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Airlines in India are in trouble

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INDIAOUTLOOK FOR QUARTER ENDING JUNE 2011…… RED INK

July 8th, 2011 by admin No Comments

India’s three listed airlines look to have finished in the red for the quarter to June 2011 on the back of high jet fuel prices, excess capacity and fierce competition for passengers. You will recall that we have devoted a huge word count to the fact that ticket prices are falling hard in India at the same time that passenger numbers remain static and capacity increases at a very fast pace, a toxic mix at best. To date the India carriers have done very well indeed given the circumstances but now information that we are receiving suggests that the last quarter and the remaining quarters of fiscal 2011 are going to provide losses.

The big three listed Indian carriers; Jet Airways (India) Ltd, Kingfisher Airlines Ltd and SpiceJet Ltd together command a 60% market share. Jet Airways is estimated to have made a loss of Rs335.8 crore (US$75.75m) from an Rs8.4 core profit during the same period last year. Kingfisher Airlines will show a loss in the region of Rs377.3 crore (US$85.12m) widening from a loss of Rs187.35 crore and SpiceJet may show a loss of Rs75.5 crore (US$17m) against an Rs55.22 crore profit during the same period last year although messages are mixed on SpiceJet and it may be that they scrape into profit for the period (NOTE: crore = Rs10m and US$1 is Rs44.325).

So what does this all mean?

The quarter in question is considered to be the second best period of the year for Indian airlines, so these results should show to be an above average performance for the year as a whole. Jet Airways can handle the losses. SpiceJet as reported yesterday, is looking to raise capital at this time and as such these results will damage those plans and with share price falling will increase the cost of any debt raised. Kingfisher is another situation entirely, the airline is in a fix and has been trying to drum-up investment for close on a year now with roadshows and the like all failing to meet original investment expectations. Will the larger than life Vijay Mallya continue to destabalise the empire he inherited over an airline dream? Judging by the news yesterday that he has firmed-up share commitments over the past month the answer is yes. Kingfisher has also brought back into the air a large number of A320s which have been grounded due to “maintenance issues” so the drive remains for that airline. The Indian market needs to contract but ticket prices continue to fall and now we hear that Air India, if it gets its money as planned, which is a big if, will embark on a very aggressive charge for resurgence through a sales drive, a thin veil for ticket price cuts. Air India, with about 15% market share, reduced its fares at the beginning of the year to win back lost market share and knows it has to do more.

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MORE TROUBLES FOR INDIAN CARRIERS

July 13th, 2011 by admin No Comments

The Indian government finance ministry has refused Air India’s request to release Rs 105 crore as payment for the VVIP flights operated by the airline. Air India was hoping this money would allow it to repay the Rs 200 crore short-term long of 15 days it borrowed from a bank to pay salaries.

The ministry has asked aviation authorities to work out a long-term cash requirement for the airline based on a turnaround plan. A union leader, speaking to local media, has criticised the management of the flag carrier, saying that no amount of money or restructuring will help the airline without effective leadership.

Meanwhile, shares in Indian carrier Kingfisher Airlines have fallen 1.28% as investors worry about fuel costs and the problems the airline is having getting aircraft on lease due to a debt-ridden balance sheet. Kingfisher managed to cut its debt from Rs 7,651 crore to Rs 6,007 crore last year thanks to a debt recast plan that converted 30% of its debt into shares. However that share price is now under pressure as the airline continues to struggle to recover. In fiscal year 2011, the airline’s net loss was Rs 1,027 crore on a total income of Rs 6,496 crore. In fiscal year 2010, its net loss was Rs 1,647 crore on a total income of Rs 5,271. It has never made a profit since its inception.

Kingfisher needs to lease aircraft to bridge the gap until its aircraft deliveries are due to start at the end of 2012. However, reports suggest this has been difficult although the airline remains in discussions with several lessors.

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I cannot imagine why STAR Alliance would want Air India in their cooperation.

When India has a solid middle class of 100,000,000 people you will know why they want them. Of course my choice would have been Jet Airways but apparently they could not snag them. AI will come out their troubles in good shape becasue like AC they were State owned and might still be mostly owned by them.

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There is no doubt that India has a large market and securing more domestic feed into/out of STAR is desirable, but taking on the worst of a bad bunch will not help the other members of the alliance.

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Officials to meet on Air India’s Star induction

By Cathy Buyck | July 18, 2011

Air India, Star Alliance and senior officials from the Indian government and the Civil Aviation Authority are scheduled to meet Monday to discuss the progress of the carrier’s induction into the alliance. The meeting is part of the routine integration process, a Star spokesperson told ATW, stressing the grouping is sticking to its July 31 deadline to finalize the formal integration of the carrier. He added that “progress had been made but, yes, there are still outstanding issues. We will probably know more after the meeting. Decisions will be made.”

In May, Star Alliance CEO Jaan Albrecht told ATW that AI has until July 31 to fulfill the requirements to join the airline grouping or the carrier's invitation would be withdrawn (ATW Daily News, May 10). "The process for AI to fulfill its requirements has now taken nearly four years," he noted. "We will not extend this deadline anymore. One day there must be a final point."

Last month, following a meeting of the Star Alliance Chief Executives Board in Barcelona, Chairman and MD Arvind Jadhav stated, “Air India is looking forward to join Star Alliance, as scheduled.”

AI was originally slated to join Star in 2010 but has had trouble meeting the alliance's membership standards regarding IT systems and other areas (ATW Daily News, May 17, 2010). The state-owned carrier has struggled financially in recent years and is attempting to gain the backing of Indian bankers for a comprehensive restructuring plan (ATW Daily News, April 11).

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