Brace yourselves frequent fliers in India, the aviation industry is about to hit some turbulence

It looks like Indian airlines are not the only ones sweating under the pressure of high operating costs and increasing threats from the competition: even international carriers are feeling the heat and starting to cut capacity to India. That could mean bad news for passengers because ticket prices, at least on some international routes, could rise in the face of reduced competition.

On Monday, Austria’s largest airline, Austrian Airlines, which operates a global route network of around 130 destinations, said it is discontinuing flights in the Mumbai-Vienna sector from March 25 as the route has became unprofitable because of the challenging economic situation and intensifying competition from other airlines.  Unless there is reform in the aviation sector, especially in the matters of jet fuel prices and undercutting of ticket prices by Air India, we’re likely to see more airlines cutting down their operations in India.

Austrian Airline’s CEO, Jaan Albrecht, said in a statement that, “From the summer of 2012 onwards, we shall be sharply increasing flight frequencies to our core markets in Eastern Europe, and building up capacity to the Middle East in a trade-off with the destination of Mumbai.” It’s not the only airline to cite problems with operating in India, which is one of the fastest-growing aviation markets in the world. Local carriers are already floundering massively operating on domestic routes. While passenger traffic has climbed in leaps and bounds in recent years, operating costs, cut-throat price wars and a skewed policy environment mean that more than 80 percent of Indian carriers are losing money. Kingfisher Airlines is a stark case in point.

Not surprisingly, even international airlines are wilting under the same set of pressures. According to a report in the Business Standard, global airline Air France announced that it is reducing its frequency to Delhi, Mumbai and Bangalore to six flights a week, ostensibly to adjust with lower demand in summer, although it’s likely that tough operating conditions would also have played a part that decision.  In the past year, more than five foreign airlines have withdrawn flights from the Mumbai and Delhi routes, citing high operating costs, including high airport and fuel charges. These include AirAsia, Air AsiaX, Thai AirAsia, FinnAir and Virgin Atlantic. Just last month, American Airlines announced it would discontinue its Delhi flights, while Lufthansa also halted its flights to Kolkata.

Other leading global airlines like British Airways, Air France-KLM and Lufthansa have also said they would rethink their plans of flying in and out of Delhi if airport charges are increased by a whopping 280 percent, according to the newspaper report.  Unfortunately, it looks like their problems are just about to multiply because flying out of Mumbai could also get more expensive as the airport operator, MIAL, is in the process of acquiring 16 acres of nearby land, according to another Business Standard report. This expansion cost is likely to result in higher airport development fees, which currently stands at Rs 600 for an international passenger and Rs 100 for a domestic passenger.

Of course, we already know about high jet fuel prices: fuel costs account for nearly half the operating cost of domestic carriers. High sales tax on jet fuel is a big culprit here — about 24 percent , one of the highest in the world. There has been talk of allowing foreign carriers to take up to a 49 percent stake in local carriers, which might ease some financial pressure off local carriers.  But what of international ones? Unless there is reform in the aviation sector, especially in the matters of jet fuel prices and undercutting of ticket prices by Air India, we’re likely to see more airlines cutting down their operations in India.

For fliers, that can only mean higher prices from the airlines that stay back.

AirAsia extend Airbus order by another 100 A320neo

AirAsia will buy an extra 100 Airbus A320neo jets, taking its record-breaking order to 300 planes, a source said, a deal that would make the Malaysia-based low-cost airline one of the world's largest carriers. AirAsia and Airbus announced an USD$18.2 billion deal for 200 planes at the Paris Air Show last month, shattering aviation records for the largest ever airline order. The additional order takes the list price of the contract to a staggering USD$27 billion. The bumper order highlights Airbus's growing lead over Boeing and throws the spotlight on AirAsia's aggressive growth plans at a time when high oil prices and an uncertain global economy are clouding the outlook for travel demand. Analysts expect the extended order to drive AirAsia's expansion as it competes with short-haul carriers such as India's IndiGo, Singapore's Tiger Airways and Australia's Jetstar in the Asia-Pacific region, the fastest growing in the world. "AirAsia's last replacement order was in 2007/2008. These new orders are long overdue so it's not an aggressive order," said Kunal Sinha, an aerospace expert with the Frost & Sullivan consultancy. "AirAsia's new fleet is to be used mostly to link Southeast Asia to India and China. By 2015, Southeast Asia will have open skies so you have to have a growth plan."

Boeing on Wednesday said it expected 33,500 new planes to be delivered by 2030, driven by growth in India and elsewhere in Asia. AirAsia plans to list its operations in Thailand and Indonesia this year as it expands in those markets and is in talks to open a hub in Singapore, its chief executive Tony Fernandes has said. Like the previous order, the additional 100 planes would also use CFM International engines, the source with direct knowledge of the deal said, declining to be identified because the deal is not public yet. The source said AirAsia would receive a discount for the entire order, but did not give further details. AirAsia's regional head for corporate finance and treasury Aireen Omar said, "We ordered 200 and so far there are no changes." An Airbus spokesman said the manufacturer would not comment on commercial discussions with customers that were confidential. AirAsia, which flies to 63 destinations in more than 20 countries, has 90 planes currently, almost all single-aisle Airbus A320s. Besides the 300 Airbus A320neo deal, it has another 75 Airbus aircraft already on order. "Though we look aggressive, we have expanded very cautiously," Fernandes said this week. "But I have always said this airline is worth at least 500 aircraft."

According to International Air Transport Association (IATA) data, United Continental had the largest passenger fleet of 737 planes at the end of 2010, followed by Delta Air Lines with 722, American Airlines with 618 and Lufthansa with 427. Non-IATA member Southwest Airlines, the only low-cost carrier currently in the top five, has around 550 planes. "AirAsia had the first-mover advantage and it continues to stay ahead of the game by ordering fuel-efficient planes and keeping the size growing," said an aviation analyst with a Malaysian investment bank who declined to be identified due to company policy. "But the key risk is if expansion plans do not succeed. The Malaysian base is fairly saturated so if the other markets do not grow or cannot take off because of protectionism or other factors, then they will find themselves having to manage a lot of aircraft," the analyst said.

Fernandes said the A320neo purchases would be funded by debt and cash flow as staggered deliveries begin in 2016. "We're buying the planes now, we don't pay for it all now. They become due in 2016 so we're just paying some deposits now which is not erroneous at all to our balance sheet." The A320neo is a version of Airbus's best-selling 150-seat passenger jet offering fuel savings with new engines from 2015. The huge orders for the single-aisle plane at the Paris Air Show have piled pressure on rival Boeing to come up with a newer version of its 737 workhorse. Fernandes said his airline's growth was closely twinned with Airbus. "We have a fantastic relationship with Airbus," he said. "They are much more than just suppliers to us. I credit them tremendously with our growth and I want to be more than just a customer of theirs."

It is now part of aviation industry lore that Fernandes asked Airbus chief salesman Joe Leahy to come on to the dance floor of a Paris nightclub before signing the A320neo deal. "As part of a family we do some crazy things together," the 47-year-old Malaysian millionaire said. Asian budget airlines placed a record USD$42 billion in plane orders during the Paris Air Show, illustrating their high expectations for travel in the world's fastest growing market and also triggering worries some may not survive. Many of the no-frills carriers such as AirAsia and Indigo aim to more than double their fleets to power rapid growth, partly at the expense of full-service airlines such as Cathay Pacific and Singapore Airlines. Worldwide passenger demand is expected to rise 4.4 percent over the next year with the Asia-Pacific region growing faster at 6.4 percent, according to IATA, which represents the majority of airlines operating in the USD$598 billion industry. The Centre for Asia Pacific Aviation, an independent aviation market research provider, said low-cost carriers accounted for 16 percent of the market in terms of seats within Asia Pacific last year, up from 6 percent in 2005. Their market share is set to rise 2 percentage points annually to about 26 percent in 2015, it said.

Paris air show - orders soar

Airbus faced the unexpected and daunting task on Monday of delivering a marketing blow to rival Boeing and maintaining momentum for a revamped jet with its two flagship planes grounded at the Paris Air Show. The European planemaker has targeted an order surge worth tens of billions of dollars, but was left reeling as the world's largest aviation event was jinxed by a series of mishaps including a taxiway collision involving the A380 superjumbo. The right-hand wing-tip of a test plane for the world's largest jetliner, with a wingspan of almost 80 meters (yards), scraped a building at Le Bourget airport on Sunday and was withdrawn from the air show's traditional flying displays.

A second aircraft, the delayed European A400M airlifter, was also withdrawn from air display after a gearbox problem but will be allowed to perform in a flypast when French President Nicolas Sarkozy inaugurates the biennial event on Monday. The A380 collision caused dismay hours after the arrival of its new rival Boeing's elongated 747-8 superjumbo which is showing its distinctive silhouette abroad for the first time. The latest version of the legendary 747 jumbo touched down in orange and red "sunrise" livery symbolizing the importance of Asia, whose economic growth is set to dominate aviation in coming years starting with this week's air show. Industry sources expect some sales of both the A380 and 747-8 during the June 20-26 event but the main joust for market share concerns narrow-body, medium-haul 150-seat planes.

The air show could bring two record deals on successive days as Airbus tries to woo buyers for a revamped A320neo with more efficient engines, saving airlines 15 percent in fuel costs. "We clearly believe in the business case and the orders you are going to see at the show are going to be astounding," said David Hess, chief executive of engine maker Pratt & Whitney. Buyers are already camped out in Paris hotels to negotiate the final details of major deals but are aware that Airbus has staked a lot on winning a slew of orders for the A320neo at the Paris show, and some are said to be digging in their heels. A $16 billion provisional deal from IndiGo to buy 180 A320neo passenger jets, first announced in January, was mired in further negotiations that could spill beyond the air show. The deal if finalized would set a record for the number of planes in one transaction. But sources say if all goes to plan it is set to be eclipsed by a 200-plane order being fine-tuned between Airbus and Malaysia's AirAsia.

Demand for aircraft is on a sharp rebound driven by demand from Asia's rapidly growing airports and the Middle East. "Those two markets will enjoy at least one-third if not more of the demand increase for global air traffic in the next decade," said Philip Toy, a managing director at Alix Partners. The Airbus A320neo has also benefited from airline concerns about fuel costs. Boeing said on Sunday it would decide by end-year whether to upgrade its 737 with new engines from about 2016, as Airbus has done, or build an all-new jet in 2019. "They will sell hundreds but it is hard to tell what is gross and what is net, what is a conversion from an earlier order. There are myriad complications," said Teal Group analyst Richard Aboulafia said of the A320neo.

Orders are likely to include a confirmation of an $8 billion 100-plane order from leasing giant ILFC and another plane order for both Airbus and Boeing planes another big lessor, GECAS. But it could be Boeing that grabs attention on day one of the show with a sale of 777 wide-body airplanes to Qatar Airways -- a reminder that the two planemakers are battling for market share on a second front after Airbus revamped its A350. Russia and China will flex their muscles as potential rivals to Airbus and Boeing, especially during a Tuesday visit by Russian Prime Minister Vladimir Putin and some analysts expect surprise sales. But Western planemakers say it will be some time before newcomers mount a serious challenge in civil aerospace.

Cebu Air orders 37 Airbus aircrafts

Philippine budget carrier Cebu Air will buy 37 planes from Airbus for USD$3.8 billion as it looks to more than double its fleet over the next 10 years and expand its routes, the company's chief executive said on Thursday. Lance Gokongwei told reporters Cebu Air has put in orders for 30 new A321neos and seven A320s from Airbus with delivery between 2015 and 2021. The order is in addition to 18 A320s that Cebu Pacific is set to receive from the second half of this year up to 2014. "This is the largest single aircraft order ever made by a Philippine carrier," Gokongwei said, adding it was also the largest firm order for the A321neo in the world. "We expect to launch a flight using A321 by 2017," he said. "We will be able to serve cities in Australia, India, and northern Japan, places the A320 cannot reach."

The airline plans to use internally generated cash and may seek loans from export credit agencies and commercial lenders to fund the purchases. Cebu Air, which operates the country's largest budget airline Cebu Pacific, is a unit of Philippine conglomerate JG Summit Holdings. The airline expects to at least meet its target of flying 12 million passengers this year, up 14 percent from last year, despite rising fuel prices. It currently has 33 jets, of which 25 are A320s and eight are turbo prop planes from aircraft maker ATR. "With the A321neo, Cebu Pacific will be able to fly more people further at significantly lower cost per seat than any other competing aircraft, and with less impact on the environment," Airbus chief operating officer John Leahy said in a statement.

Cebu Air has yet to make an engine choice for the A321neo, but the choices open to it are CFM International's LEAP-X and Pratt & Whitney's PurePower PW1100G. The A321neo, the largest model in the recently launched A320neo series, uses new engines and large wing-tip devices called sharklets that would allow Cebu Pacific to achieve 15 percent reduced fuel burn, a statement from Cebu Air said. Cebu Air competes with flag carrier Philippine Airlines locally and with Singapore's Tiger Airways and Malaysia's Air Asia in the region.

AirAsia could order upto 200 A320's

AirAsia could buy as many as 200 Airbus jets in a landmark deal shaping up to dominate the Paris Air Show, industry sources said. The deal is among the most keenly awaited in a recovering civil aviation sector, and could help to determine the success of the European planemaker's efforts to stymie a draft project by rival Boeing to design a new 150-200 seat aircraft. Under pressure from airlines to provide a cushion against high fuel costs, Airbus is marketing a new version of its best-selling A320 passenger jet with new engines which it says will save 15 percent in fuel bills starting from late 2015. Malaysia-based AirAsia has said it is considering buying at least 150 of the "A320neo" aircraft as the region's largest budget carrier expands in the face of high oil prices.

But industry sources told Reuters that the range of negotiations is higher than previously expected and could reach 200 planes, trumping a 180-plane provisional order from India's IndiGo as the industry's largest ever by number of aircraft. "They are talking about 150 to 200 aircraft," an industry source familiar with the negotiations said, asking not to be named. Such a deal would be worth $14 billion to $18 billion at list prices, depending on the exact model of aircraft involved, though big plane orders tend to generate significant discounts. The record for the largest Airbus deal by value is held by Emirates airline with a $22 billion purchase in 2007.

EADS  subsidiary Airbus declined to comment. A spokesperson for AirAsia said talks were continuing. Both sides hope to announce the deal at the Paris Air Show on June 20-26 but the size of the deal and its timing remain uncertain because of the sums involved, industry sources said. AirAsia founder Tony Fernandes has set his sights on doubling the size of the nine-year-old airline to rival Southwest Airlines' fleet of more than 500 jets. The airline has already ordered 175 of the original design of A320, of which 86 have yet to be delivered.

However in a sign that the Airbus deal should not be taken for granted, Fernandes wrote on Twitter on Friday that he was asked to meet aircraft manufacturer Bombardier in Montreal. The Canadian company wants to challenge Airbus and Boeing with its CSeries planes. Fernandes has regularly broken the secretive protocol of aircraft negotiations by tweeting about the talks. Boeing is mulling whether to follow Airbus down the "re-engining" route by tinkering with its 737 passenger jet or making more revolutionary changes with an all-new plane offering even bigger fuel savings to cash-tight airlines from 2020.

"The A320neo appears to have good traction with current A320 fliers, particularly low cost carriers," said Rob Stallard, aviation analyst at RBC Capital Markets, who predicts around 300 orders for the $90-million jetliner by the end of the year. "Even if Boeing goes ahead with a clean-sheet new narrowbody with entry into service around 2020, we think most Airbus narrowbody customers will stick with the neo due to the high cost of switching providers," he added. Airline executives say a key factor for Boeing will be whether Airbus manages to convert any of its major traditional clients, especially U.S.-based ones such as Southwest.

The AirAsia order, if confirmed, could also give a much-needed boost to transatlantic consortium CFM International. Industry sources say the Cincinnati-based company is the front-runner to win a lucrative contract for the airplanes' engines, breaking a drought of orders after rival Pratt & Whitney scooped up most orders so far for the A320neo. CFM is a joint venture between General Electric and France's Safran. Pratt & Whitney has developed an engine called the Geared Turbofan with a change of architecture for the narrowbody 737 and A320 market, the largest slice of the commercial aerospace industry worth $1.7 trillion in plane sales over 20 years.

Boom in Asia creates a shortage for pilots!

Cathay Pacific Airways Ltd., Qantas Airways Ltd. and Emirates Airline are awaiting deliveries of about 400 planes to capitalize on Asia’s rising prosperity. Finding pilots is the next job.
Boeing Co. expects the region’s carriers to be the biggest buyers of twin-aisle planes as travel grows in China and India, home to a combined 1.1 billion middle-class people. Asia-Pacific airlines will buy about 8,000 planes worth $1.2 trillion over the next 20 years, Airbus SAS said. Airlines worldwide need an average of 49,900 pilots a year from 2010 to 2030 as fleets expand, yet current training capacity is only 47,025, according to the International Civil Aviation Organization in Montreal. That is sparking bidding wars as Emirates offers tax-free salaries and four-bedroom villas for captains, and AirAsia Bhd., the region’s biggest budget airline, gives tuition-free training. “It’s a major issue and will be a big challenge to the industry’s growth,” said Binit Somaia, a Sydney-based analyst for the Centre for Asia Pacific Aviation. “Even if you can find the pilots, you have to pay top dollar for them because they are so scarce.”

China, the world’s fastest-growing major aviation market, likely will account for a third of the region’s orders, Airbus, the world’s biggest aircraft maker, said in February. Its economy will grow 10.5 percent this year, compared with world growth of 4.6 percent, according to International Monetary Fund estimates.
India, with estimated growth of 9.4 percent this year, may overtake China as the world’s fastest-growing major economy as early as 2013, according to Morgan Stanley.
This year, the region’s carriers ordered 133 commercial jets with more than 100 seats, or 23 percent of the global total, according to Ascend Worldwide Ltd., a London-based aviation forecaster and data provider.
“There will be a shortage of pilots, and this is going to last for a while because it takes time to produce a good pilot,” said Elmer Pena, president of the Airline Pilots Association of the Philippines.
Philippine Airlines Inc. canceled flights in July and August and rebooked passengers after losing 27 pilots to higher paying jobs abroad.

The demand in Asia contrasts with the 4,500 U.S. airline pilots on furlough, according to figures compiled by Kit Darby, a retired United Airlines pilot now running an Atlanta-based consulting firm.
That situation shouldn’t last long. The global fleet of cargo and large passenger planes will double to nearly 32,000 by 2028 from 15,750 last year, according to Airbus.
The major U.S. airlines are expected to hire more than 40,000 pilots in the next 12 years, said Louis Smith, president of FltOps.com, which provides career counseling services and sponsors job fairs.
World passenger traffic is expected to increase an average of 4.7 percent a year between 2009 and 2028, according to Airbus.
Emirates is the largest Arab airline with more than 200 planes on order. It aims to recruit 250 pilots this year and double that number in 2011, it said in a statement.
The company, which needs more than $28 billion through 2017 for expansion, sought to recruit in Houston, Madrid and Singapore.
Cathay Pacific, Hong Kong’s biggest carrier, will recruit 1,000 people, including crew, Chief Operating Officer John Slosar said. PT Garuda Indonesia placed a newspaper advertisement last month seeking pilots “fluent in English and of good character.” Jetstar, the budget arm of Qantas, plans to recruit 120 more pilots by next summer.
Singapore Airlines Ltd. and AirAsia, based near Kuala Lumpur, set up their own tuition-free training academies. Singapore Air’s flying college graduates about 150 cadet pilots a year, while AirAsia’s facility trains as many as 500 a year.
Graduates must stay with the budget carrier for five years, AirAsia Chief Executive Officer Tony Fernandes said.
New flight schools also are opening. CAPA is investing at least $125 million to build an aerospace university in India that can train about 300 pilots a year, Somaia said.
The shortage, and hiring by a new crop of budget carriers, also could push wages higher.
“There is a misconception that low-cost airlines pay lower salaries,” said Tony Davis, chief executive officer of budget carrier Tiger Airways Holdings Ltd., part-owned by Singapore Air “We couldn’t do that in a competitive market.”
Basic pay for Singapore Air captains flying twin-aisle Boeing 777s or the Airbus A330s begin at S$9,300 ($6,870) a month, excluding allowances, said P. James, president of the Air Line Pilots Association of Singapore. They also earn a productivity allowance of as much as S$3,800 for flying 70 hours a month.
Emirates offers a starting monthly salary of 34,410 dirhams ($9,370) for captains, according to its website. That excludes benefits such as hourly flying and productivity payments.
Its other perks include a tax-free basic salary, profit sharing, villas for captains and free dry cleaning of uniforms, its website said. Those incentives help attract candidates to an increasingly demanding job, said Barry Jackson, president of the Australian and International Pilots Association, who has been a pilot at Qantas since 1987.
“Young people these days prefer to become doctors or lawyers,” he said. “This sort of career path is becoming less desirable.”