Aid to Air India

The recent decision taken by U.S. Exim Bank to support Air India (AI) financially has been received with mixed feelings. Most American carriers have labeled AI as “one of the most poorly-run airlines in the world,” and have strongly opposed the $3.4 billion loan to it to buy Boeing 787 Dreamliners.

Air India has pending orders for 27 Boeing Dreamliners, the deliveries of which are expected to begin by the end of this year. These are part of the 68-aircraft order placed by the national carrier with the U.S. plane manufacturer.

Personally, I think that AI has caught a huge break. With no financial backing and dipping commercial value, this was possibly one of the last resorts. I’m not really sure but the kudos probably need to be directed towards Rohit Nandan, who recently replaced Arvind Jadhav (no relation to me) as Chairman.

The opposition by American carriers has resulted in the Air Transport Association (ATA), a trade group representing America’s biggest carriers, shooting off a letter to U.S. Export-Import Bank Chairman Fred Hochberg opposing the decision, saying Air India’s financial ill-health should disqualify it from getting American help.

The U.S. Exim Bank had last month decided to give loan guarantees of $1.3 billion to support Air India’s fleet acquisition from Boeing and another $2.1 billion preliminary commitment to support future deliveries of the U.S. aerospace company’s planes to the Indian national carrier.

From a business perspective, I have always believed that financial stability is the key to a successful airline. Profit margin, commercial (face) value, etc follow. The murky waters in the Indian Aviation Market today have made most airlines (read: Kingfisher Airlines) adapt to the oncoming wave.


The In-Flight Connectivity Battle

In a battle for cost-conscious, tech-savvy passengers, airlines have faced increasing pressure to explore innovative ways to capture their imagination. While pricing will always be central to the air traveller’s choice of airline, a new parameter has emerged. Customers are now paying attention to airlines that have made the leap to offer in-flight connectivity and entertainment systems.

These new and improved connectivity systems based on satellite technology represent millions of dollars worth of investments, carrying a huge potential growth market for satellite. According to David Bruner, vice president for Panasonic Avionics Corporation’s Global Communications Services, a tipping point has now been reached, with many airlines now ready to make the leap.

“We are about 12 to 15 deals today. You will see some of those that have already committed to add more aircraft to their existing commitments. You will probably see another 15 to 20 airlines making that commitment over the next 12 months. But, I think you will also see as many committed to our competitors. I can see 30 or more airlines making a commitment over that time. The top 50 to 60 airlines in the world will all have made a decision, at least in terms of the fleets they expect to operate over the next 10 years or so and are the work horses of their fleet. You are going to see a very exciting year, announcement after announcement, and the announcement won’t be news any more, but more what is being installed and how many aircraft you have been operating,” says Bruner.

For the full article: Airlines Ready to Jump into Connectivity Battle – Page 1 of 3 :: Via Satellite.

Fuel Prices: Dictatorship in aviation

In my opinion, the soaring of fuel prices has just caused a lot of imbalance within the aviation industry. Never before have fuel prices dictated to such an extent that profits would be cut and there wouldn’t be much that could be done to prevent it.

The following courtesy BBC News:

Iata said it expected airline industry profits to be just $4bn (£2.4bn) in 2011 as rising fuel prices continue to dent profits of carriers.

In 2010, the industry made a profit of $18bn. In March, Iata had predicted profits of $8.6bn this year.

Iata said high fuel costs were having a “big impact on our profitability”.

“Last year the bill was $136bn, this year with the price of oil average $110 [the bill] will be $176bn, over $30bn [more] and that is one of the major concerns,” Giovanni Bisignani, the head of Iata, told the BBC.

‘Big problem’

Last year, the airline industry recovered faster than expected from the global recession.

“After a good year, this year started in a terrible way,” Mr Bisignani said.

Mr Bisignani blamed unrest in the Middle East, an increase in the price of fuel and the nuclear disaster in Japan for the industry’s bleak outlook.

Iata used an average oil price of $96 for a barrel for Brent crude when calculating its profit forecast in March.

Since then, oil prices have passed $110 a barrel.

According to Mr Bisignani, a $1-a-barrel increase means a jump of $1.6bn in costs.

“That is a big, big problem for us,” he said.

Click to play

Iata’s boss Giovanni Bisignani assesses the problems faced by the airline industry

Mr Bisignani warned that any further spike in fuel prices would be tough for the sector.

“That $4bn is with the price of fuel at $110, we see already these days that the price is higher than this.” he added.

Fuel costs will represent 30% of airline expenses in 2011, according to Iata.

Asian growth

Airlines in Asia-Pacific are expected to remain the most profitable in the sector.

According to Iata, carriers in the region are forecast to earn $2.1bn in 2011, the highest out of all the regions.

However, the figure is still sharply lower than the $10bn profit that the region’s carriers made last year.

Robust demand for air travel in both China and India is likely to support Asian profits this year.

According to Iata, demand for air travel in the region is expected to increase by 6.4% in 2011.

But it warned that lower demand for air travel from Japan may have a big effect on growth.

The 11 March earthquake and tsunami in Japan that triggered a crisis at the Fukushima nuclear power plant hit the travel and tourism sectors hard.

The disaster saw a drop of 31% in demand for domestic travel in Japan in April, compared with the previous year, according to Iata.

Internationally, Japan saw air traffic fall by 20% in April, which has knocked 1% off global international travel.

“Japan represents 10% of the total industry revenues – that will impact strongly,” said Mr Bisignani.

Thriving in Aviation without Global Alliances

Courtesy: Brett Snyder*

Over the last decade, more and more airlines have drifted into one of the three global alliances: Star Alliance,oneworld, and SkyTeam. You might think that the alliances have become crucial to airline survival. In fact, though, a few airlines have successfully bucked the alliance trend and instead thrived by working across alliances with multiple partners.

Only a handful of airlines can make this type of strategy work, and it requires a specific type of airline. But before discussing that, it’s helpful to know why airlines join alliances in the first place.

How alliances work

There’s no question that it’s expensive to join an alliance. Alliances have a base level of standards that are required for any airline to join, and there is usually some expensive tech work to connect all the dots. For the airlines that have joined alliances (and stayed there), the costs end up being worth the jump in revenue.

When an airline joins an alliance, the frequent fliers of partner airlines can instantly earn miles when flying on the new member airline. Not only that, but they can earn elite status qualifying miles, and that’s a big deal for building loyalty. The inevitable codeshares that follow help to flow passengers between all the networks in the airline system and that results in a big bump in terms of traffic.

Star Alliance member US Airways (LCC), for example, has said that its European operation wouldn’t be able to be nearly as large as it is without its alliance partners LufthansaSwissAustrian, etc., feeding passengers into the US Airways network.

How some airlines thrive without them

For the flip side, look at Hawaiian Air, for example. Nearly every U.S. airline flies to Hawai’i, but none of them fly between the islands. Would it make sense for Hawaiian to partner with a single alliance in order to increase connections? No. Hawaiian can take traffic from airlines in all the alliances (and non-alliance airlines) and fill its inter-island flights.

Being in an alliance wouldn’t increase traffic. It’s already getting the traffic from all the airlines, so an alliance would only increase costs. Closer cooperation wouldn’t really spark any additional passengers because there is no real competition for those partnerships in the islands right now. So Hawaiian can sit where it is and enjoy its place.

Another airline with this type of arrangement is Alaska Airlines(ALK). In the Pacific Northwest, Alaska has the hearts and minds of nearly every local resident. It’s a very strong brand with a tremendously popular frequent flier program. And because of that, it has a lot of airlines knocking at its door.

In fact, it has close cooperation with archrivals Delta (DAL) andAmerican (AMR). Both airlines use Alaska to extend their reach into the Pacific Northwest and they also use Alaska for Mexico flying. Delta has built international operations in Seattle with the expectation that it can use Alaska to fill those flights. Likewise, American counts on Alaska to help fill flights in LA. Alaska’s ability to feed passengers into major airlines up and down the west coast is tremendous.

So would Alaska benefit from joining an alliance? Not much. It already has reciprocal frequent flier agreements (including elite qualifying miles) with those airlines, and it has one-off partnerships with other airlines that it can help feed in its home base. The airline also partners with Air FranceAir PacificBritish AirwaysCathay PacificIcelandairKLMKoreanLAN, and Qantas. Its reach extends beyond just one alliance.

JetBlue’s international connections

Another airline that has decided to follow this strategy is JetBlue. Sitting on its perch in New York, JetBlue realized that it could partner with all sorts of airlines that fly into JFK in order to help provide connecting options throughout the U.S. It’s most recent partners are Virgin Atlantic and LAN but it also works with Aer Lingus, American, EmiratesLufthansaSouth African, and more are on the way.

South African is a great example of why this works. As a member of the Star Alliance, it could easily send connections via its Star Alliance partners, but there aren’t many connecting options at JFK. Sure, South African can connect people over Washington/Dulles on to United, but having this partner at JFK also helps it fill its New York flights better. It also gives JetBlue loyalists an airline preference when flying to South Africa. That can only help South African.

So why couldn’t JetBlue, Alaska, or Hawaiian join an alliance but then still have these one-off partnerships like South African? They could, but the point is that they don’t need to. As mentioned, joining an alliance is very expensive, and if these airlines can make it work without joining an alliance, then that’s a better way to go. Not many airlines can pull it off, but those with very strong niches in desirable places alongside strong brands can and do make it work.