Wednesday, 21 November 2012

Flying cheap is history now: How no-frills carriers inflate ticket prices


The next time your grandparents boast having bought a litre of petrol for less than a rupee or a tola of gold for Rs 4000, join the conversation with a similar sigh. Tell them you flew Delhi-Mumbai for Rs 200-3,000 or Delhi-Hyderabad for Rs 324-3,500. 


This was in the heady launch phase of low-cost carriers in India between 2004 and 2006. Like your grandparents, you too would be longing for the good old days of flying. For, no frills, lowfare flying is now history. 

Since early 2012 Indian carriers have steadily raised fares by 30%-50%, the price graph resembling the Manhattan skyline in the April-June and October-December peak travel months. Passengers complain of what they term "exploitation", especially in peak rush periods like Diwali or the Christmas-New Year weekend. Aman Verma, a Delhi-based exporter had to shell out a princely Rs 1 lakh for an emergency trip to Thiruvanthapuram. "I had no oprion as train tickets weren't available and I had to rush to Kerala with my family to be with a seriously sick uncle." 

Airlines insist they must recover ever rising operating costs or face near-bankruptcy like KingfisherBSE 1.51 % whose grounded planes and staff are rusting. The only way they can charge low fares and still survive, they say, is by getting taxpayers like you and me to fund them - the Air India way. 

"Before August 2003, when Captain G R Gopinath launched India's first low cost carrier (LCC), the operating cost of airlines was much lower. Aviation turbine fuel (ATF) wasn't as expensive and airport charges much more affordable. Then, legacy carriers 
Indian Airlines and Jet AirwaysBSE 1.27 % charged Rs 9,000-10,000 for a Delhi-Mumbai, Kolkata or Hyderabad flight and Rs 13,000-14,000 for a Delhi-Bangalore, Chennai or Goa flight one-way," a former IA official who later worked for two LCCs, said.



When Gopinath launched Air Deccan, his mascot was R K Laxman's iconic common man. At the other end of the scale was Air India's Maharaja. Gopinath boldly signalled that with the advent of his airline anyone could fly. His strategy was to grow the flyer base converting AC second-class travellers. And, he audaciously offered some seats in each of his flights at rock bottom rates - as low as Re 1 to Rs 99.

Low fares such as these had their impact. Domestic air traffic grew by over 100% a year. Over the next two to three years, more no-frills airlines entered the aviation space: SpiceJetBSE 2.72 %, IndiGo and GoAir.KingfisherBSE 1.51 % too began as an LCC but was soon converted into an ultra luxury airline. 

"Airfares were largely in the range of Rs 2,000-5,000 for almost all domestic flights, barring promotional fares offered by LCCs for some seats on all flights to draw flyers. Initially, legacy carriers waited for the new players to go bankrupt. Later they also joined in the race to drop rates. In the euphoria of Indian aviation's shining story, the small matter of airlines bleeding heavily took a back seat," said another LCC founder.


Problem started in 2008 when economic slowdown hit India, a wave of recession buffeted the West. Simultaneously, energy prices rose. From mid-2008, ATF prices started shooting up. Soon over half of an airline's total operating cost was on jet fuel. Airport charges went up too, with PPP players in the metros raising landing, parking rates. They also levied user fee from passengers to fund modern terminals. Employee costs rose. In the pre-2003 period, costs were low but fares high. After the LCCs flew in, costs mounted and fares fell. 

"Consider the pre-2004 input costs. International crude rates (which determine ATF price) were at $32-a-barrel and Rs 30 to a dollar. A commander and a co-pilot took home Rs 2.5 lakh and Rs 1.25 lakh a month and only an inland air travel tax (15% on basic fare) was levied apart from low airport charges. Consider today's costs: Crude is at $112 and the dollar at Rs 55 in exchange rate; commanders and co-pilot get Rs 4.5 lakh and Rs 2 lakh a month, respectively. Despite that airfares today are lower than what they were up to 2004," an airline's commercial head said.
As the balance kept getting skewed, the old guard and new players were locked in a bitter fight to control the skies. In April 2007, Jet's Naresh Goyal bought Air Sahara. He wasn't to be the country's only private Indian carrier to fly abroad. Kingfisher's Vijay Mallyaretaliated. He bought Gopinath's Air Deccan in a distress sale to launch overseas flights early on the LCC's licence. 

These expensive acquisitions, with the ill-conceived IA -AI merger the same year, added to the losses. The three biggies, feeling the heat of their M&As, were competing with low-flab LCCs and forced to match their low fares. Worse, airlines ended up with excess capacity. This meant there were not enough flyers to fill seats. They tried to lure passengers with low-priced tickets to fill planes. This was bad economics. Ticket prices didn't match costs. 

Result: A Center for Asia Pacific Aviation (CAPA) study says Indian carriers collectively have run up losses worth Rs 46,515crore since 2007. Their combined aircraft, working capital and vendor-related debt stands at Rs 90,500 crore as on March 31, 2012. 

The air travellers' low-fare party entered its last phase in the second half of 2011 when financial trouble atKingfisherBSE 1.36 % meant Mallya first began cutting flights to cushion losses, stopped international flights and finally was forced to ground his fleet last month. Along with this, Air India and Jet too reduced domestic flights. 

In all, this winter domestic carriers will fly 10,935 weekly flights — down 19% from last winter. With this drop in capacity, AI led the charge in reversing the low-fares experiment. It withdrew the low fares it offered till last year. The result: All airlines took the cue and raised rates, making the fare structure more realistic given their soaring costs. 

CAPA India head Kapil Kaul said: "For the first time since 2004, the demand-supply dynamics favours airlines. Fares seem to be higher as airlines this fiscal are trying to charge a sum that reflects their costs unlike last time when everyone was forced to sell below cost. Despite that, the first two quarters of this fiscal have seen listed airlines reporting losses. Passengers should not expect lower fares unless the rupee stabilizes and jet fuel prices get rationalized." 

But carriers insist even today 40% of an aircraft is sold below cost, the remaining 10%-15% at cost. Fares start shooting up only after 60% of the plane gets filled. "Fares are determined by something called 'day par' which has two factors - day of week and time of flight. A weekend flight to Goa will be expensive. Flights that time of week to metros are cheaper. Book a month in advance for the best rates. Closer to the travel date, rates are higher," another airline official said. But then, cheap isn't really as cheap as it once was.


Revenue department to chalk out plan to recover Rs 200 cr from Kingfisher Airlines


NEW DELHI: The Revenue Department is working on a comprehensive plan to recover tax dues from debt-ridden Kingfisher AirlinesBSE 1.28 % (KFA), which owes more than Rs 200 crore to the exchequer, a topFinance Ministry official said today.

"As a matter of fact both Central Board of Direct Taxes (CBDT) and Central Board of Excise and Customs(CBEC) have quantified the amount which Kingfisher owe to the government and we will be making out comprehensive plan to recover tax dues," CBECChairman Praveen Mahajan told reporters on the sidelines of an event organised by industry body CII here.

Kingfisher Airlines, which has been making losses since its inception in 2005, owes more than Rs 200 crore in taxes to the government.

Mahajan further said, "We have already frozen KFA's accounts. Whatever is there in service tax act, we have taken all the actions because this is in our interest also."

When asked whether the CBEC is contemplating prosecuting KFABSE 1.28 %, Mahajan said,"Prosecution also might happen...But everything takes time. There are different steps you have to take before you prosecute some body."

The CBEC chief indicated that the Reveune Department might talk to aviation regulator DGCA as the beleaguered airlines is likely to submit a comprehensive revival plan to DGCA by this month-end.

"Finance Minister P Chidambaram has told CBDT and CBEC to get together and plan it out and whether it invloves talking to regulator or whatever," she said.

Answering questions on revenue collection, Mahajan expressed confidence that the government will be able to meet indirect tax realisation target of Rs 5.05 lakh crore for 2012-13. The indirect taxes during April-September rose by 15.6 per cent to Rs 2.17 lakh crore as against the annual target of 27 per cent.

"Tax collection is doing better. We are hopeful of meeting the target. Service tax collection growth is already more than 35 per cent," she said.
http://economictimes.indiatimes.com/news/news-by-industry/transportation/airlines-/-aviation/revenue-department-to-chalk-out-plan-to-recover-rs-200-cr-from-kingfisher-airlines/articleshow/17292490.cms

Jolt for Kingfisher over payment to staff


MUMBAI: In a setback to Kingfisher Airlines, the high court on Tuesday held that the labour court has exclusive jurisdiction to decide matters related to payment of salaries and dues payable to its employees. 

Justice R P Sondur Baldota was hearing a petition by the airline challenging the labour court's rejection of its objection that the company's chief executive officer only can decide industrial disputes. 

Pilots Karl Wykes and Prithvi Malhotra had filed an application in the Central Government Industrial Tribunal and labour court in July 2012 regarding their unpaid wages since December 2011. But the airline's defence was that in their appointment letter it is stated that the CEO is the sole arbitrator to decide any dispute between employer and employee. It added that the labour court has no jurisdiction and should refer the dispute to the arbitrator. In its October 2012 order, the labour court rejected this objection, holding that it has exclusive jurisdiction to decide industrial disputes. 
Kingfisher's counsel Navroze Seervaai argued before the HC that under Section 8 of the Arbitration and Conciliation Act, if there is an arbitral agreement between parties, then any judicial authority, including the labour court, should refer parties to arbitration. 

The pilots' advocate, 
S C Naidu, countered that the labour court is a special court and the Industrial Disputes Act is a special enactment having a special procedure for arbitration. He said in comparison the Arbitration and Conciliation Act, which is a general act, has to yield to the special act. Therefore, the labour court alone can try the dispute between the airline and its employees, added Naidu.

Air travel sees steepest slide of 16% in Oct


NEW DELHI: With airfares defying gravity, the holiday season has failed to arrest the free fall in domestic air travel this year. October 2012 saw the highest ever year-on-year fall in domestic air travel with a 15.7% drop over the same period last year. The slide is accelerating as it is higher than the 12.4% recorded in the lean travel month of September 2012, over the same month last year. 

However, October (which marks opening of peak travel season) saw 45.4 lakh people flying within the country, which is higher than in September and August. 

Apart from the economic slowdown, October saw less traffic over the same month last year for one more reason. Diwali this time was in mid-November and so the festive season travel shifted to this month, say travel agents. 
But the biggest reason for constant fall in year-on-year domestic flyers in 2012 is that private airlines have decided to hike fares by 30-50% to recover costs to stay alive even if it means sending price-sensitive passengers back to trains. The decision comes after they saw the fate of near-bankrupt Kingfisher, which has been grounded since October 1. 

A senior official of a private airline said: "We don't have an option to recover costs. India remains the most cost-hostile place for an airline to operate. Jet fuel for domestic flights is the most expensive here globally. Airport charges are exorbitant. For instance, Delhi, which was allowed a 347% hike in landing and parking charges in one-go, is among the most expensive airports in the world. The fares are reflecting the costs and not fully recovering them. Listed airlines lost money in the July-September quarter despite higher fares as the costs are sky-high. Kingfisher is shut and AI is on life support." 

Unless the aviation ministry's promise to review airport charges and user fee for passengers translates into something real, domestic air travel is in for serious trouble with flying fast getting out of the reach of the middle class that once fuelled the boom. On their part, airlines point to their losses as the compulsion to hike fares. The Centre for Asia Pacific Aviation puts Indian carriers' combine debt-cum-losses at Rs 1.4 lakh crore, with AI accounting for a lion's share of this figure. 

Meanwhile, the aviation ministry - which runs Air India - said the airline's market share and aircraft occupancy has constantly risen in past six months. "Aviation minister Ajit Singh has asked AI to further improve its passenger load factor and on-time performance, while aggressively implementing various customer friendly initiatives," a ministry statement said.

Comprehensive plan to recover Rs. 200 cr from Kingfisher: revenue dept


The revenue department is working on a comprehensive plan to recover tax dues from debt-ridden Kingfisher Airlines (KFA), which owes more than Rs. 200 crore to the exchequer, a top finance ministry official said on Tuesday.
"As a matter of fact both Central Board of Direct Taxes 
(CBDT) and Central Board of Excise and Customs (CBEC) have quantified the amount which Kingfisher owe to the government and we will be making out comprehensive plan to recover tax dues," CBEC chairman Praveen Mahajan told reporters on the sidelines of an event organised by industry body CII in New Delhi.
Kingfisher Airlines, which has been making losses since its inception in 2005, owes more than Rs. 200 crore in taxes to the government.
Mahajan further said, "We have already frozen KFA's accounts. Whatever is there in service tax act, we have taken all the actions because this is in our interest also."
When asked whether the CBEC is contemplating prosecuting KFA, Mahajan said, "Prosecution also might happen...But everything takes time. There are different steps you have to take before you prosecute some body."
The CBEC chief indicated that the revenue department might talk to aviation regulator DGCA as the beleaguered airlines is likely to submit a comprehensive revival plan to DGCA by this month-end.
"Finance minister P Chidambaram has told CBDT and CBEC to get together and plan it out and whether it invloves talking to regulator or whatever," she said.
Answering questions on revenue collection, Mahajan expressed confidence that the government will be able to meet indirect tax realisation target of Rs. 5.05 lakh crore for 2012-13. The indirect taxes during April-September rose by 15.6% to Rs. 2.17 lakh crore as against the annual target of 27%.
"Tax collection is doing better. We are hopeful of meeting the target. Service tax collection growth is already more than 35%," she said.

Plan in works to recover tax dues from KFA

Airline owes more than Rs 200 cr to the exchequer CBEC chairman does not rule out prosecution

The Revenue Department was working on a comprehensive plan to recover tax dues from the debt-ridden Kingfisher Airlines (KFA), which owed more than Rs 200 crore to the exchequer, a top finance ministry official said on Tuesday.
“As a matter of fact, the Central Board of Direct Taxes (CBDT) and the Central Board of Excise and Customs (CBEC) have quantified the amount, which Kingfisher owes to the government, and we will make out comprehensive plan to recover tax dues,” CBEC Chairman Praveen Mahajan told reporters on the sidelines of an event organised by industry body CII here.
“We’ve have already frozen KFA’s accounts. We have taken all actions prescribed in the Service Tax Act… this is in our interest also,” Mahajan added.
When asked whether CBEC is contemplating prosecuting KFA, Mahajan said, “Prosecution also might happen... But everything takes time. There are different steps you have to take before you prosecute somebody.”
The CBEC chief indicated the Revenue Department might talk to the Directorate General of Civil Aviation (DGCA), the aviation regulator, as the beleaguered airlines is likely to submit a comprehensive revival plan to the latter by month-end.
“Finance Minister P Chidambaram has told CBDT and CBEC to get together and plan things out. It may involve talking to the regulator,” Mahajan said.
Answering questions on the revenue collection, Mahajan expressed confidence that the government would be able to meet indirect tax realisation target of Rs 5.05 lakh crore for 2012-13. Indirect taxes during April-September rose by 15.6 per cent to Rs 2.17 lakh crore as against the annual target of 27 per cent. “Tax collection is doing better. We are hopeful of meeting the target. Service tax collection growth is already more than 35 per cent,” he said.

Domestic air traffic sees sharp fall in October


Domestic passenger traffic fell 15.7 per cent in October, while government-owned Air India (AI) strengthened its market share to 20.8 per cent.
Kingfisher Airlines exited the market in October and domestic airlines gained market share at its expense. The traffic fell from 5.4 million in October last year to 4.55 mn in 2012. This was despite October being a festive season and the start of a strong quarter; the fall was the sharpest this year. Aviation experts blame the fall on an increase in fares by 20-30 per cent as compared to last year. Over January-October, passenger traffic fell 2.5 per cent.
“Ever since the 30 per cent rise in fares, Domestic air traffic has shrunk. It fell 10 per cent in September. A double-digit decline with each passing month does not bode well for the economy. One reason why the fall is higher in October is because last year, Diwali was in that month. While capacity and demand have reduced, airlines have benefited as yields have improved.,'' said Sharat Dhall, president, online, of portal Yatra.com.
Adding: "I do not see fares drop till December-end or early January. You could see some change in fares in January-March, a low season. The airlines could drop capacity further, if fuel prices continue to stay high.'' At present, many airlines -- including AI, GoAir and IndiGo -- are selling tickets at discounted rates for travel in January-March, through special sales.
In October, IndiGo led with 27.8 per cent share. The Jet Airways-Jet Konnect share rose to 24.7 per cent (from 23.8 per cent in September). SpiceJet also notched up to 19.1 per cent, up from 18.5 per cent in September. GoAir reported a share of 7.6 per cent.
Last October, Kingfisher flew 900,000 passengers and accounted for 16.5 per cent of the market.
By September, its share fell to 3.5 per cent and its operations were shut in October, due to a strike and suspension of its permit.
That load has now been distributed among the other airlines.
AI was the biggest beneficiary of Kingfisher’s fall. Its share has risen from 16.2 per cent in May to the 20.8 per cent in October. In September, it was 19.3 per cent. The rise can be attributed to the airline's efforts to attract business traffic and better on-time performance, apart from selling low-cost promotional fares.
Civil Aviation minister Ajit Singh has asked AI to further improve its load factor and on-time performance, while aggressively implementing customer-friendly initiatives. AI had recently taken several such measures, on fares and on ensuring maintenance of schedules, coupled with improved utilisation of its aircraft, the ministry said.
http://business-standard.com/india/news/domestic-air-traffic-sees-sharp-fall-in-october-/493185/

Housewife held at airport, 5 kg ketamine seized


A housewife from Chennai was arrested at the Mumbai International Airport on Monday night for carrying five kg of ketamine to Kuala Lumpur .
Gopi Janaki (41), a resident of Kolathur , was allegedly working in connivance with her husband, who was scheduled to meet her in Malaysia.
“It looks like she was picked [for the job] as no one will suspect that a housewife will carry drugs. Though we have yet not traced her husband, we suspect that she was tricked into doing this by him,” said Sameer Wankhede, Deputy Customs Commissioner, Mumbai Airport. He, however, refused to divulge the name of her husband.
“The drugs were hidden in the false bottom of her bag. We suspect that she made trips to Malaysia before,” said Mr. Wankhede.

Air India Charters’ MRO to have own management team


Thiruvananthapuram, Nov. 20:  
Air India Charters Ltd’s maintenance, repair and overhaul (MRO) facility here will soon have its own management team. Necessary sanctions have been received in this connection, H.R. Jagannath, chief of engineering, told Business Line.
Set up on 6.07 hectares of land provided by the State Government in the vicinity of the international airport terminal, the MRO was commissioned last year.
It takes care of all engineering requirements of Boeing 737-800 aircraft of Air India Express.
All engineering checks from transits up to the level of ‘C’ can be undertaken here, which features a workshop, warehouse and office space spread over 5,000 sq metres.
The facility will turn over a new leaf when it undergoes mandatory Director-General of Civil Aviation (DGCA) audit for taking up the ‘C’ checks on aircraft.
DGCA CERTIFICATE
The resident DGCA official stationed at Kochi is expected to visit the facility on Tuesday next to carry out the audit. Jagannath expects the DGCA certificate to be available by the New Year, which would be a milestone achievement.
According to A.E. Sharma, who heads the quality wing, the MRO would apply for European Aviation Safety Agency (EASA) next year.
Even otherwise, it has been able to show a good account of itself thanks largely to its captive clientele of Air India Express aircraft.
“We did not have to look around for business; on the contrary we have benefited immensely from the experience of attending to three to four aircraft every week,” Jagannath said. Quality of resources available, including engineers and technicians, enables the facility to offer the ‘most competitive’ quotes, Jagannath said. It is looking to take up third party business in the medium to long term, he added. But he is up against varied challenges on this front. Foremost among them is the issue of high taxation of imported spares, consumables and components, which tends to negate the ‘home advantage.’
The Government needs to urgently take up the issue so that MROs can turn a highly profitable business by taking up third party business, Jagannath said.
BONDED STORE
Bonded store is another major requirement. This is a designated place where components and materials for aircraft received from approved sources are stocked.
Now these have to be flown in from Mumbai, Jagannath said. There are at least 12,000 items of spares needed for an aircraft, said Sharma.
The MRO is also looking to establish joint ventures for backup shops to outsource small unit repairs such as retreading of aircraft tyres, among others.
Interested parties may invest their own funds to set up these shops near the MRO, Jagannath said.

Taxman charting plan to recover dues from Kingfisher Airlines


New Delhi, Nov 20:  
The tax department is working on a comprehensive plan to recover dues from Kingfisher Airlines. It is estimated that the suspended carrier owes over Rs 200 crore to tax authorities.
Chairman of the Central Board of Excise and Customs (CBEC) Praveen Mahajan said, “As a matter of fact, both Central Board of Direct Taxes (CBDT) and Central Board of Excise and Customs (CBEC) have quantified the amount which Kingfisher owe to the Government and we will be making out a comprehensive plan to recover tax dues.” She was talking to reporters on the sidelines of an event organised by industry body CII here.
Revival plan likely
Mahajan further said, “We have already frozen KFA’s accounts. Whatever is there in the service tax act, we have taken all the actions because this is in our interest also.” She did not rule out prosecution but clarified that it will take time. “There are different steps you have to take before you prosecute somebody,” she added.
The CBEC chief indicated that the Revenue Department might talk to aviation regulator DGCA as the beleaguered airline is likely to submit a comprehensive revival plan to DGCA by this month end. “Finance Minister P. Chidambaram has told CBDT and CBEC to get together and plan it out, and whether it involves talking to the regulator or whatever,” she said.
Answering questions on revenue collection, Mahajan expressed confidence that the Government will be able to meet the indirect tax target of Rs 5.05 lakh crore for 2012-13. Indirect tax collections during April-September rose by 15.6 per cent to Rs 2.17 lakh crore as against the annual target growth of 27 per cent. “Tax collection is doing better. We are hopeful of meeting the target. Service tax collection growth is already more than 35 per cent,” she said

Air India’s NCD issue gets ‘highest safety’ from India Ratings


Mumbai, Nov. 20:  
India Ratings has assigned Air India Ltd’s (AIL) Rs 7,400 crore non-convertible debenture (NCD) issue a final rating of ‘IND AAA (SO)’. Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk. The rating reflects the absolute, unconditional and irrevocable guarantee extended by the Government of India for the timely repayment of principal and interest on AIL’s NCDs.
The guarantee will also remain in force if AIL cannot meet its NCD obligations due to any dissolution or winding up or similar proceedings initiated by or against the company.
The NCDs are to be issued in three tranches — Series I of Rs 3,000 crore, Series II of Rs 100 crore, and Series III of Rs 5 crore. All NCDs have a tenor of 19 years, with principal redemption in five equal instalments starting from the 15th year and interest payments being made biannually. The NCDs in all three tranches carry a coupon of 9.08 per cent a year. The NCD issue is a part of the government’s restructuring plan for reviving the airline.
http://www.thehindubusinessline.com/todays-paper/tp-markets/air-indias-ncd-issue-gets-highest-safety-from-india-ratings/article4116686.ece