Neha Jain: http://indianairlinesnews.blogspot.com/23

1. Royal Jet to enter India’s fast growing luxury private aviation industry

Abu Dhabi-based luxury aviation services Royal Jet is making intensified efforts to enter the fast growing private aviation sector in India at the Indian Business Aviation Expo (IBAE).

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The expo, which runs till February 23, is considered an important platform to showcase products and network to officials in the aviation industry in the country.
"IBAE presents us with a unique platform to introduce our business relationship with ASM as we present a new era of luxury private aviation service to the Indian market," said Fahad Wali, Acting Vice President Commercial, Royal Jet.
"As the number of High Net Worth Individuals (HNWI) in India increases at a much faster pace than elsewhere in the world, such an event offers tremendous potential for us to explore promising business opportunities," he said further.
The IBAE event comes at a time when transport analysts and consultants are predicting that approximately 350-400 million Indian nationals will be opting to travel by air annually by 2020. It is for this reason that the industry has increased its attention to develop the luxury aviation sector in the country.
"Indian business executives, entrepreneurs and HNWIs are expected to look for alternatives to get around India's congested airports and seek faster and more efficient time-saving air travel solutions," said Vito Gomes, Founder and Managing Director, Aviation Services Management.

2. AI top brass strife leads to greater chaos

Internal bickering among Air India 's (AI) top brass is threatening to unravel the financial turnaround plan put in place to help the ailing national carrier to step out of the red. What's more, the independent directors appointed on the board of the airline last year to help make its turnaround plan work are dissatisfied with the airline's management.

On Monday, Mahindra & Mahindra (M&M) vice chairman Anand Mahindra offered to resign from the board of the National Aviation Company India Ltd (Nacil) that operates Air India citing conflict of interest. In a letter to the civil aviation minister Vayalar Ravi, he has sought permission to step down from the board of Nacil.

In March last year, Mahindra along with Air Chief Marshal Fali H. Major (retd), FICCI secretary general, Amit Mitra and Ambuja Realty Group chairman Harsh Neotia were inducted as independent directors on the NACIL board to help the airline in its turnaround plan.

Fear is now looming large among the airline's top officials as the government has also indicated that some heads may soon roll in the airline, which has a debt burden of over Rs 40,000 crore.

According to civil aviation ministry officials, the current top management in the airline is unable to infuse confidence in the rank and file of the airline.

This leaves little scope for an effective turnaround. He said that the government cannot continue offering financial help for long.

Air India's five-year financial turnaround plan, which runs through 2010-14, envisages revenue enhancement and expenditure reduction over different phases.

But the airline also has largely failed to meet the target of the turnaround plan which called for a cut in costs by Rs 1,500 crore and increasing the revenues by Rs 1,200 crore by the end of 2012. The airline is expected to post losses of over Rs 7,000 crore during the current fiscal.

Despite desperate cost-cutting measures adopted by the airline, the average passenger load factor on AI's domestic flights was only 22.2 per cent and 67.9 per cent on international flights in 2010.

Smaller and relatively young low-cost carriers like IndiGo had an average passenger load factor of 83.8 per cent, the highest in the domestic sector last year.

Passenger load factor is the percentage of passengers carried compared to the number of seats offered on a particular flight.

The finance ministry is unhappy with its turnaround plan and is also not convinced that whatever money has been infused in Air India has been spent properly.

Finance minister Pranab Mukherjee has already made his displeasure known to civil aviation minister Vayalar Ravi when the latter recently met the former to seek Rs 2,000 crore additional funds for the national carrier in the upcoming budget.

However, the airline is expected to receive Rs 1,200 crore only as equity support for the next fiscal.

The government has already infused Rs 2,000 crore in two tranches of Rs 800 crore and Rs 1,200 crore last year as equity in Air India as part of the revival plan and financial restructuring of the airline.

3. SpiceJet safe bet in current aviation collapse: Fortune Fin

There has been a collapse in the aviation sector. The aviation stocks have been beaten out of shape because of the way crude has rallied.

In an exclusive interview with CNBC-TV18’s Latha Venkatesh and Soniya Shenoy, Mahantesh Sabarad of Fortune Finance who tracks the aviation space, gives his outlook on the possible fall in profitability for the aviation sector at the back of soaring brent crude prices. He feels that low cost carrier like SpiceJet is a safe bet as compared to a Jet Airways or a Kingfisher Airlines in the downturn.

“When the fuel cost goes up by 10% to12%, you are taking away from the net profit margins of 3% to 3.5%. Hence, there will be profit decline of 40% to 50%,” he says.

He believes that air travel in India is sensitive to price of tickets, and hence forecasts that, “instead of growing at 20%, the aviation industry growth will be curtailed down to probably low single digits.” He feels that a 10% crude price increase would reduce the stock prices by a half.

Below is a verbatim transcript of Mahantesh Sabarad’s interview with CNBC-TV18’s Latha Venkatesh and Soniya Shenoy. Also watch the accompanying video.

Q: IATA’s forecast for the year 2011 said that profits for the entire aviation industry will fall by 40%, if Brent Crude stays USD 86 per barrel. Since, brent crude has surged above USD 100 per barrel, what is your estimate in the way the profitability will collapse for the aviation sector?

A: The Q3 of the aviation industry has gone by doing a bottom-line margin of around 6% to 7%, with the fuel cost comprising about 30% to 35% of their sale. Hence, when the fuel cost goes up by 10% to12%, you are taking away from the net profit margins of 3% to 3.5%. So, there is about 40% to 50% decline in profits and that is the kind of impact we will see in the aviation profitability.

Q: What is the ability of these companies to pass on the costs?

A: Air travel in India is sensitive to price of ticket. In that last three quarters, on an average, the ticket prices have been steady. The December quarter we had a marginal rise in ticket prices. The industry has been able to grow roughly about 20%, in terms of passenger traffic.

Now with crude going up, fuel prices are soaring higher and ticket prices too are marginally higher. Therefore, instead of growing at 20%, the aviation industry growth will be curtailed down to probably low single digits.

Q: In an investor holds Jet Airway or Kingfisher Airline stock, my key worry would be with each increasing rise in crude per barrel. What would the impact be on the stock? What in your sense is the expense that the companies would have to shell out with each hike in crude prices?

A: A 10% to 12% increase in crude prices is roughly about 40% decrease in profits. Prices collapse a little higher than the profitability impact. So, 10% crude price increases would reduce the stock prices by a half.

Q: The stock prices are discounting that, stocks like Kingfisher; Jet Airways are beginning to show the pressure of higher crude prices and impact on profitability. Is there anything that you would enter at all at this juncture?

A: I would stay with the low cost carriers like SpiceJet. They have the ability to raise ticket prices and maintain passenger traffic since you would have travelers down trading to low cost models. So, SpiceJet would always tend to do better relative to a Jet Airways or a Kingfisher Airlines in a downturn.

At this price we find that crude prices are discounted to the extent of an average price of around USD 94-95 per barrel. It is the average for the entire year. I hope that crude prices won’t averagely prevail above that USD 95 per barrel mark.

NEHA JAIN

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