Airlines India, Indian Airlines

There couldn’t be a better time to fly. On the occasion of the 58th Republic Day, budget airline SpiceJet is offering 99,999 seats at an unbelievable price of 99 paise. This will be applicable for traveling between 15th February 2007 and 15th April 2007. These promotional seats will be available on all SpiceJet routes across 14 destinations with 84 daily flights.

The airline recently crossed 3 million passengers mark since its inception on May 23, 2005. Announcing this special offer, SpiceJet’s CEO, Siddhanta Sharma said, “There cannot be any better way to celebrate the 58th Republic of India, than giving the citizens of India the ‘Freedom to Fly at 99 paise’. This is also a small gesture of thanks giving to all those passengers who rendered their valuable support to us.”

With an overall market share of 9 per cent, SpiceJet remains an undisputed leader in load factor among all the domestic airlines. Even in existing foggy conditions, SpiceJet achieved one of the highest load factors of 88 percent in December 2006. It also holds a record for highest load factor achieved by any airline based in India, with all time high 95.4 percent passenger load factor achieved on April 18, 2006.

The low cost airline has appointed UK based investment banker Morgan Stanley to prepare a detailed plan for raising upto $80 mn from overseas marktet for its proposed expansion plans including fleet induction.

The airline has already signed a sale and lease back agreement for purchase of 5 Boeing 737-800 aircrafts and 5 Boeing 737-900 aircrafts. The aircrafts are valued at a purchase price of $1.1 billion.

The funds can be raised through foreign currency convertible bonds and issue of fresh equity shares. The airline may plan a rights issue in the coming months.

Last year also the company had raised $80 mn from overseas through foreign currency convertible bonds and about $42 million of it was brought in by Goldman Sachs.

Spicejet has inducted a new Boing 737-800 aircraft to its fleet of 8 aircrafts. The airline has planned to launch six new daily flights between major metros.

1. Delhi - Hyderabad (Flight no. SG211 departing at 8.30)
2. Hyderabad - Bangalore (Flight no. SG211 departing at 11.00)
3. Bangalore - Delhi (Flight no. SG224 departing at 12.45)
4. Delhi - Bangalore (Flight no. SG223 departing at 13.50)
5. Bangalore - Hyderabad (Flight no. SG216 departing at 16.50)
6. Hyderabad - Delhi (Flight no. SG216 departing at 18.20)

The airline has consolidated its existing network. The management of the company is of the view that instead of opening new routes they prefer to add flights on the existing routes.

Meeting with Praful Patel was inconclusive mainly due to different airline pricing objectives

With mounting losses of the airlines mainly due to surging prices of aviation turbine fuel (ATF) and overcapacity, the aviation industry is tightening its belt after the meeting with Praful Patel, Civil Aviation Minister. The Minister assured all present that he would take the matter up to the Petroleum Minister and the Finance Minister.

Though the country’s largest low-cost airline has expansion plans, it has reported a loss of Rs1.10bn between April and June this year. Warwick Brady, COO, Air Deccan said remedial measures include “rationalizing some routes” and retracing “unprofitable capacity.” More India airways are poised to follow suit.

The meeting however was inconclusive, mainly due to highly distinctive views of Jet Airways and Kingfisher on one side and Air Deccan and Spice Jet on the other. While the former team harped on the requirement of an industry association that would ensure not too much price cuts, the later stood firm on their ground of aggressive price tactics; but the match was a draw and no conclusion was arrived at.

“Everyone has to find a way of profitable growth,” said Ajay Singh, Director, Spice Jet and eventually there was no consensus on the formation of an industry association.

Capt. G R Gopinath, CEO of Air Deccan, said, “These fat cats are urging the government to control price, discipline the LCCs and put up entry barriers for new players. Fortunately for us, the government has refused to do this.”

The point made by the Captain is that low-cost airlines are going to make relentless efforts to continue to reduce costs by flying more number of hours with higher number of seats. By migrating more customers to the Internet, Gopinath said, the airline aims to cut distribution costs by almost 20%.

On the other side, Vishwapati Trivedi, Chairman and Managing Director, Indian, said that even if the anticipated cut in ATF prices took place on October 1, the airline was unlikely to immediately pass it on to the consumer. This is because the airline would like to eye the trend in ATF prices for at least two to three months.

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.