The Europe-India aviation market: new opportunities and potential riches

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As India’s aviation policy has opened up over the past four years, European airlines have finally begun to achieve more market-oriented capacity levels, and to gain access to new gateways. India, with its enormous human resources and wealth, not only offers remarkable potential as a market in its own right, but also sits astride major routes to the Far East. Were it not for previous governments’ restrictive aviation policies, India would also be a major distribution hub, a potential it carries, once its chronic infrastructure shortage is eased.

The features of a closed market, as India previously was, include gratuitously providing high yielding traffic for sixth freedom carriers, who, in a capacity-limited market, were able to offer a good quality of service and a wide range of destinations over their hubs. Thus, for example, a little over two years ago there was no non-stop service between the US and India; today there are 42 services a week, by Indian and US carriers.

This aspect of India’s liberalisation has been a mixed blessing for European airlines. In a heavily regulated regime, Lufthansa, British Airways (BA) and Air France all profited from this market profile. At the same time however, growth in the international market is opening up new opportunities, to replace the dilution of this advantage.

International Passenger growth to/from India

Source: Centre for Asia Pacific Aviation and Airports Authority of IndiaNote: Financial years to 31-Mar

As new gateways open up in India, the variety of service combinations possible over their European hubs improves, helping them maintain an edge. Lufthansa, the biggest of the European carriers in the Indian market, has a relatively comprehensive network from six (shortly to be seven) gateways - Mumbai, Delhi, Bangalore, Hyderabad, Chennai and Kolkata - with 49 weekly frequencies.

The UK, with its large non-resident-Indian (NRI) community, has experienced strong service growth since bilateral liberalisation was introduced. As a result of liberalisation of the UK-India bilateral agreement, weekly non-stop services between the two countries have increased from 34 per week in Oct-04 to 107 times weekly today, operated by 4 carriers (British Airways, Virgin, Air India and Jet Airways, soon to be joined by a fifth, in Kingfisher Airlines).
BA’s service frequency will have grown from 19 times weekly in Oct-04, to 48 by Oct-08, and India will be its largest market outside of North America. Meanwhile, the Middle East short-haul market is burgeoning and Gulf carriers are also quick to expand their hub networks to incorporate Indian points; Emirates for example will operate to ten points in India, with 105 services a week by Jul-08.

Source: Centre for Asia Pacific Aviation and OAG

An attractive feature of the Indian market is its still-high proportion of premium traffic. Following All Nippon Airways’ launch of a successful all-business class service between Narita and Mumbai in Sep-07, which was recently increased from 6 times weekly to daily, Lufthansa will introduce the first longhaul international service to Pune, near Mumbai, in Jul-08. This too is an all-business class service and will bring Lufthansa’s weekly frequencies to 55.

Carriers like Finnair too experience good yields; over 50% of traffic on its Helsinki route are business travellers and Finland will seek an increase in the current 14 weekly services permitted to each side at bilateral discussions scheduled for Aug-08.

As the fledgling Indian airlines spread their wing into longhaul operations, they are, of necessity,

introducing innovative ways of achieving competitiveness.

Privately owned Jet Airways has established a European hub at Brussels, connecting Delhi, Mumbai and Chennai on the one side, to New York JFK, Newark and Toronto. These operations make use of the liberal access provisions available through the Belgium-US open skies agreement (and the absence of opposition from a protective national flag carrier). Jet is also reportedly considering using Milan, if Alitalia withdraws from Malpensa, voluntarily or otherwise.

The other high profile private new entrant, Kingfisher Airlines has also apparently been in discussions to set up a hub in Madrid. Iberia has no Asian services and there are considerable complementary route options.

Air India, one of the world’s longest standing airlines, is however lagging the field, as it considers hubs in either Munich or Vienna. Struggling to adapt to the increasingly competitive environment and the challenges of merging with government-owned sister company, domestic Indian Airlines, it has yet to show its full potential. It will take many more months before it emerges as a valuable partner to the Star Alliance, to whose membership it has been invited. As Jet and Kingfisher expand, they will become much more attractive to the global alliances, offering significant challenges to Air India.

Although domestic growth is now slowing, international traffic to/from India looks set to achieve double-digit growth for several years to come. The Government has shown its willingness to enter into increasingly liberal bilateral agreements and an array of foreign carriers are positioning themselves to compete for a share of this lucrative market.

The battle for position will be intriguing. Air India, Jet Airways and Kingfisher Airlines between them have 112 widebody aircraft on order, scheduled for delivery over the next 5 years and Europe and North America are expected to feature strongly in their network expansion plans. And, as partnerships - and even merger activity - grows, these home grown products will become increasingly attractive.

IATA: Europe business confidence falling in Apr-08; growth deteriorating sharply

IATA’s latest report on international traffic, for the month of April, continues a very gloomy tone, as growth slows across the world and load factors trend remorselessly downwards †“the clearest sign that airlines have been facing a faster than anticipated slowdown since the start of the year.”


Load factors fell “significantly” in Apr-08. As the report notes, this is “also bad news for airline profitability since the 70% rise in crude oil prices to an average USD98 a barrel in Q108 will have raised break-even load factors substantially

In Europe, the load factor picture is less attractive still, showing almost as steep a load factor fall for the month as the US.And Europe more steeply than the average…

The figures are distorted to some extent in comparisons with last year as a result of Easter falling in March in 2008. But the trend is unavoidable.Growth is slowing faster than expected – just as fuel prices rise much faster than expected. Again, Europe’s growth rate has declined steeply by global standards.

Delivering To The People - Chindia Style'

(A very nice article on the disaster management - China and India style)

When Lisbon shook in 1755, Voltaire asked if God was at all just. Why did he not instead shift the earth under London and Paris which were infinitely more sinful? When the earthquake hit Sichuan earlier this month, many Chinese too wondered if this was a divine intervention. Had they done something terribly wrong that such devastation should visit them? As the death toll began to mount, this sentiment became increasingly palpable all over China. But the way the administration responded, it displaced puzzled grief with positive energy. Indeed, from the highest party level downwards, the concern for the affected people was clearly evident. To claim that this has anything to do with communism would be a red lie. There is nothing socialist about China today. From farmland to plasma TVs, private ownership thrives in that country. Yet, within an hour and a half of the earthquake, Premier Wen Jiabao was at the site. He stayed for days on the broken ground directing relief teams from the front. This level of empathy would put many democratic countries to shame. Where was George Bush when Hurricane Katrina whipped New Orleans? When he eventually came it was a hurried wham-bam affair. He was in and out in 24 hours and off to Palm Beach. Then prime minister Atal Bihari Vajpayee took a full five days before he visited Bhuj after an earthquake struck it in 2001. When Vajpayee, at long last, reached Bhuj, the security was so tight that it blocked relief supplies by air and by road. Within five days of the Sichuan quake, Chinese relief teams had reached all the 3,669 affected villages of the region. In Bhuj, even after a full year had passed, several villages were untouched by rehabilitation efforts. They had neither seen the front nor the back of a relief worker. This prompted affected people, such as those around Khavda and Maliya, to pick up the pieces themselves. No wonder only a tenth of urban dwellings destroyed by the quake have been restored so far. The rest continue to cantilever feeble, uncertain roofs. In China, premier Wen has vowed that new cities will be built where the old ones were destroyed. In a moving and emotionally charged statement he said that "building a new town is the best consolation for dead relatives". To keep this promise the Chinese people have reportedly raised over $16 billion already. This does not include foreign donations which, when they come in, will be small change in comparison. Our democratic credentials notwithstanding, Bhuj victims received less than $20 million from the West. America parted with only $5 million, Britain a little less, and many other European countries donated only in the thousands.

Yet we felt beholden to them simply because our state was wanting in every department. BBC estimated that the total amount dedicated for earthquake relief in Bhuj, from all quarters, was about $1 billion. This compares poorly with $16 billion already raised in China, and that too from its own people. Already 23 Chinese relief workers have lost their lives for their courage and commitment in helping trapped victims out of precarious structures. In contrast, relief efforts in Bhuj waited largely on external help and NGO support. Here too we bungled. Medecins Sans Frontieres was kept waiting for days to get clearance to come in. Doctors flew in from different parts of India, but most of them left before their patients could say "Aaah". Sensing administrative inefficiency and corruption, Gujarat's then chief minister, Keshavbhai Patel, ordered that all relief funds be channelled through NGOs. That many of these organisations worked with a communal slant in their so-called "adopted villages" did not stop the flow of money that went to them. Scores of publicity seeking volunteers took photos of themselves doing charity work while checking their profiles in the mirror for political correctness. It is true heads will roll once the dust and rubble settle in and around Sichuan. Builders who had done a shoddy job with substandard material will be put on trial. One can expect the numbers of executed people to rise above the current level of about 2,000 annually. The fact of execution may not sit well with many of us, but the point is that somebody is being held responsible and somebody is being punished. Nothing of the kind happened after the Bhuj earthquake. In that case too it was equally clear that the death count would have been much lower but for corrupt builders. Surprisingly, just six weeks before disaster struck Bhuj, the BJP-led government regularised illegal construction in six municipalities of that region. This obviously delighted the construction mafia but they were not ones inside the homes that crumbled. This then is the rehabilitation balance sheet between "democratic" India and "authoritarian" China. Does this have something to say about how democracy is understood and practised in our country? Indeed we have a number of political parties, talking shops, and intellectuals for hire and sale. But what good has all this done for the common people. SEZs are built at will, the contractor-builder-politician nexus thrives, food shortages continue, poverty levels remain stubborn, and yet we are a democratic country. Hopefully, at some point we will realise that democracy is not just about elections. It has something to do with the state delivering to the electorate as well.

(Work is keeping me busy this week, so just posting some nice articles - my take on all this will come a bit later)

Sum in the Pics............

Its me...the traditional semi urban thinking guy who likes to take the Bull by its horns......

An Absurdity called Oil Bonds

(Excellent article published in Economic Times.....Oil bonds and flawed policy of GOI)

Why can't oil companies, which are now threatening to ration sales of cooking and motor fuel in a bid to cut losses, settle their tax payments against the bonds the government issues them from time to time? Most policymakers and economists will call it bizarre and rubbish it as absurd. But the bloodbath in India's oil and gas sector is no less bizarre. However, a proposition on these lines may well be the way out for the liquidity crunch the oil companies are facing. Let cash-strapped oil companies opt for the oil bond route to settle their dues to the central exchequer. The absurdity of the current scenario plays out thus - the government imposes taxes (up to 50% plus on petrol and more than 30% on diesel) on the retail selling price of fuel. The tax increases the selling price of fuels. But the government then steps in to artificially control prices with a subsidy and to protect the consumer. This subsidy takes the form of special bonds called oil bonds, which have so far proved illiquid for the oil companies. If the oilcos were permitted to use the bonds to settle their tax dues, the subsidy would cancel out the tax receipts, bringing out the absurdity underlying the entirety of administered oil pricing.

The oil sector is the largest tax contributor to the central exchequer, paying close to Rs 70,000 crore on account of customs and excise duties. This is apart from the dividend they shell out to their owner, the government, on their profits. The same oil companies, however, are dependent on the government to remain in the black. Although, pricing of petroleum products was 'decontrolled' in April 2002 with the dismantling of the administered pricing mechanism, the government regulates prices of all major fuel at the retail level. Result: The consumer prices of motor fuels, petrol and diesel, and cooking fuels, LPG and kerosene, are way cheaper than the true market rates. This leads to huge losses for the oil companies. The government, on its part, issues bonds from time to time to compensate the oil companies for the losses they incur on sales of petroleum products at controlled prices. So on the one hand, while the oil companies are writing out cheques to meet their tax and dividend obligations, on the other, they have to be bailed out through government bonds to remain profitable. But the bonds issued by the government fail to solve the oilcos' liquidity crunch as they often have to be sold at a discount. Further, oil companies can sell only 25% of the bonds in a given quarter, thus posing huge financial challenges for the companies. Also, the bonds issued by the government have few takers in the secondary market given the yield rates . Then, the appetite for these bonds was particularly low among institutions as till recently the bonds were not SLR-eligible. Oil companies which have been totting up huge losses have managed to remain in the black thanks to the oil bonds. Losses on fuel sales have reached record levels and are expected to cross Rs 1,80,000 crore by the end of this fiscal. Absence of enough liquidity has put severe pressure on the creditworthiness of some of the companies. Take, for example, Indian Oil Corporation. Despite being a Fortune 500 company, IOC was downgraded by ICRA for its long-term credit rating to LAA from its earlier position of LAAA in November, even as credit rating agency Moody's changed the future outlook for IOC to negative from stable. A liquidity squeeze poses huge challenges for oil companies like IOC or BPCL as they depend heavily on imported crude to run their refineries. Most international oil traders or even oil companies are unwilling to open letters of credit unless the company is in a comfortable financial position

Companies would be left with more money in their hands if they are allowed to set off their tax payments against the bonds with which the government part-compensates them for their losses on retail sales. And something on these lines could well be under discussions in the corporate boardrooms. Refining companies are reported to have mooted a proposal by which they could sell their bonds to upstream oil producers like ONGC to pay off their crude purchase bills. An idea which was nipped in the bud with upstream companies rejecting outright such a proposal. Paucity of funds has already started taking a toll on the capacity building plans of the companies. Even as private sector refiners like Reliance Industries and Essar are adding huge capacities, public sector refinery companies have either put on hold their new refinery plans or are going slow. The skewed pricing policy in the petroleum sector and non-transparent way of doling out subsidies have already started deterring investors from the oil sector. At a time when global oil majors are clocking record profits, thanks to the surge in crude and product prices, Indian oil companies are only adding to their losses. Even oil producers like ONGC, who should have been raking in the moolah, are forced to fork out huge discounts, as part of the subsidy sharing formula. According to latest projections, Indian refiners and oil marketing companies could be headed towards a total subsidy bill of almost Rs 2,30,000 crore in ficsal 2008-09 if the scenario continues. All the downstream oil companies - IOC, HPCL and BPCL - have been borrowing heavily to meet their working capital requirements. While HPCL and BPCL will soon hit the borrowing ceiling, even market leader IOC is not far off. Issuing oil bonds which have a tenor of three to seven years only defers the financial liability of the government, posing huge problems for future governments. The fiscal deficit figures given out by the government thus fail to reflect the true picture as was recently cited by RBI governor Y V Reddy. Policymakers would tend to reject such an outrageous proposition. After all, revenues collected from taxes or dividends are the main source of income for the government to meet its expenses or fund social sector programmes. Globally too, revenues from oil companies have gone to fund public good projects in health, infrastructure and education. Choking out these revenue flows and settling them against bonds issued by the government may not be a sustainable economic solution. Issuing bonds with huge fiscal liabilities does not make economic sense as well.

The 10 Best Business Classes in the Sky

Sum's take on Airline Business Class Seats - Full-length beds, gourmet meals, in-flight movies, massages—today's business classes are more like flying spas but the best ones are transporting in every sense of the word
(I am often asked which airline has the best business class - here goes my reply ..)

1. Singapore Airlines
Price of a round-trip ticket: Rs.75,000*
Home base: Singapore
Notable amenities:
• Singapore Airlines' custom-designed SpaceBeds are 84 in. long and recline to an 8-degree angle
•The SpaceBeds are positioned in a 1-2-1 arrangement across the cabin
•Seats feature a four-way adjustable headrest, 10.4-in. personal monitor, and Dolby headphones with surround sound
• Singapore Airlines' in-flight entertainment system, Krisworld, offers 450 entertainment options with a 225-CD music collection
*(Fare based on round trip ticket tiket Delhi - Singapore - Delhi in Indian Rs.)

2. Cathay Pacific
Price of a round-trip ticket: Rs.80,000*
Home base: Hong Kong
Notable amenities:
• Cathay 747-400 Premium contains 39 main-deck and 26 upper-deck business-class seats, all arranged in a 2-3-2 layout across the cabin
• The Z-shaped seats have a 60-in. pitch and extend more than 75 in.
• An assortment of Asian and Western dishes are served to customers via an eye-level trolley
• Amenity-kit bags by French label Agnès B. feature products from American skin-care brands Murad or Dermalogica
*( Fare based on round trip ticket Delhi - Hong Kong - Delhi in Indian Rs.)

3. Qatar Airways
Price of a round-trip ticket: Rs.47,000*
Home base: Doha, Qatar
Notable amenities:
• 160-degree reclining seats feature independent lumbar support and a foot massage bar
• A six-course meal that includes a course of Arabic mezzas (Mediterranean tapas)
• In the near future, Qatar passengers will also be able to send and receive text messages and enjoy service from a range of satellite television stations
*(Fare based on round trip ticket Delhi - Doha - Delhi in Indian Rs.)

4. Malaysia Airlines
Price of a round-trip ticket: Rs.50,000*
Home base: Kuala Lumpur, Malaysia
Notable amenities:
• Malaysia Airlines' Golden Club Class seats feature 10.4-in. personal LCD touch-screen monitors, which offer more than 30 radio and video channels
• Each Golden Club Class seat has its own privacy shell and is electronically adjustable with preset buttons. All seats have massage features as well as an in-seat power outlet
• For those with diet restrictions, Malaysia Airlines provides special meals including Low Purine, Gluten Free, Low Calorie Meal, and Soft Meals/Bland Meals
*(Fare based on round trip ticket Delhi - Kuala Lumpur - Delhi in Indian Rs.)

5. Etihad Airways
Price of a round-trip ticket: Rs.37,000*
Home base: Abu Dhabi, United Arab Emirates
Notable amenities:
• Business-class, or Pearl Zone, passengers are offered free limousine transfer service to any destination in the UAE
• The 28 Pearl Zone seats are arranged in a 1-2-1 setup
• The 73-in. seats extend a full 180 degrees and feature a built-in massage facility
• Each Pearl Zone seat has immediate access to the aisle as well as a personal 15-in. LCD screen
*(Fare based on round trip ticket Delhi - Abu Dhabi - Delhi in Indian Rs.)

6. Air New Zealand
Price of a round-trip ticket: N.A
Home base: Auckland, New Zealand
Notable amenities:
• 79.5-in. seats that fully extend into lie-flat beds
• Personal, 10.4-in. high-resolution screens complete with in-seat remote allowing viewers to rewind and fast-forward
• A typical three-course long-haul menu includes a Manuka poached king prawns appetizer, the New Zealand lamb with horopito salt entrée, and a Coconut panna cotta for dessert
• Air New Zealand's premium bathrooms feature New Zealand's Living Nature skin-care products
*(Fare not available as Air New Zealand in not flying to India. However Interline fares with Singapore Airlines and Air India are available)

7. Thai Airways
Price of a round-trip ticket: Rs.58,000*
Home base: Bangkok, Thailand
Notable amenities:
• Business-class, or Royal Silk, passengers enjoy a separate, exclusive check-in lounge as well as access to any of the six Royal Silk lounges at Bangkok's Suvarnabhumi Airport
• Thai Airways' shell seats offer 60 in. for passengers to stretch out on seats that recline 170 degrees• Royal Silk features include electrically controlled seats and personal in-flight entertainment systems offering hundreds of channels for movies, music, information, and games
*(Fare based on round trip ticket Delhi - Bangkok - Delhi in Indian Rs.)

8. Emirates
Price of a round-trip ticket: Rs.60,000*
Home base: Dubai, United Arab Emirates
Notable amenities:
• Exclusive first- and business-class check-in at Dubai International Airport
• Emirates business-class travelers have access to the Dubai two-level business-class lounge featuring a balcony, massage chairs, and wireless network facilities
• Complimentary chauffeur service for business-class passengers
• Emirates' signature "ice" in-flight entertainment system features more than 500 channels of film, television, radio, and other forms of entertainment
*(Fare based on round trip ticket Delhi - Dubai - Delhi in Indian Rs.)

9. Virgin Atlantic
Price of a round-trip ticket: Rs.122,000*
Home base: London
Notable amenities:
• Virgin's Upper Class cabin features no more than four Upper Class Suites across the width of the cabin, making each suite aisle-accessible
• Each seat extends into a fully flat bed with a length of 79.5 in. (82 in. on the upper deck)
• Upper Class travelers can wine and dine at the Upper Class Suite's onboard bar
• On selected flights, Virgin reserves a section of the cabin for those who wish to sleep through the entire flight
*(Fare based on round trip ticket Delhi - London - Delhi in Indian Rs.)

10. British Airways
Price of a round-trip ticket: Rs.1,22,000*
Home base: London
Notable amenities:
• On British Airways' overnight flights from North America, travelers can enjoy pre-flight suppers in the airline's Terrace Lounges
• When flying from Heathrow or JFK, passengers have access to the terminals' Molton Brown Travel Spas, which include a variety of services such as shiatsu massages and body-jet hydrotherapy showers
• The World Club cabin features 6-ft. seats that recline fully flat
• Club World Sleeper Service provides reduced trolley movements and announcements, and breakfast in bed served closer to landing to maximize travelers' sleep time
*(Fare based on round trip ticket Delhi - London - Delhi in Indian Rs.)

skytrax data used

Rise in Oil Prices and a Lame Duck Government

Inability on take a call on rise in petrol and diesel prices - Lame duck Government governed by FM & PM who are guided by the Invisible hand of Madam and threatened by the Stick of Left

A cess or surcharge on income tax and corporate tax may be levied to bail out oil firms reeling under high global oil prices as Petroleum Ministry's proposal to raise petrol price by Rs 10 a litre, diesel by Rs 5 per litre and that of LPG by Rs 50 per cylinder finds few takers. The new proposal follows Finance Minister P Chidambaram's reluctance to cut duties on crude oil and petroleum products unless alternate source of revenues are identified. Petroleum Minister Murli Deora met Chidambaram today but failed to convince him of the urgency to cut import and excise duties to avoid the Rs 2,00,000 crore revenue loss expected on petrol, diesel, domestic LPG and kerosene this fiscal. BPCL and HPCL have cash to buy crude oil only till July while Indian Oil can finance imports till September. The three firms face huge liquidity crisis as they are unable to realise full value of products sold. "We don't want to see scarcity of petroleum products particularly kerosene and LPG," Deora told reporters after the meeting. "Oil companies are in a precarious state and we need urgently find solutions." Deora said some proposals were discussed but "nothing has been agreed." Sources said a cess or surcharge like the one levied after the Kargil war, may be imposed on income and corporate tax to make up for the cut in customs duty on crude oil to zero from 5 per cent and an excise duty cut on petrol and diesel. Petroleum Ministry is proposing to raise petrol price by Rs 10 a litre, diesel by Rs 5 per litre and that of LPG by Rs 50 per cylinder cut the Rs 580 crore per day loss made by the three oil firms by one-third. S Sundereshan, Additional Secretary in Petroleum Ministry said oil companies cannot wait for another week for the decision. "We are hopeful that a decision will be taken soon," he said. "The crisis needs to be defused at the earliest." Deora said some in the government want petrol prices to be deregulated, a move that may see rates being hiked by Rs 16-17 a litre, but continue subsidies on diesel. Petrol contributes has negligible weightage in inflation and so its deregulated prices moving in tandem with global prices will not lead to price hike. Diesel, on the other hand, is used by transport industry and replicating the same for the fuel would have cascading effect on inflation.

Sum's take on this - This is not only redicilous but plain lame duck approach of the Government which is often seen as being run by a proxy PM. There's been a panic world wide on rising crude prices and there has been a resultant increase in petrol and diesel prices. Indian government whose carrot of farm loan waiver has some how not been taken very well by the masses (as is evident from the results of recent elections), now wants to approach the coming lok sabha elections without angering people with any increase in fuel prices.

The underrecoveries on petroluem products amounting to Rs.200,000 crore a year are enough to finance the entire fuquirements of the rural roads , Rs.43,200 crores component of Bharat Nirman Plan, Rs.65,000 crore rural electrification plan and providing assured irrigation to millions of hectares of land which in dependent on the vagaries of monsoon. The UPA's agenda of pro poor will be better met by utilizing the Crores on these schemes than by playing the lectoral card and funding the rich, middle class with their hefty oil subsidies.

Even if petrol is deregulazed and the prices are set to be maket driven (an increase of Rs.10-15 per litre) it would not have an adverse impact on inflation numbers. Also keeping the diesel prices and keresone prices under moderate increase levels will keep the oil subsidy under check.

I am sure we are not prepared to see a situation of oil shortages in the near term, and it would not only dent India's claim of being an economic superpower but it will also not go too well with Madam's electoral population.

Its time for Madam to give some free hand to PC (Chidambaram) to run MS software (Manmohan Singh) and put things back on track with some sound programming in the final lap of UPA's governance.

Government is using the cess as a tool of drifting away from the main issues. It remains to be seen how the education cess recoveries have been spent. Duty cuts or cess are defensive measures being taken by a Government who have forgot the basics of fiscal prudence.