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The full fare airlines have been struggling
to keep their bottomlines under control and the
only way forward seems to have been to launch
their own no-frills carriers. Jet Connect, Jet
Lite and Kingfisher Red are thus attracting more
business than their full fare brethren. As for
the largest player, Air India, 2009 saw it reeling
under enormous losses pegged at around Rs 7000
crore with the government scrambling to find a
way to bail out the national air carrier.
A major highlight of the year was a spate of
strikes or near-strikes that kept the industry
and passengers on tenterhooks. August saw an unprecedented
situation during which private airlines actually
planned a one day suspension of flights to protest
against government apathy to their financial woes.
Fortunately that was warded off as government
warned of strict action against the airlines,
leading to a reversal of the decision by the private
airline. This was followed by the real thing in
September when air travellers had a tough time
with first a five day strike by Jet Airways pilots
followed by another five day strike by Air India
pilots at the end of the month.
Even in November there was the threat of a strike
by Air India pilots agitating over the loss of
performance linked incentives but it was averted
after several rounds of talks with the government.
The year began with 75 airplanes operated by
the budget airlines and 120 by the full fare carriers.
The balance is expected to tilt more towards the
budget airlines by the end of the year which may
soon have as many as 160 aircraft. Air India is
also expected to enter the budget category shortly
by launching Air India Express currently operating
only abroad, on domestic routes. The realisation
by the big players like Air India, Jet and Kingfisher
that they would have to shift a large proportion
of their planes to the budget category came early
in the year as high world crude oil prices meant
that aviation turbine fuel had become very expensive.
With crude prices at around 70 dollars per barrel,
the cost of ATF rose sharply and the Indian airline
industry was forced to raise fares to meet costs.
India being a highly price sensitive market, air
travellers increasingly relied either on no frills
budget airlines for their transport or reverted
back to the railways.
The net result was that carriers like the big
three suffered big hits on their bottomlines.
According to the International Air Transport Association,
Indian private airlines could end up with losses
at 2.5 billion dollars during the year, accounting
for one fourth of the total nine billion dollar
losses of the global industry.
Proposals for a government bailout for the national
airline, Air India began to be discussed by the
middle of 2009. Even before these proposals could
be thrashed out by the government, the other major
carriers like Kingfisher and Jet Airways felt
it was unfair that only the public sector carrier
was being given financial support. They therefore
spearheaded the move in August to suspend flights
by a day. The decision sparked protests from the
travelling public with the Directorate General
of Civil Aviation as well as Civil Aviation Minister
Praful Patel warning that such irresponsible behavious
would be dealt out with in an appropriate fashion.
The budget airlines like Indigo, Go Air and Spice
Jet quickly opted out of the flight suspension
plan, ultimately followed by Kingfisher and Jet
Airways.
Though the protest was meant to focus attention
on the financial crises facing the private sector
aviation industry, it only ended up making the
big players look childish and petulant. Besides,
the Civil Aviation Ministry pointed out that Air
India would only be given an infusion of equity
and it would have to carry out a drastic restructuring
programme to get back on track.
The national carrier had accumulated unprecedent
losses of Rs. 7200 crore and is saddled with debt
of Rs. 15,241 crore taken to pay for 49 of the
111 planes ordered from Airbus and Boeing companies.
Air India’s Managing Director, Arvind Jadhav,
who took charge of the troubled airline in May
2009 was forced to launch the major restructuring
to try and turn the ailing company round. He said
the first six months of the restructuring will
focus on filling up aircraft that are flying at
half occupancy by making sure on time performance
improves. Subsequently over the next nine months,
it cargo, engineering services, ground handling
and airline operation will be carved out into
separate divisions, making them individual revenue
and profit centres.
The company will also spin off non-core units
after 18 months through an additional public offer.
Air India and Indian Airlines which were merged
in 2007 will also have a single code by March
2010. This will enable passengers to book tickets
through a single website. They also plans to relocate
31000 employees into four new subsidiary companies.
Apart from its permanent employees, air India
has 20,000 contract staff and labour costs amount
to as much as 18 per cent of its total operating
expenses, the highest ratio in the world, according
to Aviation Minister Praful Patel. No wonder then
that the Air India has plans to cut the controversial
performance linked incentives given to its staff
by 50 per cent to reduce costs by Rs 700 crore.
These plans have run into roadblocks, however,
with protests from pilots and senior management
alike. Reports have also come in about restoration
of free flight perks for top management.
There is no choice though for the national carrier
but to enforce cuts, from top to bottom.
While Air India is trying to take radical steps
towards cutting debt and become profitable, Vijay
Mallya’s Kingfisher and Naresh Goyal’s
Jet Airways have also been trying during the year
to reduce their growing losses. One of the steps
taken by these two companies is to have a code
sharing alliance. But it has not actually been
implemented as yet though the announcement was
made a year ago.
Both companies are ramping up the budget component
of their airlines. Air Deccan acquired by Kingfisher
has now been dubbed as Kingfisher Red. As a result,
as much as 75 per cent Kingfisher’s passengers
are now travelling by its budget airlines. Similarly,
Sahara Airlines bought by Jet has renamed as Jet
Lite. In addition, Jet has launched Jet Konnect,
another no frills subsidiary to enlarge its footprint
in the budget category.
But Jet ran into serious trouble in September
when its pilots went on a wildcat strike over
the sacking of two of their colleagues. This was
the second time in about a year that Jet faced
serious crisis in dealing with its employees.
In 2008 there was a furore over the decision to
sack hundreds of its cabin crew. This year, it
was the strike by the pilots which created severe
inconvenience for thousands of travellers.
Fortunately the situation was resolved within
five days, but the reputation of the carrier has
been dented by this incident.
The real winners during the year have been the
little minnows about which many prophets of doom
said would be the losers in the next industry
shake out. Actually they turned out to be on top
in terms of revenue as well as passenger traffic.
Indigo, SpiceJet and Paramount Airways have made
profits during the year as compared to the growing
losses suffered by Air India, Jet and Kingfisher
airlines. However, analysts feel Indigo has an
edge over other low fare carriers as its management
has a better business focus. They say it has marginally
lower costs structure, relatively debt free balance
sheet and has managed to secure orders for planes
at low prices. Other budget airlines, however,
like Spice Jet and Paramount Airways are also
making profits and are in a much better position
in the market than the larger players. They have
even entered the international arena with Spice
Jet having launched short haul flights to Nepal
from both Delhi and Bangalore. It has already
enthused travellers to Nepal who are expecting
air fares to come down on these sectors as a result
of the budget airlines’ foray.
To sum it up, 2009 has been an exciting year
for the Indian aviation industry. With so many
players in the fray for the last few years, there
have been ominous warnings about those who will
lose out in a shake out. It was earlier felt that
ultimately there will be only two or three major
carriers in the aviation sector and these were
largely expected to be the big three - Air India,
Jet and Kingfisher.
In sharp contrast to such expectations, the small
cheap airlines have really stolen the show. It
is clear that Indian air travellers are price
savvy and will always opt for the bargain fares
being offered by the no-frills airlines rather
than the expensive seats in the full fare airlines.
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