 1]

So AirAsia in looking into operating a Malaysia-India route ?

 

In the not too distant future, yes. It's a huge market, especially internationally Domestic is getting a bit overworked at the moment, but it's still massive!! India and China in about 50 years time... man I would like to see their airports then!!! Goodbye ATL, ORD and LHR from the top of the list!

[Sanjay Thaker 0]

The indians have stopped any other LCCs from being set up in their country. Anyone has any idea if any other airline is allowed to operate commercially on a scheduled basis in our country...or has the Malaysian authorities muted it as well?

[Sandeep G 1]

The indians have stopped any other LCCs from being set up in their country. Anyone has any idea if any other airline is allowed to operate commercially on a scheduled basis in our country...or has the Malaysian authorities muted it as well?

 

I don't think there are any restrictions. Asmara hopes to start scheduled services soon, but in the meantime they will operate charters.

 

It does not however, make commercial sense to have another airline in Malaysia.

 

Not until MAS has picked up its game and yields from and within Malaysia improve. Right now, with the yields so low, any start up would find it difficult to tangle with the "big boys" (AXM and MAS)

[Andrew Ong 1]

The indians have stopped any other LCCs from being set up in their country.

 

Why is that?

[Sandeep G 1]

Why is that?

 

Too many players, too much competition, lack of supporting infrastructure (e.g. ATC), way too low yields to provide a profitable market - market saturation - economic chaos...

 

So better to put the brakes on a bit and let their be progressive growth.. Some will argue that market forces should be allowed to clean the industry up by itself without govt. interference, but in the end.. it's up to the government.

 

So I still think, we'll see some degree of consolodation in India. mergers, acquisitions and increasing partnerships between the existing carriers...

[Pieter C. 5]

Too many players, too much competition

 

There are some really well-written and documented trip-reports available right now on A.net by Abrelojosos...it really shows the nice differences between all these Indian carriers; can recommend highly

[Pieter C. 5]

Air Deccan yesterday released its quaterly earnings report (3 months ended 30-Sep-06)..

 

More on Air Deccan:

 

Deccan Aviation To Enter Air Cargo Business

 

October 30, 2006

India's Deccan Aviation plans to launch air cargo services through a new subsidiary and sell a small stake in it to Investec Bank an official said on Monday.

 

Investec, which had funded Deccan Aviation's aircraft, was offering to buy 1.96 million shares at 150 rupees each, valuing the stake at up to INR295 million rupees (USD$6.6 million), Managing Director G.R. Gopinath said.

 

"We have a long association with Investec and they wanted a stake," Gopinath said. "The funds will be used for expansion."

 

He also said the company's cargo operations should start in six to nine months. "There is tremendous synergy given our huge network and operating bases."

 

The cargo subsidiary would have its own fleet but subcontract engineering and maintenance to Air Deccan, he added.

 

Air Deccan has 40 planes flying to 60 centers and 8 operating bases spread across the country, Gopinath said.

 

The company reported a loss of INR429.4 million (USD$9.6 million) on revenue of INR5.36 billion (USD$119.4 million) in the quarter to September 2006.

 

(Reuters)

 

A wise move, as cargo generate more yields than passenger traffic nowadays...

[Sanjay Thaker 0]

I don't think there are any restrictions. Asmara hopes to start scheduled services soon, but in the meantime they will operate charters.

 

It does not however, make commercial sense to have another airline in Malaysia.

 

Not until MAS has picked up its game and yields from and within Malaysia improve. Right now, with the yields so low, any start up would find it difficult to tangle with the "big boys" (AXM and MAS)

 

 

Thanx Sandeep, but what if the start up airline eats a little into MAS's pax share and a lil into AK's pax share? do u think that would still be insufficient?

[Sandeep G 1]

Thanx Sandeep, but what if the start up airline eats a little into MAS's pax share and a lil into AK's pax share? do u think that would still be insufficient?

 

 

They can eat into pax share as much as they like, but to do so, they would have to be undercutting, and then their margins would be awfully tight. This is the position that MAS worked itself into... From my observation (and that's no expert observation), someone in top level MAS management believed that raising the PLF would mean better financial results for MAS - which is true to a certain extent.. but you would have to maintain yields.. instead, MAS tried undercutting everyone under the sun to raise PLF but yields sank - and hence we had very full airplanes that weren't making any money.. top it off with all the datuk/datin freebies MAS dishes out and voila! no profit, but plenty (LOSS)

 

So for a new airline in Malaysia, it would need to create a niche for itself.. Asmara has that I suppose in operating charter flights, but with plans for a larger airplane (i.e. 737 and 777) and varying fleet (F50, 737, 777), their overheads will soon wash them own the gutter...

 

I would however, like to say that there is opportunity for an airline to be setup within the peninsula that would be able to create such a market niche for itself and potentially challenge the dominance of MAS and AXM in Malaysian skies, without hurting their operations too much!

 

 

Deccan Aviation To Enter Air Cargo Business

 

A wise move, as cargo generate more yields than passenger traffic nowadays...

 

Oh yeah!! Not to mention there is not too many Indian cargo players around! Sweet! But now, let's see how many other Indian airlines decide to switch to cargo operations... But for Air Deccan, better to lead the herd than follow

[Sandeep G 1]

Some more interesing developments from India:

 

Air India Plans Leasing Aircraft Ahead of Network Expansion

 

Air India is considering leasing three A340-300s, to be operated to Europe, and one B767-300ER for operations to Kuala Lumpur, as well as on the Mumbai-Bangkok-Hong Kong route (PTI, 31-Oct-06). The carrier is also reportedly in discussions with Air Sahara to lease a widebody aircraft.

 

B767ER to KUL eh?? Now, what is AirIndia thinking? B777, A340, B767ER, A310-300s... phuaaa that's a lot of aircraft types! Or they could quite simply be Desperate for aircraft! Internationally, India is still a medium sized player of course

[Sanjay Thaker 0]

Creating a niche market for themselves...thats a challenge any new start up airline would have to face in malaysia..and even asia..with all the boom of airlines suddenly...do u really think those who fly AK are doing so happily or are they doing so basically coz they dont have a choice..i mean either they pay low fares and get AK..or pay a bomb and get MH

[Andrew Ong 1]

Too many players, too much competition, lack of supporting infrastructure (e.g. ATC), way too low yields to provide a profitable market - market saturation - economic chaos...

 

So better to put the brakes on a bit and let their be progressive growth.. Some will argue that market forces should be allowed to clean the industry up by itself without govt. interference, but in the end.. it's up to the government.

 

So I still think, we'll see some degree of consolodation in India. mergers, acquisitions and increasing partnerships between the existing carriers...

 

India's ATC cannot handle the growth of airlines in India?

[Sandeep G 1]

India's ATC cannot handle the growth of airlines in India?

 

India's ATC is old yet undergoing improvement, yet implementation is slow. There are many stories from pilots about ATC in India, not too many of them are good in nature.

 

Mind you, they will update and they certainly have the manpower, skill and ability to update - it's all just bureaucracy that's holding it up at the moment.

 

Indian airports are finally getting a facelift and in some cases some new airports are sprouting up. Infrastructure has to expand to contend with the expanding airline industry over there, and naturally, ATC will follow.

[Sandeep G 1]

Quite predictably, Jet has decided to take advantage of its position in the Indian Aviation Sector to expand internationally (as other new startups like Kingfisher, SpiceJet etc may not due to Indian Regulations). This will be a boon for the company who hopefully will continue to set the pace for the Indian airline industry in the future.

 

Meanwhile, Kingfisher is fighting to establish an international carrier based in the UK or US under the same brand of Kingfisher that would presumably allow them to fly into India from international points of origin.

 

Jet Looks Overseas As Home Pressures Grow

November 6, 2006

 

India's biggest domestic airline, Jet Airways, is stepping up international operations as it faces increasing pressure from domestic rivals.

 

Jet Airways, which has about 40 percent of the fast-growing domestic aviation market, is eyeing destinations in South Africa, Canada, the Middle East and China, it said on Monday.

 

Jet Airways already flies to Britain, Singapore, Kuala Lumpur, Colombo and Kathmandu. It will launch daily flights to Bangkok in January, and is awaiting regulatory approval to fly to the United States.

 

"The ASEAN (south east Asian) region is a growing market and very profitable," Chief Executive Wolfgang Prock-Schauer told a news conference.

 

International operations, which account for 17 percent of Jet's overall revenue now, will make up half of its revenue by 2008/09 when Jet has added new aircraft to its fleet and more overseas routes, Prock-Schauer said.

 

Jet is investing USD$2.5 billion over the next three years in new aircraft and training, and has said it would cut costs through greater online ticket sales and better staff management.

 

India's domestic aviation market is forecast to grow at about 20 percent a year over the next five years. Discount carriers including Deccan Aviation and SpiceJet are competing for a bigger share of the market.

 

Jet posted a loss of INR551.3 million rupees (USD$700 million) in the July-September quarter compared to a net profit of INR685.9 million (USD$870 million) in the same period a year earlier.

 

(Reuters)

[Sandeep G 1]

Well. the competition for India's air frieght and cargo market is hotting up with this announcement a few days ago, and not too long after Air Deccans announcement of its foray into the cargo and freight sector. With companies like FedEx investing in the sector, it really can only mean very good things!

 

FedEx to buy Indian express operator PAFEX for $30 million

Friday November 3, 2006

 

FedEx Express, the delivery giant's airline unit, yesterday signed an agreement to acquire its Indian service provider, Prakash Air Freight, for $30 million in cash.

 

PAFEX has 384 offices in India and serves nearly 4,400 destinations. It has been FedEx's service provider there since 2002, providing domestic logistics and courier delivery support for the US express company's airline operations in India. The deal is subject to regulatory approval by India's government.

 

FedEx said in a statement that having "a wholly owned operation in one of the world's fastest growing markets" strengthens its global network. "This acquisition will solidify the FedEx leadership position within India," said Robert Elliott, president of FedEx Express for Europe, the Middle East, Africa and the Indian subcontinent. "Bringing PAFEX operations within the company is the logical next step in the ongoing development of our Indian business."

 

(ATW Online)

[Sandeep G 1]

Bandwagon hopping galore in India!

 

Jet recently announced this shortly after Air Deccans plans and FedEx's purchase of Indian frieght specialists PAFEX to enter the Indian cargo market.

 

Jet Airways announced it expects the proportion of total revenue generated by cargo operations to increase from 7% to 25% by 2009, primarily due to the introduction of widebody equipment (Business Standard, 07-Nov-06).

Source: CAPA