Airlines India, Indian Airlines

Air Sahara today announced a new scheme, offering passengers unlimited flying to any destination on their network on payment of a fixed sum.

Under the ‘Fly Unlimited’ scheme unveiled by the airline today, passengers can fly to any destination for a year on paying Rs 699 for 365 days, that is by depositing a sum of over Rs 2.55 lakh.

The airline is also offering such a package for 90 days at the rate of Rs 799 each day, for 60 days at Rs 899 and for 30 days at Rs 999, airline President Alok Sharma told reporters here.

“These are innovative schemes and may take time for new passengers to get used to. But we are confident that frequent flyers will benefit from them,” he said.

State-run oil marketing companies have decided to cut aviation turbine fuel prices by Rs 3,686-3,893 per 1 kilo litre in the four metropolitan cities with effect from Sunday.

However, domestic air travellers who currently pay a surcharge of Rs 750 per ticket, may continue to pay the same as airlines reeling under heavy losses may not pass on the cut to consumers. The price of aviation fuel for international carriers will also be cut by $51.96-53.39 per 1 kl, Indian Oil said.

Unlike prices of other petroleum products like kerosene, petrol, diesel, and liquefied petroleum gas, which are regulated by the government, aviation fuel is linked to global prices. Aviation fuel prices are revised at the beginning of every month, based on the change in price in the previous month. Experts say aviation fuel comprises 30-35% of airlines’ total operational costs.

Siddhanta Sharma, chairman and CEO of Spicejet concurred with the strategy adopted by his industry peers when he said: “We will take a call on October 4. We’ll study the impact of the past fuel hikes and current reduction and if there’s a difference we will pass it on the customer.”

Captain G R Gopinath, chairman of AirDeccan, was more circumspect. “We’ll wait for a month before taking a call. We are making losses, so we don’t think we can go for a reduction,” Gopinath said. A spokesperson for Indian said ATF prices have been volatile and so it would be prudent to wait.

Leading private carrier, Air Sahara has launched the Delhi-Indore-Delhi non-stop twice daily flight here on Sunday, with a plan to introduce Indore-Mumbai flight by February-March.

“We are delighted to add Indore to our route network as it is a very vibrant city,” Air Sahara senior vice president, K Damodaran told reporters after the launch of the new flight.

He said that by February-March the carrier will introduce a new flight to Mumbai in view of the growing traffic on the Mumbai sector.

He informed that Indore is the third of the 14 new destinations being added by Air Sahara to its route network.

Earlier, it has added Nagpur and Port Blair to its list of destinations. Among the 14 included the three international destinations like Guangzhou (China), Dhaka (Bangladesh) and Male (Maldives), he said.

Claiming that the timings of the Indore-Delhi flight were very convenient, he said that the inaugural flight from Delhi has 42 passengers, while the return flight has 40 against the total capacity of the 50 seater aircraft. The company enjoys a market share of 12 per cent (domestic) in the country.

He said flights for Chandigarh and Vadodara would soon begin from Delhi and added that the plans were afoot for connecting smaller towns like Raipur and Jodhpur among others.

When queried he said that it was not a viable proposition to reduce fares.

Damodaran also refused to talk about the grounded Jet-Sahara deal.

The Bombay High Court order on Friday, permitting Jet Airways to withdraw Rs 1,500 crore deposited in an escrow account for acquiring rival Air Sahara might have come as a relief for Naresh Goyal, but legal eagles pointed out that the country’s largest airline stands to lose slightly over Rs 100 crore immediately by way of commissions and interest income.

According to legal sources, Air Sahara would gain about Rs 40-45 crore immediately by way of interest accrued on the Rs 1,500 crore in the escrow account.

“As per the court order, the interest from January 17 to June 21 this year — which worked out to roughly Rs 40-45 crore — would be paid to Air Sahara.

In addition, it is also staking claim on the interest accrued from June 21 till date, which will work out to another Rs 20-25 crore. In all, around Rs 60 crore is expected to be paid to Air Sahara by way of interest alone,”a source said.

The Bombay High Court had allowed Jet to withdraw the money from the escrow account against bank guarantee of the same amount.

“This would mean that Jet Airways would have to pay around Rs 45 crore as commission for making that bank guarantee,”a source said.

The remaining formalities regarding the escrow account and all other related disputes will now be decided by the arbitration tribunal.

The arbitration tribunal consists of retired Chief Justices SP Bharucha, Jeevan Reddy and Lord Stein. It will hear the case on October 9.

In January this year, Jet Airways had signed an agreement to acquire 100% stake in Air Sahara. As part of the deal, Jet had paid Rs 180 crore for revival of Air Sahara and Rs 500 crore for Air Sahara shares, besides depositing Rs 1,500 crore in the escrow account opened for the purpose.

After the deal fell through, Air Sahara had moved a court in Lucknow, seeking to bar Jet Airways from operating the escrow account. Finally, Bombay HC gave respite to Jet.

Full-service carriers, while retaining the frills, have embarked on a drive to cut costs, particularly in the areas of fuel usage, ticket distribution and salary, as they take on the burgeoning low-cost carriers. Airlines such as Jet Airways, Indian Airlines and Air Sahara have all embraced “low-cost” measures.

“Indian Airlines has started strict monitoring of fuel usage. The airline saved more than Rs 150 crore through these measures last year,” said an executive with the state-owned airline.

The airline, apart from introducing online ticketing to cut the distribution cost, has frozen the recruitment in the non-core areas.

“Everybody is feeling the pressure on the bottom line due to the high jet fuel prices and salary cost. The next ideal step is to cut down the maximum input cost,” said Gautam Sinha Roy, analyst, Edelweiss Securities.

Jet Airways is negotiating better rates for maintenance of aircraft and increasing productivity. It is also targeting ramping up of employee productivity and a lower employee-aircraft ratio.

Jet’s employee expenses jumped 51.4 per cent to Rs 567.2 crore in the last financial year from Rs 374.7 crore in 2004-05. This was on the back of a rise in salaries and benefits, as well as growth in the average headcount to 8,285 during the financial year 2006 from 7,082 during FY05.

The airline is also pushing online ticket sales, which is expected to reduce its selling and distribution costs. “Jet’s target is to sell at least 25 per cent of tickets through the internet over the next two years against the current 10 per cent. Through this initiative it can save Rs 450 on every ticket,” said a senior company executive.

The airline has specified that all new aircraft that have been ordered are fitted with winglets, which will reduce fuel consumption significantly.

Following the abortive Rs 2,300 crore acquisition attempt by Jet Airways, Air Sahara has also been cutting costs by turning five of its aircraft, flying to non-metro destinations, to single configuration like low-cost carriers.

“This will help Air Sahara to add more seats to increase its revenues. But the positive results will show up only once the airline is able to cut costs on critical elements such as jet fuel, maintenance and employee costs,” said an industry analyst.