Airfares to go up further

Domestic air passengers, already reeling under high fares, would now have to fork out more. Travel agents have decided to impose a service charge of Rs 225 from July 16 on customers of full service carriers.

That is because full service carriers such as Air India and Jet Airways are reducing the commission they pay to travel agents and portals from three per cent to one per cent. To make up the loss, agents will charge passengers a service fee

Confirming the development, Deep Kalra, founder and chief executive of MakeMyTrip.com, said: “All agents, online and offline, have agreed to charge a service fee of Rs 225 on every customer of full service carriers. This will ensure our overall margins remain the same, despite the cut in commissions.”

Agents say even in the international skies, as foreign airlines cut agents’ commissions, the difference would be passed on to travelers. “We will be collecting service charge from passengers. Even Gulf Air is reducing its commission from three per cent to one per cent and Emirates from five to three per cent,” said Pradeep Lulla, former president of the Travel Agents Federation of India. “However, the impact these changes will have on fares has still not been assessed by the agents.”

At present, AI spends Rs 1,000 crore annually on ticket distribution, which includes agents’ commission and fees for use of reservation systems and global distribution systems that hold ticket inventories. This is about six per cent of its annual expense.

Jet Airways spent Rs 1,261 crore on ticket distribution and sales in 2010-11, which accounted for 10 per cent of its expenditure, according to the airline’s annual report.

Low-cost carriers are, however, out of the preview of the new changes because they do not pay commission to agents and, instead, offer them incentives based on volume of tickets sold. As a result, agents charge a transaction fee on bookings in these airlines.

International airlines like Air France-KLM, British Airw-ays and Lufthansa do not pay regular commission. Those who give commission includes Emirates, Cathay Pacific Airw-ays, Gulf Air and Sri Lankan Airlines, among others.

http://www.business-standard.com/india/news/airfares-to-gofurther/479450/

CAG sticks to 2G and civil aviation report findings

The CAG, after completing this month a detailed ‘internal appraisal’ of two of its most high-profile reports, has not just stood by its findings “regardless of media comments and the statements made by senior functionaries of government,” but also also substantiated them, further by citing additional crucial events.

The internal assessment has been done on is of its reports on the 2G spectrum scam of November 2010 and Civil Aviation (Air India) of September 2011.

The entire issue of irregularities in award of government contracts/licences in general, and specifically for scarce natural resources, being allocated to private parties, took has taken become centre stage.

It gained further momentum with the arrest of the former Telecom Minister, A. Raja, and several senior industry leaders, starting February 2011.

Later, the debate took a new turn after the PM’s statement in June 2011 that it was not the CAG’s business to comment on policy issues and that they should limit themselves to the mandate given under the Constitution.

It is these events that have led to a rigorous internal self appraisal by the CAG.

2G scam report

Where the 2G scam is concerned, the November 2010 report, apart from highlighting a massive loss to the exchequer, flagged violations in policy implementation such as illegal advancement of the cut-off date, manipulation of the first come, first served procedure, undue haste in granting LoIs Letter of Intents and undervaluing spectrum by selling it without auctions in 2008 at 2001 prices. The report highlighted serious concerns over governance systems within the Department of Telecom DoT and the consequent, undeniable loss to the national exchequer. The CAG had provided 3 estimates based on specific evidence — 3G auctions and the Swan and Unitech transactions — along with a caveat that “the amount of loss could be debated.”

Appraising its own conclusion of a loss, the CAG cites the Supreme Court judgment of 2.2.2012 which concluded that the actions of Mr. A Raja and officers of the DoT were “wholly arbitrary, capricious and contrary to public interest apart from being violative of the doctrine of equality. The material produced for the quote showed that the Minister for C&IT wanted to favour some companies at the cost of the public exchequer.”

The CAG has highlighted that the Supreme Court has independently cited the same reasons, for cancelling the licences, as the CAG had pointed out while concluding that a loss had been caused to the exchequer.

Internal appraisal

Criticised for having estimated a staggering Rs 1.76 lakh-crore revenue loss — as a result of auctions not being held for 2G — which the government has dismissed as being a presumptive figure, the CAG now says, “it is only fair to point out that TRAI’s latest [May 2012], collation of reserve price for 2G spectrum approximates the calculation in CAG [2010 2G spectrum] report.

In fact, the appraisal highlights that “TRAI has recommended a reserve price for 2G spectrum of Rs. 18,000 crore for a pan-India licencse for 5 MHz spectrum which is higher than the 3G value of Rs. 16,750 crore for 5 MHz used by the CAG for arriving at a [loss] figure of 1,76,000 crore.”

The CAG’s internal assessment concludes that its 2G report clearly stated that it was only examining the “implementation of policy” and that policy making was the government’s prerogative.

The CAG’s final analysis in its internal assessment points out that its 2G report “had highlighted the unjust and opaque manner of allocation of scarce natural resources” and that “the Supreme Court having taken note of the issue has directed that natural resources being the wealth of the people, the state necessarily needs to adopt a mode of auctions to ensure a just distribution of natural resources.”

http://www.thehindu.com/todays-paper/tp-national/tp-kerala/article3604506.ece

Global air traffic shows downward trend: IATA

DUBAI: Global air traffic showed a general downward trend in May in tow with the deteriorating global economic condition, with Indian domestic traffic recording a meagre year-on-year rise of 0.1 per cent, indicating a slowing demand.

According to May results of the International Air Transport Association ( IATA), Indian domestic traffic rose just 0.1 per cent year-over-year, but fell 2.7 per cent compared to April.

Besides, the average passenger load factor for Indian airlines stood at 76.8 per cent.

"The airline industry is fragile. Relief in oil prices provides some good news. Unfortunately, the softness in oil markets comes on the back of fears of deterioration in the European economy," said Tony Tyler, IATA's Director General and CEO.

He said business and consumer confidence was falling and the first signs of this can be seen in slowing demand and softer load factors.

"This does not bode well for industry profitability," he said.

"Airlines are expected to return a USD 3 billion profit in 2012 on USD 631 billion in revenues. That's a razor-thin 0.5 per cent margin," he said.

The Middle East carriers showed the strongest growth at 15.8 per cent, outstripping capacity expansion of 11.9 per cent. Load factors here were the second-weakest among regions at 74 per cent. This was, however, a 0.4 per cent point improvement compared to April.

The Middle East carriers were the only ones to report aggregate accelerated demand growth compared to April, when the region's airlines reported 15.2 per cent growth.

While passenger demand was 4.5 per cent ahead of levels in May 2011, growth was virtually flat compared to April.

Capacity increased by 4 per cent and load factors stood at 77.6 per cent, below the historically high levels recorded in April. May freight demand was 1.9 per cent below previous year levels. Compared to April, the freight market contracted by 0.4 percent.

Freight markets hit a low during the fourth quarter of 2011. Since then, they have basically moved sideways with just a 1.5 percent improvement on that level by May.

The freight load factor stood at 45.3 per cent, unchanged from the previous month but 1.2 percentage points below May 2011 levels.

International passenger demand was up 5.6 per cent compared to May 2011. That is well below the 7.1 per cent growth recorded in April. All regions, except the Middle East, saw growth in passenger demand slow in May compared to April.

http://articles.economictimes.indiatimes.com/2012-07-03/news/32523884_1_cent-growth-load-freight-demand

CAG: doesn't Ajit Singh’s admission confirm our findings on Air India?

Appraising its own Civil Aviation report (Air India) of September 2011, the Comptroller and Auditor-General has described the criticism of its findings as an attempt “to shoot the messenger,” and pointed to several subsequent events that have ratified the conclusions.

The report highlighted that Air India’s acquisition plan had been a recipe for disasterab initio. The CAG criticised the national carrier and the Civil Aviation Minister “for an unduly delayed acquisition process that was disastrous for [the] financial health of the commercial airline.” The acquisition of 111 new aircraft for Air India and Indian Airlines was a “recipe for disaster.”

The report highlighted that Air India’s original proposal for acquisition of 18+10 aircraft took its own time for processing but the revised proposal for 18+50 aircraft was processed faster. The CAG also criticised the merger of the two state-run carriers as “ill-timed” and said, “The financial case for merger was not adequately validated prior to the merger.”

The report recommended a “hands-off” approach to the management of the airline, dwelling at length on Air India’s losses, fleet acquisition, merger, huge debt burden, delay in joining the global grouping Star Alliance and its financial and operational performance. The report highlighted the massive Rs. 38,423-crore debt liability as of March 31, 2010, attributing it to the large number of planes. Even where price negotiations were concerned, the CAG said that no benchmark of prices and commercial intelligence was set. It concluded that Air India was “in a crisis situation” and that salary payments and aviation fuel obligations would become increasingly difficult.

Now, after its internal assessment, the CAG has drawn attention to an admission by the new Civil Aviation Minister, Ajit Singh, in May 2012: “We all agree that the merger hasn’t progressed or happened as it should have.”

Secondly, in April 2012 the government approved a Rs. 30,000-crore bailout package for Air India, to be pumped in over the next 9 years with an immediate infusion of Rs. 6,750 crore, in addition to Rs. 3,200 crore already funded.

Yet again, the admission by Mr. Singh that Air India was losing money on short haul international flights and ways had to be found for cutting wasteful expenditure ratifies the original findings of the CAG. In fact, the plan for a new pay structure within Air India by itself shows that the CAG was on the right track, says its internal assessment.

The CAG’s assessment cites more than a dozen other announcements, analyses, media reports and debates to conclude that its Air India report, “unlike normal audit report, was technical and used a lot of technical concepts. The full implications of the concepts and audit observations emanating out of them would have been clear only to persons willing to analyse them with an open mind. The government’s subsequent actions have only collaborated this.”

Constitutional powers

In relation to the Prime Minister’s comment seeking to limit the CAG’s mandate under the Constitution, the CAG in a background paper, argues that “when audit is viewed as a partner in good governance, allegations of trespass into executive territory lose their relevance.” It further points out that the CAG has statutory obligations to question policies affecting revenues of the state and making appropriate recommendations.

In fact, Article 149 dealing with the CAG does not attempt to define audit but instead states that the CAG “shall perform such duties and exercise such powers in relation to the accounts of the Union and of the States and of any other authority or body as may be prescribed by or under any law made by Parliament. The Parliament, in approving Section 13 of the CAG DPC Act, followed the same tradition and concluded that ‘it is the duty of the CAG to audit all expenditure from the consolidated fund of the Union and the States and all the transactions in the constituency fund and public account’.”

http://www.thehindu.com/todays-paper/tp-national/article3603940.ece

Global air traffic shows downward trend: IATA

Dubai: Global air traffic showed a general downward trend in May in tow with the deteriorating global economic condition, with Indian domestic traffic recording a meagre year-on-year rise of 0.1 per cent, indicating a slowing demand.

According to May results of the International Air Transport Association(IATA), Indian domestic traffic rose just 0.1 per cent year-over-year, but fell 2.7 per cent compared to April.

Besides, the average passenger load factor for Indian airlines stood at 76.8 per cent.

"The airline industry is fragile. Relief in oil prices provides some good news. Unfortunately, the softness in oil markets comes on the back of fears of deterioration in the European economy," said Tony Tyler, IATA's Director General and CEO.

He said business and consumer confidence was falling and the first signs of this can be seen in slowing demand and softer load factors.

"This does not bode well for industry profitability," he said.

Airlines are expected to return a $3 billion profit in 2012 on $631 billion in revenues. That's a razor-thin 0.5 per cent margin," he said.

The Middle East carriers showed the strongest growth at 15.8 per cent, outstripping capacity expansion of 11.9 per cent. Load factors here were the second-weakest among regions at 74 per cent. This was, however, a 0.4 per cent point improvement compared to April.

The Middle East carriers were the only ones to report aggregate accelerated demand growth compared to April, when the region's airlines reported 15.2 per cent growth.

While passenger demand was 4.5 per cent ahead of levels in May 2011, growth was virtually flat compared to April.

Capacity increased by 4 per cent and load factors stood at 77.6 per cent, below the historically high levels recorded in April. May freight demand was 1.9 per cent below previous year levels. Compared to April, the freight market contracted by 0.4 percent.

Freight markets hit a low during the fourth quarter of 2011. Since then, they have basically moved sideways with just a 1.5 percent improvement on that level by May.

The freight load factor stood at 45.3 per cent, unchanged from the previous month but 1.2 percentage points below May 2011 levels.

International passenger demand was up 5.6 per cent compared to May 2011. That is well below the 7.1 per cent growth recorded in April. All regions, except the Middle East, saw growth in passenger demand slow in May compared to April.

A 4.1 per cent capacity expansion,however, helped improve load factors from 75.9 per cent in May 2011 to 77 per cent for the current month.

http://ibnlive.in.com/news/global-air-traffic-shows-downward-trend-iata/269131-2.html

Global air traffic shows downward trend: IATA

Global air traffic showed a general downward trend in May in tow with the deteriorating global economic condition, with Indian domestic traffic recording a meagre year-on-year rise of 0.1%, indicating a slowing demand.

According to May results of the International Air Transport Association (IATA), Indian domestic traffic rose just 0.1% year-over-year, but fell 2.7% compared to April. Besides, the average passenger load factor for Indian airlines stood at 76.8%.

"The airline industry is fragile. Relief in oil prices provides some good news. Unfortunately, the softness in oil markets comes on the back of fears of deterioration in the European economy," said Tony Tyler, IATA's Director General and CEO.

He said business and consumer confidence was falling and the first signs of this can be seen in slowing demand and softer load factors.

"This does not bode well for industry profitability," he said.

"Airlines are expected to return a USD 3 billion profit in 2012 on USD 631 billion in revenues. That's a razor-thin 0.5% margin," he said.

The Middle East carriers showed the strongest growth at 15.8%, outstripping capacity expansion of 11.9%. Load factors here were the second-weakest among regions at 74%. This was, however, a 0.4% point improvement compared to April.

The Middle East carriers were the only ones to report aggregate accelerated demand growth compared to April, when the region's airlines reported 15.2% growth.

While passenger demand was 4.5% ahead of levels in May 2011, growth was virtually flat compared to April.

Capacity increased by 4 per cent and load factors stood at 77.6%, below the historically high levels recorded in April. May freight demand was 1.9% below previous year levels. Compared to April, the freight market contracted by 0.4%.

Freight markets hit a low during the fourth quarter of 2011. Since then, they have basically moved sideways with just a 1.5% improvement on that level by May.

The freight load factor stood at 45.3%, unchanged from the previous month but 1.2 percentage points below May 2011 levels.

International passenger demand was up 5.6% compared to May 2011. That is well below the 7.1% growth recorded in April. All regions, except the Middle East, saw growth in passenger demand slow in May compared to April.

A 4.1% capacity expansion,however, helped improve load factors from 75.9% in May 2011 to 77% for the current month.

http://www.moneycontrol.com/news/current-affairs/global-air-traffic-shows-downward-trend-iata_725683.html

Normal flight operations in 2 months’ time: Air India pilots

Mumbai, July 4:

A day after calling off their strike, Air India pilots said that it may be another two months before flight operations normalise.

“We have started the procedure of joining work. However, this will take time. The pilots have to undergo medical tests and other procedures. These may take anywhere between 2 weeks to 2 months. It all depends on the AI management,” Captain Tauseef Mukadam, Joint Secretary of Indian Pilots Guild (IPG), told the media here on Wednesday.

The strike was called off on the Delhi High Court’s directive, following the management agreeing to give a “sympathetic assurance” to the pilots’ grievance. It will also include reinstatement of the 101 pilots (including the 10 office bearers of the IPG) terminated during the 58-day long strike.

The reconciliation process will start on July 6 between the IPG and AI management in the presence of the Chief Labour Commissioner. “The report of the reconciliation proceedings will be tabled before the High Court on July 9, and then, they will decide on further action,” Captain Tauseef said.

The pilots were hopeful that the management will fulfil the demands of IPG and amicably settle the dispute. When asked about the issue of reinstatement of the 10 pilots and de-recognition of IPG by AI management, he said that all these will be brought up with the management during the reconciliatory process.

http://www.thehindubusinessline.com/todays-paper/tp-economy/article3603315.ece

Strike halved AI's capacity on long-haul routes

On Tuesday’s announcement of the strike by Air India pilots being called off after 58 days would provide respite to the carrier, whose capacity on long-haul routes to the US and Europe has nearly halved, compared to the pre-strike period. The number of daily departures of wide-bodied aircraft, including the Boeing 777 and the Boeing 747, has declined from sixteen to seven, while seats offered on these routes has fallen from 10,000 in the pre-strike period to 5,400 now.

Last month, Civil Aviation Minister Ajit Singh had said Air India was operating 75 per cent of its international flights. Except Newark and Toronto, along with a few cities in the Far East, the carrier was operating flights to almost all the cities in its network. However, capacity had declined, as the airline was operating fewer flights, with 111 executive pilots. It was also operating the narrow-bodied Airbus A319 and A320 on a few routes.

Wide-bodied aircraft (Boeing 777, 747) are flown by pilots from the Indian Pilots Guild. These pilots were on a strike for about 50 days. Pilots of the erstwhile Indian Airlines operate Airbus A320 aircraft.

Before the strike, Air India aircraft flew non-stop to New York, Newark, Chicago and Toronto. Now, it operates flights to New York and Chicago, with a stop-over in Paris and Frankfurt, clubbing the US flights with its flights to Europe. Though it usually operates a Boeing 777 to Riyadh and Hong Kong, it is now using narrow-bodied Airbus aircraft on these routes. The airline is operating Mumbai-London flights only thrice a week, instead of the regular frequency of a flight a day.

The difference on capacity is also evident. Air India’s Boeing 777 aircraft have 230 or 340 seats in the three-class configuration, while the Airbus A319 and A320 have 120-140 and 145 seats, respectively. “The Airbus A319 and A320 are short-haul aircraft, ideally meant for two-three hour flights. There would be a penalty on the load if these are flown to Hong Kong, which is about five-and-a half-hours away,” said a senior airline captain.

He added the airline would be able to carry just 85-90 passengers on an Airbus A319 on a Delhi-Hong Kong flight.

“We have maintained our schedules, but that’s on paper. In reality, capacity has fallen by a third,” said a senior airline executive.

Before the strike began, Air India flew 14,000 passengers on international routes. The figure has now declined to 12,600. The carrier flies narrow-bodied Airbus aircraft to Southeast Asia and the Gulf region. While the number of passengers flown on narrow-bodied aircraft has increased, the number of daily passengers on Boeing 777 or 747 has dropped from 7,000 to 4,200.

Air India earns about Rs 22 crore from international flights daily. “Before the strike, our revenue and the number of passengers were growing 20 per cent. These have grown in May and June as well, but this is a mere five per cent growth. There is clearly a loss,” a source said.

http://business-standard.com/india/news/strike-halved-ais-capacitylong-haul-routes/479343/

Our US assembly line robs Boeing of tactical edge, says Airbus

When it comes to selling jets to domestic US airlines, Boeing may just have lost the precious ability to make the crucial “last phone call,” according to the sales chief of its rival Airbus.

John Leahy, a determined New Yorker who helped make Airbus the world’s largest civil jetmaker, forged his career by winning over the boards of US carriers but failed to win the same market success in his homeland as he did globally.

Airbus has almost 20 percent of the US market, the largest for jets like the A320 and Boeing’s 737, the backbone of most airline fleets, compared with a global market share of 53 per cent. On Monday, Airbus announced plans to build its first US assembly line in Alabama with a goal of prising open the lucrative replacement market for older jets.

Airbus and Boeing compete for jet sales worth almost $100 billion annually and nowhere more fiercely than in the medium-haul segment, where they enjoy a virtual duopoly, unlike the market for larger jets where Boeing has an edge.

Airbus hopes its presence in the United States will add the capacity to respond to extra market demand but also allow the European company to play the US jobs card whenever that helps. “I haven’t found an airline CEO yet in the US who thought building airplanes there was a bad idea,” Leahy told Reuters. “Virtually everyone has said this is game-changing and fantastic and takes a lot of pressure off them, because all things being equal, if you buy the Airbus airplane you have got to explain to your congressman and politicians and unions ... Well now you can say ‘Hey, I just bought the plane from Alabama.’”

Analysts say the US is not widely regarded as a market where national identity plays a big part because airlines are so focused on carving out savings in the operating costs.

Boeing’s 80 per cent US market share in narrowbody jets is also said to reflect the 737’s incumbency stretching back more than 40 years. Both manufacturers claim their aircraft are cheaper to operate.

But Leahy said he had sometimes found himself outmanoeuvered when talks went down to the wire and Boeing was, according to him, awarded the all-important last move in a close negotiation.

“I think we just leveled the playing field here. I don’t think Boeing is entitled to that last call any more,” he said. He declined to discuss examples where he felt Boeing had won customers by calling in favours based on its nationality.

Boeing was not immediately available to comment.

Aircraft like the A320 or 737 carry list prices of $80 million to $90 million but are usually offered at discounts whose size is a closely guarded industry secret. Still, given the volumes involved, big deals can stack up in tens of billions of dollars.

Market share
Airbus estimates US airlines will need 4,600 single-aisle planes like the A320 or 737 worth more than $300 billion over the next 20 years. Boeing will update projections on Tuesday.

In France, union sources said Tom Williams, executive vice president for programmes, had briefed them that Airbus aimed to double US market share to 35 per cent but gave no time frame.

An Airbus spokesman said such a progression made sense based on the experience of an Airbus assembly line in China but that it did not represent a formal target.

Leahy said the plant would increase Airbus’s market share in the United States by more than a few percentage points.

Airbus produces 40 single-aisle aircraft a month and aims to reach 42 by end-year, having suspended earlier plans to move quickly up to 44 a month amid Europe’s debt crisis.

Output in the United States and China must fit within the total target, but Airbus said there is enough room for growth to allow the Alabama line to move up to its initially planned level of four a month without causing disruption.

Airbus Chief Executive Fabrice Bregier told reporters in Alabama he would not be surprised if the overall production rate went up to 46 a month once the line was up and running.

Leahy said he expected revamped models of A320 coming to market from mid-decade would eventually sustain output above 50.

Airbus says the overall cost of assembling at the U.S. plant will be the same as in Europe but that it hopes to benefit from reduced exposure to swings in the value of the dollar. (Additional reporting by Karen Jacobs; Editing by Steve Orlofsky)

http://business-standard.com/india/news/our-us-assembly-line-robs-boeingtactical-edge-says-airbus/479346/