As Oil Prices Increase Airline Expansion Plans Decrease

The increasing oil prices are forcing airlines to cut back fleet expansion plans, rationalize routes and increase air fares. With growth in passenger traffic slowing (still an impressive double digits) the government and AAI are getting a bit worried as they plan to invest Rs 45,000 crores to upgrade, expand and add new airports throughout the country. This is especially true when airports are complaining about airlines not paying their airport dues on time, a worrying trend indeed.

American Airlines Upgrades Food on Delhi Route

Good news if you're flying American Airlines in business or first class from Delhi: The carrier announced that it is upgrading its food options on the route, serving a wide variety of Indian dishes. On flights from Chicago, food will come from well-regarded Vermilion, including Patrani Maachali, Dahi Elaichi Rajma, Dalcha Gosht, and Shrimp Moilee. Catering from Delhi will also be upgraded, which is good when you're spending 4 Lakh for a ticket.

SpiceJet: We Won't Turn a Profit Until 2010

The rapidly rising price of fuel, coupled with the slowdown in Indian passenger demand has led SpiceJet's CFO to say that the airline will not break even until at least 2010. Fuel costs have increased 56% in the past year, and now comprise an absolutely incredible 52% of SpiceJet's total costs. Despite the cost increase and slowdown in traffic growth, SpiceJet will buck the trend and grow their aircraft and destinations in the current year. While that may seem like a smart move now, if fuel prices continue upward they will likely have no choice but to cut back and rationalise their route map.

Third Gulf Lowfare Airline Launches India Service

Travel between India and the Gulf continues to get easier and less expensive: Bahrain's low fare airline Bahrain Air launched new nonstop service yesterday from Bahrain to Kochi. Service will initially be thrice weekly, but will increase during the next year. One way fares start at Rs 3,600. More than 275,000 Indian nationals live in Bahrain.

Off Loading Passengers to Cost Airlines

All Airlines overbook, but the nicer ones take care of the offloaded passengers, whereas other airlines simply shrug their shoulders. Not anymore, the DGCA is looking into rules that make it mandatory for airlines to compensate passengers in addition to a refund of the air ticket for bumping them off overbooked flights. Although the level of compensation is not finalized, there could be several slabs of the compensation package. You can expect the airlines to be very unhappy about this as this adds additional financial burden on an industry already walking on thin ice.

Online Travel Agencies: Maybe We Have to Sell Hotels, Too

Back in 2001, Expedia figured out that the only way to make money as an online travel agency was to focus on selling hotel rooms, not airline tickets. That seems really obvious now, but the Indian OTAs have struggled mightily with this concept, because (for so many reasons, not least of which is the lack of mid-priced hotels and a undersupply of rooms), they have relied heavily on low-paying airline tickets.

According to this article, that's finally changing. Travelguru (after its tie-up with Desiya) now claims that 90% of its revenues from hotel and holiday packages (though if I had to guess, I'd say that this is more a reflection of how large Desiya's business is and how small Travelguru's business is). MakeMyTrip and Yatra also claim growing and significant sales of hotels and holidays. Cleartrip lags behind the pack, with about 95% of their revenues coming from air. Look for more of the agencies to revamp homepages (as Travelguru has done) to focus on higher margin products.

In the US, once the OTAs started to think more like merchandisers and less like sellers of airline tickets, their margins grew. Cleartrip, with its wonderfully clean design, just needs to figure out how to maintain their stand-apart design while doing a better job of incorporating higher-margin products. Good luck.

Go Air Continues with Route Rationalisation

As the growth in air traffic slows down and fuel prices increase Go Air continues to rationalise its routes. As a result they will stop service to Chennai (earlier they stopped service to Pune, Kochi and Coimbatore). Instead of simply increasing their footprint in a “market share grab” exercise, they now intend to focus on consolidating their position in a few markets (read operational profitability), a wise decision indeed.

Four Season Hotel Opens in Mumbai

Luxury hotel chain Four Seasons opens its first hotel in Mumbai following a two year delay. The 202 room hotel is located in Worli, and if you are hoping to stay in the gleaning 33 storey hotel be ready to shell out Rs 24,000 a night.

Travel blog View from the Wing mentions the reasons for the delay:

…Bureaucracy and a shortage of skilled workers make building hotels difficult – the opening of the Four Seasons was delayed by at least two years. The hotel needed 165 government permits – including a special licence for the vegetable weighing scale in the kitchen and one for each of the bathroom scales put in guest rooms. In the end, the hotel cost $100m (€64.5m, £51m), or about $500,000 per room, and prices – which start at $500 per night rising to more than $1,000 – reflect that.

Glad to hear the vegetable scales are legal.

Convenient Departure Times for International Flights

Anyone who has flown out of India to International destinations (Europe and America in particular) knows all about the awful departure times. The usual departure times for most international flights vary from midnight to 4 in the morning, and with perpetual delays you are guaranteed to stay awake pretty much for 24 hours. The reason for the odd departure times are that most airports in the west close past midnight due concern about noise pollution. India had little leverage hence had to accept this. Now the civil aviation ministry, with a bit more clout, is trying to change that in increments. The aviation ministry has started insisting that countries that wish to introduce or add flights must offer convenient departure times. The original flights will remain grand-fathered in with their original departure times, but the newer ones will hopefully offer better flight times. Don't expect many flights to Europe and U.S to have normal departure times anytime soon; this will happen mostly on the S.E Asia sector. This is a small but nonetheless a good change.

8 Year Old Walks Out of Mumbai Airport Alone

Anyone who has experienced the madness of Mumbai's airport will be shocked to read this story: an 8-year old boy traveling alone on an Air Deccan flight from Coimbatore to Mumbai managed to depart the plane without staff noticing and leave the airport by himself. His mother was, as you would imagine, horrified when she noticed her son walking out of the terminal by himself.

Air Deccan staff admit that they forgot he was traveling alone on the plane and allowed him to deplane without any adult supervision. Oops.

More Investment coming in for mid-segment Hotels

There is true supply deficit of standard quality 3 star (mid-Segment) hotel chains in the country. A bit more investment is coming to address this segment of the hotel industry. Lemon tree hotels will be adding 2,500 rooms by 2011, and the Bird group plans to set up another 20 hotels by 2015. I am sure the unrealistic real estate prices across the country are not helping to address the hotel shortage either.

Spice Jet is looking for some love

"Everyone has flirted with Spice Jet" is the response from one of the promoters of Spice Jet upon being asked about a strategic sell out or merger with another airline (read Jetlite). The consolidation story that's unfolding within the Airline industry in India should hopefully lead to a logical end. Spice Jet in particular is probably feeling left out, hence the rumors of a marriage between Indigo Air and Jetlite. Given the hole that the airlines are currently in because of high fuel prices its getting harder to get investors on board at this time.

The Halo Effects of an Aviation Market

The growth of the aviation industry impacts 2 markets directly, Hotel and car rentals. We have already seen the numbers on the growth of the hotel industry, which is experiencing record occupancy at rates comparable to NYC/London in the large metros of Mumbai, Delhi, Banagalore etc. The advent of the LCC has had another effect, vacation packages, with more packages being put together (hotel and air combos) to woo Indian consumers, led by efforts from the OTAs. We at Tripmela have been seeing this trend for some time, where the lead in popularity of air deals (although still the most popular) has been waning with packages gaining popularity over time. The other industry, car rentals, too is seeing some action. The majors, Hertz & Avis have announced deals with International carriers to provide chauffeured limo services (premium cars such as BMW, Mercs etc) to their first and business class passengers in India. They are also targeting Jet and Kingfisher to provide the same for their domestic passengers. This is the beginning before we see the majors with car rental booths across major and tier 2 airports for travelers to rent cars for their business or leisure trip.

Yatra to Pay for Flight Delays

Yatra.com will pay Rs 200 to air travelers for domestic flight delays over 20 mins, irrespective of where the booking was made. Well, they will not give you Rs 200 in cash rather its a credit towards future flight purchases on Yatra.com. Knowing the pathetic on-time schedule of domestic flights in India, they could be handing plenty of Rs 200 credit vouchers. Interesting loyalty program though...

Air Deccan to Pay Fine for Flight Cancellation

A Delhi consumer court has ordered Air Deccan to pay Rs 65,000 to a family who missed a wedding because their flight from Delhi to Bagdogra was canceled due to bad weather. The airline says that the cancellation wasn't their fault, but the court said they did not prove the weather was bad in Bagdogra. Said the consumer court: "The complainant and her family members had suffered a lot of mental pain, agony and emotional harassment due to cancellation of flight".

Sometimes it pays to miss the wedding...

India's Passenger Growth Slows, Airlines Re-Consider Expansion

The extraordinary growth in air passenger traffic in India has slowed considerably, with analysts predicting 10-12% growth over the same quarter last year (this is still extraordinary for the rest of the world, but slow for India which has seen 45% growth year-over-year). Airlines are now beginning to adjust their fleets, with carriers in some cases taking only half the aircraft they expected this year. SpiceJet notes that they will take 3 planes while leasing out 3 others they had ordered. Kingfisher-Deccan will likely take 8-10 instead of 20 they had predicted. Jet said their growth plans were only at about 10% additional capacity instead of 20-30%.

Slower growth should help to rationalise some of the fares, which have dipped below the profitability level. Of course, the marketing and pricing teams don't necessarily follow the laws of economics, so we wouldn't be shocked to see the low fare deals continue through the summer.

Will JetLite and SpiceJet Link Up?

In a recent interview, Jet's executive director suggested that SpiceJet may make an interesting acquisition for JetLite, merging together two low-fare operations that would control about 18% of the domestic market.

Consolidation in India appears to be inevitable, and Jet has certainly shown interest in growing its share through acquisition (taking Air Sahara into its organization and changing the name to JetLite). Bringing together SpiceJet's metro-heavy network with JetLite's more far-flung route map may help give Jet a formidable foothold in the domestic market. That said, SpiceJet says that Jet has not made any formal overtures yet.

Finnair looks to expand operations to India

The Asian passenger traffic for Finnair grew an astounding 24 percent, and India was a big factor in that. As a result they are looking to expand operations from the current 12 flights a week to India. They currently fly to New Delhi and Mumbai, but want to connect Bangalore and Chennai to Helsinki. The US - India corridor is also a key reason for their success, and with future expansion to south India, this will only increase for them.

Jet Airways, SpiceJet Hike Fuel Surcharges

Even if fares aren't increasing, consumers are going to be paying more for their flights: Jet Airways and SpiceJet have announced that they'll be increasing fuel surcharges by Rs 150 for short-haul flights and Rs 350 for long-haul. This brings the total fuel surcharge to Rs 1950 for short-haul and Rs 2350 for long-haul. The extraordinary increase in fuel charges will cost India's airlines $700 million this year.