Maneuvers on the Australian Aviation Chess Board: Singapore Airlines Turns Heat on Qantas

It was when Qantas Airlines of Australia declared a potential alliance with the Emirates Airlines of Dubai that the turbulence was caused in the lucrative Asia-Pacific aviation markets. The importance and impact of such a deal could not have taken the other major players much time from making strategic moves to bolster their position in the Australian aviation market. And, the observers were not disappointed. The Singapore Airlines has picked up a stake of 10 percent in Virgin Australia in a deal of AUD 105 million.

Virgin Australia is the main domestic competitor of Qantas in the Australian market and in order to protect the regional interests in aviation, Singapore Airlines has decided to firm up the Virgin positions in the domestic aviation market of Australia. It is worth noting that Singapore Airlines itself has its own LCC Tiger Airways in Australia which aims to provide the cheapest air tickets to the passengers. However, Singapore Airlines has chosen to expand the Tiger’s fleet by firming up the hands of Virgin, the main competitor providing the cheap flights to the passengers. Virgin has, in the same measure, announced acquisition of 60 percent stake of Tiger Airways. It also plans to further strengthen its hold in the regional aviation markets by acquiring Skywest, the regional operator.

The biggest beneficiary of these maneuvers will be Virgin Australia which will consolidate its position in the region and be able to fulfill its cherished wish of becoming the airline of choice in the region. 

Lessons from Kingfisher Airlines debacle

Kingfisher has landed itself in a $2billion soup with the end result of license being cancelled. As the downfall looks imminent, there are lessons to be learnt by the key stakeholders, chiefly the banks and the airlines since it is the former which will take the financial hit and the latter will lose out on a huge potential that Indian aviation market holds for the future. It is ironical that the lowest air fare domestic carriers have taken a lead in the Indian aviation market over the best value airlines that operate the domestic and international routes.

Let us first take banks for what lessons shall they learn. It is quite understandable that the present condition of the airlines has not been like it all of a sudden and that it has been developing for a long time now. There was sufficient time for the banks to have turned off their taps of funding and pressurize the airlines into working with more financial discipline. What made the banks reach this stage? Were the banks expecting too much from the other, cash rich businesses of the Kingfisher owner? By turning a blind eye to the basics of financial management and hoping too much from the other business, the banks led themselves into a comfort zone which was a myth, a bubble which could have been created by the airline management. So, the lesson for the banks is to view each business of an owner as totally distinct from the other.

For the management of the airlines, there are many obvious lessons to be learnt on the front of operational and fiscal prudence. However, the lessons shall also be learnt on being careful not to hit the soft underbelly of trust of the customers and employees on which the turnarounds can still be achieved even if the biggest of financial troubles come up. The recent statements of the top management of Kingfisher on employee attitude do it no good. They were still with the airline for being without salaries for months. Rather, a harsh look at the extravagant ways of management and luxurious facilities to the staff could have been a more prudent step to take. When times are bad, the management turns to operational and financial management by curtailing the flight plans, providing cheap flights and doing many other things and it conveniently forgets the “soft under belly” which forms the basis of any successful turnaround. 

Delhi and Mumbai airport abolish ADF, are cheap flights on anvil?

The news which caught the attention of newspaper readers this morning was the abolition of the airport development fee (ADF) being charged from the customers flying from Mumbai and Delhi. It shall be recalled that the exponential hike in the ADF was severely criticized by the airlines, customers and even IATA. This levy made the other cheap flights out of these two cities very expensive as compared with the other airports within and outside of the country. The charges were justified by the airport developers who argued that the recovery of revenue within the stipulate time period would be possible only in these rates. Due to the high ADF, some low cost carriers such as Indigo stopped using the newly built Terminal 3 for its flights.

However, the recent news of the abolition of these charges is welcome news for the stakeholders including the airlines and the customers since there will be reprieve from high charges of air tickets which were being charged ultimately from the customers. Many critics believe that this reprieve might be temporary since the airport developers might have to raise revenues through other means such as equity or debt, both of which have their own costs of financing.

The rationale for the abolition of the ADF lies in the CAG report which pointed out that there was no provision for levying of the ADF in the original draft agreement between GMR and Delhi airport authorities. Despite the non-existence of this provision, DIAL was allowed to levy ADF. CAG noted that this was against the terms and conditions of the agreement. However, this move is expected to set the process right but for the customers the reprieve might be very little and is likely to last for about two months. 

Institutional changes being considered for setting the course right for Indian civil aviation

The state of Indian aviation in the present times is churning many heads, and even the institutions. The government seems to have taken a very serious view of the airline debts and other problems and is working on bringing reforms to the existing system which would ensure that the problems associated with the airlines in particular and the aviation sector are addressed well in time, before these become too unmanageable. The moves are centered on the airlines and the regulators and these are likely to make the customer happier since, besides the cheap flights, the customer can expect the airlines to show a more responsible behavior.

Indian aviation minister has recently announced two such measures which are being considered. One relates to the airlines submitting their business plan before purchasing the aircraft from abroad and the other relates to the creation of a separate body for exclusively monitoring the financial health of the domestic airlines. Both of these measures are being considered deeply for ensuring that the kind of debt burden airlines today have does not happen in future.

The prior submission of business plan is being mooted to ensure that the airlines do adhere to this plan after the purchases are done. If the plan seems too unreasonable, then the airlines might be asked to provide the clarifications or justifications. Similarly, the institution of DGCA might be left only with the technical and safety aspects to focus on. For monitoring the financial health of the airlines on an on-going basis, setting up of a separate body is being planned which will keep a tab on financial aspects of airlines.

Further reforms are also on the anvil and it is the customer who will ultimately benefit from these reforms  and will continue to get the cheap air tickets.

Qatar Airlines announces plans to join OneWorld Alliance

Qatar Airlines has become the latest Middle East carrier to announce its plans to join the OneWorld Alliance. This announcement comes close on the heels of the Etihad also joining the OneWorld Alliance grouping and after a month of Emirates going to the fold of the SkyTeam Alliance. The Middle-East region is fast becoming a strong hub of airline operations as the crucial connectivity is provided by these airliners to the passengers from Asia to the destinations in Europe and USA using the long haul fleet of aircraft. In fact, the airlines of the region have been the game changers in providing flight tickets to USA and Europe by making Middle East hub of their activities, reducing the importance of the traditional European hubs. Qatar Airlines already has a pact with the Malaysian Airlines and it needs to have more pacts with the other members of the alliance before is formally joins to grouping.

These three instances indicate that the old players of world aviation, who had once rued the emergence of gulf carriers as prominent players, are now coming around to the reality of these carriers being here to remain for a long time and the shedding of inhibitions related to them. What the customers get in return is the international flights to newer destinations, privileges and benefits associated with the frequent flier programs on a much wider numbers of airlines, coordinated schedules and common access to airport lounges.

What makes Japan suitable for LCC operation?

Recently, there has been news of not one but three low cost carriers making foray into the Japanese aviation space for the first time. AirAsia Japan, Peach Aviation and Jetstar are the three airlines which have recently announced their flight operations in the country. It has also been reported in the news items that for the people of Japan, who love to buy expensive things, this would be a new trial. It is expected that the rates of flight booking will simply be slashed to half with the operation of these new airlines. The people might have to live with certain limitations and constraints but they would get to travel at lowest air fare, for their business as well as for their vacation needs.

There are many factors which favor Japan for the LCC operation. These are:

• An island nation: Japan is an island nation. It has many islands under its sovereignty which are good locations for vacationing and are frequented by the people of Japan as well as the outsiders. With air travel becoming cheap with the introduction of LCCs the vacationing as well as business trips are expected to increase to these islands.
• Travel to nearby foreign destinations will get cheaper: There are many nearby countries and cities which can be reached within a few hours flight of the LCCs. These are South Korea, China, Russia and Taiwan among others. With fares almost down to half of the present value, there is going to be encouragement to the movement of the people on the short-haul flights which see high demand from the people of Japan.
• High per capita incomes: The per capita incomes of the people of Japan are one of the highest in the world. The LCC operations are likely to be highly successful since the people already have a penchant for air travel and the lowest air fare tickets are expected to give it a fillip. 

Flight Duty Time Limitations Data and Relation to Airfare

Flight Duty Time Limitations Data is the statistical information about the flying and duty hours which the pilots and other crew members of the airplane lock in on a routine basis. This data tells us about the extent of utilization of the crew and can be analyzed to know whether the crew is overworked or underworked. While it might be dangerous to fly with the airline whose crew is overworked, it might not be inefficient to have an under-worked crew. So, airline tickets sale might fall for an overworked airplane flight from the customer end but the carrier might stop flights due to inefficient operations in the second case.

In India, the Director General of Civil Aviation, the regulatory authority which issues the guidelines on this matter, has directed the AI pilots and crew members to follow the guidelines related to the six parameters which define the flight duty time limitations. On doing the mapping of the guidelines with what is being done at the practical level, it was noticed that out of the six parameters, the pilots and crew only followed one of these. Incidentally, this parameter was of Rest Period. The other five parameters, such as Maximum Daily Flight Duty Period, Maximum Daily Flight Time, SOD Travel/positioning/dead headings, number of landings and Limitation of Flying hours on weekly/monthly/annual basis, were under-utilized. By under-utilization of the working hours, the AI was required to maintain more staff than the optimal levels. So, the DGCA has now asked the AI to adhere to these guidelines and attain optimal levels of working hours.

This measure is likely to free up more pilots and crew members who can be deployed on planes which are likely to arrive in the near future. The costs of operations will also be brought down and the passengers would benefit by getting reduced air fare due to reduced inefficiencies.