SpiceJet – Impressive Performance amidst Serious Challenges

01 Saturday Nov 2014

Posted by theflyingengineer in Airline, SpiceJet

Tags

CASK, Costs, performance, Profitability, Q2, RASK, Spicejet

SpiceJet is a unique airline. The airline had a massive management reshuffle, and the new management is actually working hard – very hard towards turning around the airline. In a record period – of around nine months, the airline has actually effected so many changes that it is an all new SpiceJet – in terms of appeal, service, and performance indicators. Symbolically, its the phoenix of the Indian airline industry.

Load factors, one of the strongest indicators of revenue, have been consistently up in the airline from the last few months. In Q2 FY2014-15 – comprising the months July, August and September, the airline recorded the airline industry’s highest ever domestic load factor in recent history, of 85.9%. What makes this achievement more remarkable is the fact that it was achieved in a lean season. The average Q2 domestic load factor stands at 82.5% – the best performance in the last 15 quarters of SpiceJet, and the highest among all Q2s in the entire history of SpiceJet.

Yet, the Q2 results will report a loss, and profitability in Q3 is somewhat threatened.

The market stimulation, and ancillary revenues have brought SpiceJet impressive revenues, but unfortunately these revenues are overshadowed by high costs in the airline. The high cost structure at SpiceJet – higher than the other two prominent LCCs – IndiGo and Go Air, is due to funding issues. The airline, which is now finding it difficult to sustain purely on cash flows from advance sales, badly needs a fund infusion. Without a cash problem, SpiceJet can make more money, and lower costs. How? Find out about this, and more, in further detail through our analysis, by clicking here.

A quick take on Tony’s talk

26 Friday Sep 2014

Posted by theflyingengineer in AirAsia India, SpiceJet

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AirAsia India, fares, Kaneswaran, Mittu, Sanjiv, Spicejet, Tony, Vijay

One interview – just one – of Tony (Economic Times, ‘So IndiGo, FIA want to fight? We fight!: Tony Fernandes, AirAsia chief’- Anirban Chowdhury) set Twitter on fire, with Sanjiv Kapoor (COO, SpiceJet) reacting, and Vijay Gopalan (CFO, AirAsia India) counter-reacting.

This is not about the gossip, but to make sense of the nonsense.

Tony Speaks

First, for Tony to say that he doesn’t understand ‘SpiceJet’s logic or strategy’, and that ‘the fares are unsustainable’ is a surprise. The man behind these low fares is Kaneswaran Avili, who was with AirAsia since its inception, and has also been involved with the group’s Tune Hotels and Tune Money. Kanesh drove the discounts and promo ‘sales’ at SpiceJet, and his logic is no different from AirAsia’s, but perhaps, tailored to suit to the needs of the Indian environment – and particularly SpiceJet.

Despite repeated attempts by SpiceJet to make the industry understand the too-easy-to-not-understand logic of their low fare strategy, people seem to not comprehend it. Even more surprising is the fact that AirAsia India, which claimed to sustain with the all inclusive INR 990 fares (AirAsia India CEO Mittu told TFE on June 12th: ” 990 fare for us is something that we think is sustainable”), finds SpiceJet’s ‘sale’ airfares, which are priced on average around INR 2,000, ridiculous. Or that’s what Tony thinks. Below is a snapshot of AirAsia’s low fares – far lower than SpiceJet’s. SpiceJet’s fares are almost always higher than AirAsia’s, for the same sector.

The Spicy logic

SpiceJet’s strategy is simple : determine those seats that will fly empty, and sell those seats at fares that more than cover the costs associated with transporting that discounted passenger. The result? The average yields for SpiceJet may have diluted, but the airline now records a higher – much high revenue per available seat kilometer (RASK). Which only means that on average, the airline realizes a larger revenue per flight, than it used to without these promotions and sales. Had these promos not been in place, SpiceJet would have bled further – in the face of increasing symptoms of overcapacity, with no guarantee of sold inventory or high yields.

What Tony must remember is that SpiceJet did not have the luxury of being run entirely by industry professionals throughout its existence. AirAsia has had that, and has carried no dirty laundry. SpiceJet’s performance today is awesome-for those who really know the figures-but appear terrible only because of the losses, penalties, interests, and other unwanted baggage from the past.

All that Kaneswaran has done is to implement an AirAsia strategy in SpiceJet, tweaked to ensure its optimisation for SpiceJet specifically. This has resulted in industry-wide highest loads for the year, high RASK, and working capital even in the face of a cash crunch and a meager investment of INR 300 Cr by Maran. Team SpiceJet is keeping the ship afloat.

The last word

It was perhaps poor research, poor understanding of SpiceJet’s strategy, or just a joke badly presented that drove Tony to be taken so seriously. Tony’s loose tongue lands everyone – including his airline – in trouble. For Tony to not understand SpiceJet is to not understand his own – Fares Kilpady (Vice President, Revenue Management at SpiceJet, and formerly at AirAsia X) and Kaneswaran, which is unfortunate.

What Tony doesn’t realize is that every time he or his team make a statement that counters a previous statement by Mittu, it only puts the young CEO in bad light.

Sanjiv came back with knee jerk reactions – unfortunately, even if his arguments were valid – which shows him being sucked into an unwanted word game he’s not cut out for. It’s proof that Sanjiv – a non resident Indian, with his family at London- is getting topicalised. The ‘foreigner’ jabs were uncalled for – Sanjiv is as much a foreigner in India, atleast as far as his career history shows. Mittu and Tony are a different breed, with a different mindset; but Sanjiv’s appeal as a classy COO may be waning.

Unlike Tony and Mittu who seem to have sufficient non-airline related time, Sanjiv has a big set of tasks: to walk the talk, turnaround an airline, and secure an investor (perhaps a ‘foreign(er)’?)

Meanwhile, the media & India will soon get used to Tony, and possibly not bother or read too much into each and every comment that he makes – which puts Mittu in bad light and leaves a bad after taste with the competition.

Could SpiceJet spring a surprise with its Q1 Results?

05 Tuesday Aug 2014

Posted by theflyingengineer in Airline, Analysis, SpiceJet

≈ 2 Comments

Tags

13, 14, FY, loss, performance, profit, Q1, Spicejet

It is widely believed in the industry that SpiceJet may post a Q1 loss. Some were convinced, based on personal estimates. Others heard whispers. But, there could be some hope. The Flying Engineer redoes some numbers to show how SpiceJet could (but not a guarantee that it will-this is purely an academic exercise) spring a surprise on a nation that is so used to seeing the red airline in the red.

The turning point

The airline started steering a different course with Chief Operating Officer Sanjiv Kapoor: the classy man heading SpiceJet at the operational front. The bigger turning point was when he restructured his top management, and bringing on board the new Chief Commercial Officer Kaneshwaran Avili, who is ex-AirAsia and ex-Tiger. To some of us who watch the industry, we are in absolute awe of Avili, not only for what he’s done, but for what he’s doing. There were other posts that got a fresh nameplate, but the biggest changes are the COO and the CCO.

Sanjiv, with his legacy experience, is all set to change the brand (image and offering) of SpiceJet, positioning itself as not a low cost carrier but a classy low cost carrier that caters, however limited, to the business crowd. Not surprising, as corporate flyers make most of SpiceJet’s bread and butter.

Avili, on the other hand, is keen on aligning the low cost carrier with global best practices for such airlines.

In short, Sanjiv caters to the first few rows of the aircraft, while Avili tries to work with the later rows in the cabin.

A great combination, in our humble opinion.

Results

You could have the best team, but in the end, all that ever matters are results. This is where the optimists and the pessimists are divided. For one, media reports (and verified true) of employees not receiving their form 16 from the airline is making most wonder if the airline has only sunk deeper, exhibiting the symptoms that plagued Kingfisher just before its downfall. These are the whisper driven crowd.

The optimists-some of whom (and who are just a handful) have reason to believe that the airline’s results – numbers – may have a different story to say, and maybe even spring a surprise on everyone.

To the numbers we March.

Load Factors

Beyond March-and before July make up the first quarter of the financial year. As shown in a previous analysis of SpiceJet by The Flying Engineer, there is a strong correlation between the passenger load factors and operational profits. April was a disappointing month for Spicejet (and few others), with domestic load factors that slumped compared to the previous year-for all carriers except Jet Airways and its low cost arm JetLite. In May, SpiceJet recorded and increase, and in June, displayed the best load factor increase performance, while IndiGo has been the only carrier to be in the negative for all three months of Q1.

Overall Market Demand

The second month of Q1-May-is typically the peak season for domestic travel. Yet, all carriers except Jet, Jet Lite, and SpiceJet reported a drop in load factors. Was there a slump in the demand for travel?

Year on Year (YoY), the Q1 of FY2014-15 recorded a 7% growth in domestic passenger traffic, while international recorded a 10% growth in traffic. Air Costa has grabbed less than 1% of market share, making us disregard the airline as a contributor to capacity increase. Overall, among the legacy full service and LCC carriers, capacity has increased far greater than demand, leading to low load factors.

But SpiceJet has done the opposite of IndiGo-it has slashed capacity in terms of seats, and ASKs. By pulling out six aircraft from its fleet, and with one Q400 temporarily grounded, it has deployed lesser capacity, but has managed an interesting result.

Efficiency of Commercial & Operations

SpiceJet’s fleet has shrunk from Q1 FY13 – sending off 2 Boeing 737s, and preparing six to be sent back to their lessors: 2 scheduled, and four early return, while adding 5 new 737 aircraft, including the latest 737- the infamous ‘Red Chilli’ with a special livery. Compared to Q1 FY13 SpiceJet seems to have had 3 more airplanes on its books, but three less operational aircraft (as six were being prepared for return). One Q400 may have been down for a fairly long period.

While the available fleet has shrunk, very interestingly, SpiceJet has performed positively with respect to a YoY growth when it comes to domestic passengers and cargo carried. These are sources of revenue. It has also shown a negative growth as far as flights, seat capacity, and available seat-kilometers are concerned. These three are sources of costs, which means the costs have reduced. These are numbers from the airline.

Overall, revenue indicators have grown, while cost indicators have shrunk. This can only mean one thing as far as direct operations are concerned: profits. And a similar encouraging trend is also seen in its international operations, which are just 10% of the airline’s overall deployed capacity (ASK). There, the fall in the number of passengers is small compared to the reduction in international ASK.

Overall, in Q1 FY14, SpiceJet flew just 23,400 passengers lesser than Q1 FY13, or just 0.7% lower. Which is impressive, in the face of a much higher airline capacity reduction.

Cargo carried in Q1 FY14 is much higher than Q1 FY13, showing an increase of 10%, or 1,868 tonnes extra.

Ticket Sales & Promos

Of those direct operation figures, as far as passengers are concerned, some seats are low yield seats, as these were promo seats sold across five sale campaigns: ‘Super Summer Sale’, ‘Super Holi Sale’, and three ‘Fly New Network’ promos.

The Summer sale was more an early sales drive, not exactly a ‘sale’. The ‘Super Holi Sale’ offered INR 1,999 tickets in Q4 FY13 for travel mid June onward (bookings 90 days in advance) – or just 1/6th of Q1-in June. Three ‘Fly New Network’ sales in Q1 FY14 were for flights in June, July and August, of which two were for travel only in 2/9th of Q1-in June. Since April and May are peak domestic travel seasons, no significantly low ‘promo’ seats were offered in those two months. Which means that the higher load factors in the month of May are largely a result of normal sales.

But in June, SpiceJet recorded incredible domestic load factors, making it the second highest (after Go Air), allowing the red airline to lead IndiGo in occupancy. Compared to Q1 FY13, the June domestic load factor in Q1 FY14 rose by 8.1% – or 107,466 passengers. If we assume all these passengers paid around INR 1,999, which means the airline took home a minimum of INR 1,500 (After UDF and ST), then the airline’s average yield (domestic) may have fallen by around INR 120, assuming an average passenger yield of INR 5,000 for regular sales. If one is to disregard the 10-lakh seats SpiceJet offered at INR 2013, which included travel in April 2013, then the promos in 2014 may have translated to a passenger revenue reduction of INR 37Cr, compared to Q1 FY13.

This does not mean the airline is losing money because of promo sales. Had these promos not been in place, the airline may have flown lesser passengers, taking a larger hit on its direct passenger revenue through lower sales and lesser stimulation. IndiGo, for instance, carried 687,000 more passengers in Q1 FY14 compared to last year, but added 1.24 million seats, leading to seat capacity deployment that was beyond demand. But considering SpiceJet has managed to fly more passengers with lesser capacity, probably in part because of the changes within the airline- new service, better cleanliness, better service, improved frequency, better timings, and better on-time-performance, the airline may not have sold as many promo tickets as estimated, but probably sold more regular fare tickets, bettering the 37Cr estimate.

In addition, SpiceJet held 11 sales campaigns in Q1 FY- thanks to Avili who took over the role of CCO in Q1 FY14- of which all included flights in Q2 Fy14, and only three included few flights in Q1 FY14 (The Fly New Network sales). Since statistically, demand in Q2 of any FY is weaker, more seats were up for sales. With an approximate 3.75 million seats flown (offered) in each quarter, and conservatively assuming 10% of it was up for promo sales, more than 500,000 tickets may have been sold at an average price of INR 1,777, leading to an additional revenue of INR 100 Crore.

That 100CR sales were for tickets that need to be serviced in Q2 FY14 and beyond. This only means that the airline has sold more tickets than it has serviced in Q1 FY14, leading to more revenues from operations, while not incurring the costs associated with servicing those ticket sales.

With the flash sales triggering a market stimulation, approximately INR 10-50 Crore or more worth tickets may have been sold purely through stimulation.

Pushing the Demand Season

The flash sales have had two effects: shoring up capital, and destroying the notion of a season, proving that seasons are in the hands of the airline. June, which was to have been the onset of the off-season for domestic air travel, has recorded the best load factors, making it a lucrative month, and carrying fuller airplanes (on domestic) than IndiGo in the June of Q1 FY13.

The advent of Ancillaries

Part of SpiceJet’s rebranding was the commercial interest involved with the introduction of preferred seats (where passengers may pay higher for ‘Max’ seats which are the first few and emergency exit seats which either offer better legroom or promise faster boarding and deplaning), and the hot meals with TAJ SATS and CCD. The ancillaries from these introductions are pronounced in June 2014, as the hot meals were introduced towards the end of May of 2014. With these introductions, and the higher number of passengers flown, SpiceJet could have realized higher in-flight ancillary revenue in Q1 FY14 compared to Q1 FY13.

Financial Summary

For the Q1 of FY13, SpiceJet reported a profit of INR 50 Crores. One of the largest disproportionate expenses for the airline, in FY13, was maintenance: INR 993Cr, most of which was contributed to in H1 FY13. Over quarters, the maintenance cost averages to INR 250Cr. In Q1 FY13, the maintenance cost was INR 200 Cr. If the maintenance costs prevail, due to activities associated with aircraft being configured to lessor-return conditions, then compared to Q1 FY13, the maintenance cost overrun is INR 50Cr.

Although six Boeing 737s were withdrawn from operations, there were three extra 737s on the books, compared to Q1 FY13, which together add about INR 12Cr in lease over the three months, over Q1 FY13.

Compared to Q1 FY13, fuel prices in Q1 FY14 have risen by an average 10%, while ASKs have fallen by about 7%, resulting in a net fuel price increase of INR 17Cr.

Overall, flights in Q1 FY14 have fallen to 95% of that in Q1 FY13, resulting in airport charges reducing by about INR 5 Cr.

Flight crew salary hikes were not effected in Q1 FY14.

Cargo carried has gone up by 10% in Q1 FY14, contributing to INR 4 Cr of revenues over and above that in Q1 FY3.

Passengers in Q1 FY14 have dipped by 23,400 when compared to Q1 FY13. Assuming these passengers could have been regular fare paying passengers, the airline may have lost INR 11Cr. In addition, due to the promo fares, the airline may have lost INR 37Cr in the form of average yield reduction.

The lesser flights but higher passengers and cargo per flight translate to an average 500kg increase in payload, per flight, which introduces an average 0.65% fuel burn penalty, which translates to INR 5 Cr.

However, the airline may have shored up to around INR 150Cr from the sales in Q1 for services in Q2, and the market stimulation drive. With this, the airline may report a two digit profit (though we’d love to see three), and a single digit profit or a very modest and negligible loss, at worst. It must be noted that proceeds due to ancillaries haven’t been considered, which will increase profits. These profit/loss projects are very approximate, conservative, and willfully skip few other factors that influence cost, and may not hold true in case the airline paid off certain dues from previous quarters (if such rumors of unpaid dues are true) in Q1 FY14, in which case the airline may slip into losses against the above projection.

If the company’s declared results are as analysed above, SpiceJet is on its way to a positive transformation. With all it’s heart.

As loads factors go up in May, so do hopes at SpiceJet. Q1 Loss imminent.

02 Wednesday Jul 2014

Posted by theflyingengineer in General Aviation Interest, Operations

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Tags

2014, factors, Load, loss, May, Q1, Spicejet

SpiceJet’s load factor in the May of 2014 has touched 81.4%, its highest in two years since the May of 2012, and is the first month in this calendar year to beat the load factors witnessed by the airline last year. It beats the previous year’s load factors for the same month, by 0.5%.

While this is reassuring news, it must be noted that since 2010, May has been the month when SpiceJet witnesses its highest load factors. May and June are peak months for air travel, but it is only the second best period for IndiGo, which usually sees its best load factors in the month of December.

Statistically, SpiceJet’s load factors slip after May. Loads factors for the month of July are expected to be lower, but it is not known if they are lower than the previous year’s.

Effects of SpiceJet’s most significant market stimulation drive, the Re 1 fare sale which was held for the first three days of April, for travel between 01-July-2014 to 28-March- 2015, will be seen this month. Due to the sale, load factors are expected to go up, and according to the airline’s Chief Commercial Officer Kaneswaran Avili, the stimulation has yielded positive results in terms of higher non-promo fare bookings as well.

With these multiple promotional sales, any higher bookings are a mix of promo fares and regular fares. If the market has been sufficiently stimulated, which will reflect in higher load factors, then the airline will generate additional revenue. But if even after the stimulation, if the load factors rise only slightly, or not at all, it may not generate the airline any additional revenue. If load factors drop, which is highly unlikely, it is the death bell for the airline.

For example, SpiceJet’s Super Holi sale in March for travel between 14th April and 30th June 2014, and the Super Summer Sale in February for travel between April 1 and June 30, 2014, did not seem to have had an overall positive impact on the load factors for the months of April and May. Since the load factors were lower than the corresponding period in the previous year, it only meant that lesser people filled up the aircraft on average, and among that lesser set of passengers, even lesser actually paid a regular fare.

As shown in The Flying Engineer’s analysis of SpiceJet, there is a strong correlation between load factors and operational profits. Considering that (look at the graph) the load factors in April and May have resulted in an average load factor that is 0.6% lower than last year’s load factors for the same months, and that some of that passenger set bought sale/promotional fares and not regular fares, and that the factors in June are expected to dip (based on statistical trends), it may be likely that for the Q1 for Financial Year 2014, SpiceJet may report a loss.

But with the 0.5% in load factors in May, over last year’s, mild hopes are pinned on the second quarter of FY2104, which started yesterday. We do wish the airline all the very best, and hope to see it turnaround fast and strong, before the might of aggressively expanding TATA-SIA and AirAsia India, and the increasing capacity deployed by IndiGo and GoAir possibly choke the airline.

SpiceJet’s 1,003 Crore Loss: How, why, and…avoidable?

30 Monday Jun 2014

Posted by theflyingengineer in General Aviation Interest, Operations

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1003, 2013-14, Airline, Analysis, crore, FY, loss, Operations, Spicejet

The Flying Engineer looks into some of the areas where SpiceJet’s losses were linked to its planning and performance, mostly to do with operations. The long analysis identifies trends, and looks at areas where the airline could have either saved money, or made money.

Although the airline mentioned that 70% of the airline’s costs are affected by the dollar, this analysis shows how that the dollar can take only part blame for the loss. The real story goes beyond the dependance on the dollar, to a larger dependance on the airline, and how practices, brand, image, network, services, operations, planning, and people are responsible for the mess that SpiceJet found itself in.

The piece also captures most of what SpiceJet has been doing: transforming on the inside and the outside. With string and diligent efforts by the team led by Sanjiv Kapoor, FY2014-15 may witness SpiceJet performing better. However, the new entrants: AirAsia India and TATA-SIA, between which two SpiceJet has positioned itself, will place a lot of stress on the airline, especially at the same time as its turnaround process. Will it survive? Could it have been profitable? How does it measure against its competition? This and more, when you CLICK HERE.

Air Asia India: Getting Real

13 Friday Jun 2014

Posted by theflyingengineer in General Aviation Interest, Operations

≈ 6 Comments

Tags

Air, Asia, Bangalore, competition, First, Flight, goa, India, Indigo, maiden, market, share, Spicejet, win

AirAsia India (AAI) took to the skies yesterday, on its first revenue flight, and marks a new chapter in Indian air transport history. The inaugural flight, i5 1320, flew from Bangalore to Goa, with almost all seats filled with excited passengers, guests, and staff.

To the paying customer, who after all is the target of every airline, four things are important, one of which is the in-flight experience, which includes aircraft cleanliness, comfort, in-flight service, and food & beverage options. AirAsia India has got it right from day one; being part of the AirAsia Group really does make all the difference.

Today, AirAsia India is a small player, but with a huge backing. It enjoys the economies of scale, and is set to take on the Indian market by storm.

In this piece, we look into what could make AAI appeal to the passenger, and why it may emerge as the preferred airline.

CLICK HERE to read all about an ingredient to the airline’s success.

A new battle dawns: SpiceJet launches pre-emptive strike on the market

30 Friday May 2014

Posted by theflyingengineer in General Aviation Interest

≈ 2 Comments

Tags

AirAsia, India, Launch, Spicejet

Goa is the latest addition to AirAsia’s destinations.

AirAsia Group CEO Tony’s tweet, last afternoon, “Very very proud to announce AirAsia India open for sale tomorrow. Wow. First flight June 12th. Ser you all In India on the 12th“, was the group’s Indian startup’s battle cry. The first sectors are expected to be Bangalore-Goa, and Bangalore-Chennai.

All that AirAsia India’s voice, Mittu Chandilya, has been claiming till date, will be put to test: the airfares, claimed to be 30% lower than regular airfares of other airlines; the turnaround time: an optimistic 20 minutes, and more.

Almost five hours later, the battle cry was responded to, by SpiceJet. It announced a ‘Special Promotional fare’ coinciding with AirAsia’s first commercial flight – June 12th- on two popular routes in South India by offering tickets as low as Rs 1,499, excluding statutory taxes. Including taxes, this amounts to INR 2,058. This all inclusive fare is 60% lower than that offered by other carriers for Bangalore-Goa flights on 12th June.

Coinciding with the formal announcement, Sanjiv Kapoor, COO of SpiceJet tweeted, “How does Rs 1499/- ow for MAA-BLR vv or BLR-GOA vv starting June 12 sound? That’s the lowest allowed by DGCA. Should we? 😉“

This is SpiceJet’s pre-emptive strike on the market, hours before AirAsia India opens up its portals for booking on these sectors.

Kaneswaran Avili, SpiceJet’s Chief Commercial Officer, and former director-business development at AirAsia, is making SpiceJet go the way of AirAsia in stimulating the market and shoring up revenues through carefully planned and limited promotional airfares. With Kaneswaran on board, AirAsia will be competing with an airline that has one of its original own, but till lacks the economies of scale, and operational streamlining that AirAsia India will enjoy by being a part of the AirAsia group.

Edit: But AirAsia India shocked the population with INR 990 fares from Bangalore – Goa. This has miffed SpiceJet, which was at the receiving end of DGCA’s flak for selling INR 1/- fares (with tax amounting to around INR 450 for Bangalore – Goa), and was told to not sell below INR 1,499. Many see this as unfairness meted out to an Indian airline.

AirAsia India is officially launching on May 30th: exactly two years after the now defunct AirAsia Japan launched (opened for sale of tickets) in 2012.

The sale of tickets is expected to commence later today at around 23:00hrs (11pm).

The “Airshow” & “Exhibition”: India Aviation 2014

12 Wednesday Mar 2014

Posted by theflyingengineer in Operations

≈ 1 Comment

Tags

2014, 787, A380, Air, aircraft, Asia, Aviation, Boeing, Display, ferry, India, Spicejet

Airplanes on display; Modest display by the small number of international exhibitors; Civil Aviation Minister talks of robustness and reforms; Same ministry’s DGCA is responsible for the delay in Air Asia’s ferry flight.

The photo above shows you how many airplanes were present at the show. There are only two wide bodies, essentially representatives of Boeing and Airbus, and the business-jet-segment representatives of Bombardier and Embraer. Beechcraft, which abandoned the “Hawker” in its earlier name “Hawker-Beechcraft”, after deciding to abandon the jet segment and focus on turboprops, and which was recently bought over by Textron, the parent company of Cessna, had three turboprop representatives at the show, from the Kingair line: B250, B350, and C90. Cessna had its Citation 560XL, Gulfstream brought in its G150 and G650, Bombardier its Challenger 605, Piaggio Aero its Avanti, Embraer its Phenom 100, Legacy 650, and Lineage 1000, Dassault its Falcon 7X, Airbus and Emirates their A380, and Boeing its 787. GMR-APFT, the new Hyderabad based flight school, positioned their Diamond DA-40D fitted with a diesel engine, and the UK based Mark Jefferies Air Shows and Display Aerobatics’ two Extra 330SC and 300L aircraft.

Few aircraft, including helicopters, did not turn up after the exhibitors decided not to participate in the airshow.

In total? Just 17 civil aircraft present for a country with the world’s second largest population and in a region with phenomenal aviation growth, at the 4th International Exhibition & Conference on Civil Aviation- India Aviation 2014.

Just one order marked the highlight of the day: SpiceJet and Boeing, which had for long dragged the decision to announce the airline’s purchase of 42 Boeing 737 MAX 8s, finally went public with the US$4.4 Billion worth order, pegging the price of each 737 MAX 8 at US$ 104.7M. The 737 MAX’s first flight is scheduled in 2016 with deliveries to customers beginning in 2017. SpiceJet is to receive 17 Boeing 737-800s directly from Boeing, in addition to the order for 737 MAX 8s.

Jet Airways’ order for the Boeing 737 MAX has yet to be announced.

Ajit Singh, Minister for Civil Aviation, stated in his speech at the show, “….is happening at the time when Indian Aviation is witnessing several policy changes and reforms to provide a robust aviation sector.” It is unclear whether the robustness was in reference to protecting existing players (airlines) from competition, or referring to a system that simply does not exist, evidenced by the FAA’s downgrade of the Indian DGCA.

Air Asia India, which was to have ferried its first Airbus A320 to India, today, has postponed the flight by a few days due to certain issues with the DGCA, invalidating the claims of the aviation minister.

The minster also went on to say, ” Civil aviation in India has been scripting a major success story due to progressive policies of the Government”, and that, “commercial fleet size is expected to grow from 400 today to 1000 aircraft by 2020”. There was no reference made to general aviation.

The same progressive Civil Aviation department did not permit few composite airplanes from flying into the show.

Only 26 International Exhibitors are present at the show, most with extremely modest presences.

Edit: Boeing 737 Max unit price corrected; A380 operator corrected.

Switching Fleets: More Boeing to Airbus than the other way around

16 Sunday Feb 2014

Posted by theflyingengineer in Manufacturer

≈ 5 Comments

Tags

737, A320, Airbus, Boeing, Cost, full service, Indigo, Jet, losing, Low, market, MAX, NEO, SilkAir, Spicejet

This piece covers Boeing’s slipping grip on the low-cost airline market, with a focus on Asia: how, why, and where.

Air Asia, and EasyJet, operators of Airbus A320 airplanes, were once Boeing 737 operators. Airbus has been on a “rampage”, trying to trespass Boeing’s narrowbody territory, and plant what is today the world’s best selling airplane family.

Air Asia, which until as recently as 2010 operated Boeing 737-300 aircraft, is now an all Airbus A320 operator: operating 73 of them. Air Asia Indonesia, which also operated Boeing 737-300s, now flies 30 Airbus A320 airplanes. Lion Air of Indonesia, which operates 99 Boeing 737 aircraft, most of which are 737NG airplanes, placed a firm order for 234 Airbus A320 aircraft, including 60 Airbus A320 classic engine option airplanes. Garuda Citilink, established in 2001 as a low-cost subsidiary of Garuda Indonesia, which operated an all Boeing 737-300 and 400 fleet, now flies 24, more efficient Airbus A320s with the callsign “Supergreen”.

Jet Airways has evaluated Airbus A320NEOs, and Neil Mills, the then CEO of SpiceJet, publicly announced the evaluation of a fleet switch to the A320NEO.

Boeing’s comeback: an order of 54 Boeing 737s, comprising 23 737-800s and 31 737 Max 8s from SilkAir, the regional wing of Singapore Airlines, which welcomed its first Boeing 737-800 (9V-MGA) at the Singapore Airshow 2014, marking the start of SilkAir’s transition to an all-Boeing fleet, from the existing fleet of 24 Airbus aircraft, comprising 6 A319s and 18 A320s. (see photo on top)

After SilkAir, Boeing is now trying to sway TigerAir to adopt its airplanes.

How: Airbus’s Successes.

Said Dinesh Keshkar, vice president, Asia-Pacific & India Sales for Boeing Commercial Airplanes, in February 2013, after Spicejet and Jet Airways performed financially better, (after the demise of Kingfisher), “Can they sustain these yields, which I think they can because of the balance of capacity in the market. They will continue to do well and aviation will continue to grow profitably. The Indian commercial aviation market is improving with higher yields and stability in fuel charges”.

The same Keshkar in February 2014 admitted that Indian carriers are “not doing well” due to the decline in the rupee, high fuel costs, and high capital costs and taxes in India. “Certainly the Indian market is not for the faint-hearted. It’s hard to make money there. Nevertheless, everybody realizes that it’s a great market and that’s why more and more people are trying to get into that market.”

Said Kiran Rao, executive vice president for strategy at Airbus, in January 2013, “It’s quite understandable that with the high fuel prices and the Indian taxes, the neo really works in India,” he says. “Jet Airways and Spicejet are predominately Boeing airlines today, but we will give it a good shot.”

Two things make the Airbus A320NEO attractive: Great operating economics, and its availability atleast 2 years before the Boeing 737MAX. That gives operators the chance to start reaping the benefits of an economical airplane two years before its competition, and that amounts to saving big money.

To put things in perspective, final assembly for the first Airbus A320NEO will start in March 2014, for the planned maiden flight in autumn, kicking off a flight-test campaign with 8 Airbus A320NEO airplanes, all flying with PW1100G Geared Turbofan Engines. In contrast, the engine that will power the 737MAX, the GE-SNECMA CFM LEAP-1B variant may not take to the skies this year, as the engine manufacturer plans to begin flight tests of the A320NEO’s alternate engine, LEAP-1A, on GE’s Boeing 747 flying testbed in September 2014.

The A320NEO is expected to enter service in late 2015, while the Boeing 737MAX is expected to enter service in late 2017.

“In a high fuel cost environment, it only makes sense to consider all of the available options. We must look at the aircraft that will have the lowest operating costs and see how it fits into our fleet,” said Neil Mills in March 2013, talking about the possible switch to the Airbus A30NEO, to meet medium term fleet requirements.”We will switch from one aircraft type to another if needed. I was with Easyjet when we switched from Boeing to Airbus and we can do the same here.”

The Boeing 737-800, which compares & competes directly with the Airbus A320, burns more fuel for the same payload. The Boeing 737-800 with winglets burns as much fuel as the A320 for the same range, payload, and cruise altitude. The A320 with “sharklets”, however, beats the Boeing 737-800W, and the A320NEO, goes unmatched.

But getting efficient airplanes two years earlier isn’t everything.

A continuing fight in the World Trade Organization is between the U.S. and the European Union over government support to Boeing and Airbus. The U.S. charges that European government subsidies have allowed Airbus to undercut Boeing prices, giving Airbus an unfair advantage in the marketplace and harming the U.S. aerospace industry: Boeing has significantly streamlined its 737 production during the past two years, but company officials said their cost improvements still don’t enable them to break even at the prices Airbus is quoting for the A320.

Although Keskar says that he is “not even going to try” reaching out to AirAsia because of the large number of A320s the carrier has on its order books, Boeing apparently hasn’t stopped trying to sway the airline in its favour. However, Boeing isn’t willing to sell at any price, even though Airbus is charging far less than Boeing is willing to accept. Boeing marketing Vice President Randy Baseler said “the only standard Airbus is setting is with price” on the 2004 Air Berlin deal, in which the German carrier ordered 70 Airbus A320 aircraft . “If you cut your prices enough, anybody will take them,” he said.

Few analysts feel Airbus offers a discount of as much as 60% to sway orders in their favour, while Airbus plays down the discount.

The matter only worsens with the projected 737MAX development costs expected at twice that for the A320NEO. The 737MAX is undergoing far more changes than the famous Airbus narrowbody family.

The territories.

Boeing has lost out the no-frills, low cost airline segment to Airbus. Boeing once had monopolized this segment, especially with Southwest operating 588 Boeing 737 airplanes, and RyanAir operating 298 airplanes. Now, almost all start up low cost airlines fly the Airbus A320.

India’s “model” airline, IndiGo, and other start-ups: Air Deccan, Go Air, and Kingfisher Airlines (which eventually added the low cost arm Kingfisher RED) either fly or flew Airbus A320s. New airlines on the Indian horizon, whether credible or not, plan an A320 fleet: Skyjet Airways, and Volk Air.

TATA-SIA, the most talked about airline, will have an A320 fleet of 20, all leased, and AirAsia India, in line with the other AirAsias, will also fly with Airbus A320 aircraft.

SilkAir, with a brand that is not low cost but rather full service, will feature a cabin layout of 12 Business Class and 150 Economy class seats, representing an eight percent increase on SilkAir’s current seating capacity on the dual class A320s.

The only advantage in switching to a 737NG, for SilkAir, is increasing capacity without compromising on comfort through seat pitch. But it takes a lot to convince an airline to switch; especially when they could have flown more economical with the A320 sharklets, and saved on fleet transition costs. The real reason lies behind closed, motionless lips.

Stating a SilkAir press release, “A full-service carrier that is committed to creating enjoyable and reliable travel experiences, enhancements that customers can look forward to on the new aircraft include features such as the Boeing Sky Interior, which highlights new modern sculpted sidewalls and window reveals, LED lighting that enhances the sense of spaciousness, larger pivoting overhead stowage bins as well as in-seat audio and power supply for added convenience.”

Then why was Spicejet, a low cost, missed by Airbus? SpiceJet began services in May 2005, when Air Asia was still flying an all Boeing 737 fleet, and just one year after EasyJet began transitioning to a predominantly Airbus A319 fleet. It was only in the December of 2005 that AirAsia received its first Airbus A320.

Said Kiran Rao, “We should have won the SpiceJet order the first time around, but it is just that at the time we had so many orders and took our eye off the ball,”.

But TATA-SIA, a full service carrier, should have been the target of Boeing. Dinesh Keshkar said that with the huge backlog for the 737, it was not able to provide narrowbodies to Tata SIA in line with its target to start operations in 2014.

The Indian MAX announcement that never came

Boeing in late 2012 had hoped to take its first order for the 737 MAX from an Indian airline. This hope was rekindled when Boeing had mentioned revealing a “sizable order” for the MAX from an Indian carrier, during the 2014 Singapore Airshow.

Twice, Boeing’s announcements never came, although media reports Jet and SpiceJet have signed for Boeing 737MAX airplanes, in the double digit range.

This is in sharp contrast to Airbus A320NEO orders placed by IndiGo and GoAir. Further widening the Airbus-Boeing gap are reports of the likelihood of IndiGo placing an order for 200-250 “more” aircraft.

Recording the largest aviation growth, Asia is where all airplane manufacturers have trained their guns. But Asia is a cost conscious market, where the likes of low cost airlines sprout often and thrive. That makes, statistically, a great market for Airbus, and a bleak outlook for Boeing, for now atleast. Few orders for Boeing 737 airplanes are overshadowed by Airbus’ wins.

Is Boeing going?

SpiceJet’s new management appointments: The Tiger is roaring

09 Sunday Feb 2014

Posted by theflyingengineer in General Aviation Interest

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Airways, CCO, COO, Investor, Kaneswaran, Kapoor, Sanjiv, Spicejet, Tiger

For a country where the mainstream media is expected to sensationalise any and every news related to aviation, it comes as a surprise how the otherwise over-enthusiastic media has not been able to connect the dots in the recent developments at SpiceJet.

In November 2013, SpiceJet “appointed” Sanjiv Kapoor as its Chief Operations Officer (COO). Sanjiv Kapoor held the position of Senior Director, Temasek Holdings for 1yr 8 months. Temasek Holdings, directly and indirectly through Singapore Airlines has a significant stake in Tiger Airways, which operates as Tigerair.

Now, in February 2014, SpiceJet announced the “appointment” of Kaneswaran Avili as Chief Commercial Officer, effective April 1^st 2014. Interestingly, the position he holds today is Director-Commercial at Tiger Airways, and has held that position since October 2012.

Men with very, very impressive resumes are being “appointed” by SpiceJet, a sure sign of good times to come. Interestingly, men related to Tiger Airways, in the past and the present, are joining Spicejet, which seems less of an “appointment” and more of an insert. In simple language: Tiger Airways seems to be actively reforming the airline with its own people before it can invest in SpiceJet.

The experience that the COO and the CCO bring seem to be complimentary: Sanjiv Kapoor has had experience only with full service, legacy carriers. That is great from the operational perspective. Although successful low cost airlines have been known for streamlined operations, the experience Sanjiv gained at leading airlines can help transform the way in which the SpiceJet brand is viewed today. Dirty seats, dirty airplanes, and unhappy services are on their way out.

Kaneswaran, on the other hand comes with a solid experience of 12 years not the “airline” industry, but the low cost airline Industry. He was part of the start up team of AirAsia in 2001, played a pivotal role in Air Asia’s expansion into neighbouring countries. He’s been associated with famous low cost brands: Air Asia, and Garuda Indonesia Citilink. Importantly, he was engaged by Viva Macau, Macau first LCC start up, where he was tasked with the responsibility for re-engineering the commercial unit and implementation of new commercial and network strategies to return the airline to route profitability. Recently, Kanesh completed a short but intense commercial transformation project for Citilink Indonesia. These responsibilities and experience are what SpiceJet can do with.

Sanjiv’s full service experience in operations and Kaneswaran’s rich low cost experience can, if well leveraged, make SpiceJet the preferred low cost airline: based on fares, and on service. Something that IndiGo is already known for.

“His deep domain knowledge on airline commercial across sales & distribution, revenue management, marketing, network planning, airline system and market penetration strategy would be key in transforming SpiceJet commercial capability and improving overall route and airline profitability,” said Mr. Sanjiv Kapoor, Chief Operating Officer, SpiceJet Ltd.

Interestingly, Sanjiv Kapoor, more than a week ago, said, “SpiceJet is also demonstrating that you do not need foreign airlines to show India the power of low fares and market stimulation; we are just as capable of doing it ourselves, and are committed to creating multiple opportunities for as many Indians as possible to fly.” That ambiguous statement was clarified by SpiceJet as referring to “Air Asia’s constant claims that they will stimulate demand.”

And now we have on board the airline the very man who was part of the start up team of AirAsia.

Says Sanjiv Kapoor, “Kanesh’s joining is part of an ongoing refresh of SpiceJet’s management team, with further announcements to be made in the coming weeks”

To bleed or to succeed? The discount airfare gamble.

22 Wednesday Jan 2014

Posted by theflyingengineer in General Aviation Interest, Operations

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Air, Airfare, Discount, factors, Go, India, Indigo, Load, Spicejet, Statistics

It’s that period of the year again, when SpiceJet decides to roll out attractive fares to fill otherwise empty seats on board its airplanes. For travel between the second half of February till 15th April 2014, SpiceJet offers a 50% discount on the base fare and fuel surcharge (which constitute most of the airfare), on limited seats on direct flights.

Other airlines have followed the airline-in-the-red.

This is perceived as a much better move when compared to what was done last year (2013), when the airline was under the reigns of Neil Mills. A flat fare of INR 2013 was offered, irrespective of the sector length. This time around, the fare, though discounted, is in sync with the sector. The airline has been careful in offering very few such seats on flights that always assure a good demand: the early morning and late evening /night flights between metros.

Apparently, this move from this airline has been “well calibrated”, and the airline has “learnt from its mistakes”.

Last year’s offer did not help much, with the overall load factors.

“It’s time to find your excuse to travel, as SpiceJet is offering 50% off on all flights when you book at least 30 days prior to your travel”, says the “SpiceJet 3 Day Supersale”. Based on last year’s performance, here are thoughts on the supersale:

Assume for the early morning flights (one of the more attractive flights), the load factors hover around 90%. For a 737-800, this is 170 seats. Supposing the airline, based on statistical study, decided to offer 19 seats for this sector, with the Super Sale offer. One of two extreme possibilities exist:

1. Unplanned travelers, smitten by the offer, pick up those 19 seats, while those business travelers who would have anyways paid regular fares and flown, may pick up the remaining 170 seats. But if the ticket fares, which shoot up due to higher perceived demand, is still applicable, an estimated 5-10 seats may remain empty. The airline makes money.

2. Planned travelers, who were yet to book their tickets, pick up the19 tickets, making the remaining, regular fare seats unattractive for unplanned travelers. This will still leave 19 seats empty. The airline loses money.

Practically, it may be a mix between options 1 and 2, leaving the carrier between 0 – 9 extra paying passengers. In this example, the incremental load factor is between 0% and 7%.

On sectors that do not usually attract good load factors, the stakes are much higher.

Comparing the load factors between years is not straightforward, as many variables exist. Yet, here is a comparison between the load factors in the 3 month period, February to April, from 2009 to 2013, for SpiceJet:

Note that when SpiceJet came out with its offer last year, the months of February and March recorded higher average load factors compared to those in 2012, but the month of April did worse than in 2012.

With Go Air, Air India, and IndiGo offering similar airfares, the potential growth in passengers in this 2 month period is distributed.

Will the gamble make airlines bleed or succeed? To be seen.

Spicejet: Trimming its network

17 Friday Jan 2014

Posted by theflyingengineer in Operations

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Changes, Kapoor, routes, Sanjiv, Spicejet

The Bain & Co report, which will be used by SpiceJet to restructure the airline, isn’t yet out. But it doesn’t take a consulting firm to look at the obvious.

On 16th January, 2014, SpiceJet announced the filing of its 2014 Summer flight schedule with the DGCA, for approval. The summer schedule starts from March end, and runs till October end.

The new schedule drops more routes than it adds, a sign of the airline restructuring in blossom.

On the international front, the airline will add Hong Kong and Dhaka, as destinations. SpiceJet will be discontinuing its Pune-Bangkok, Varanasi-Sharjah, and Delhi-Guangzhou flights. Sharjah will continue to be served from Pune and Lucknow, and Bangkok from Bangalore. Guangzhou will be served from Kolkata, along with Hong Kong.

Few persons close to the airline operations told The Flying Engineer that loads on the Bangkok-Pune flights were very dismal, once recording as low as 4 passengers flying on a 189 seat Boeing 737-800.

Domestic destinations that will be done away with are: Pondicherry, Trichy, and Allahabad.

According to the airline, the revised schedule will ensure optimal utilization of the airline’s fleet.

To further increase focus on its customers who opt for SpiceMAX, SpiceJet will be reconfiguring its Boeing 737 aircraft to offer 5 rows of seats with enhanced legroom and value added services. The Corporate Frequent Flyer program, to woo business travelers, was introduced late 2013. This focus on Business class seems to stem from Sanjiv Kapoor, who has not been involved with a low cost airline before.

When SpiceJet can expect its 737 MAXs, and what the 42 airplane order speaks

07 Tuesday Jan 2014

Posted by theflyingengineer in General Aviation Interest

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-8, 42, 737, Boeing, Investor, MAX, Orders, Spicejet

Though not officially acknowledged by the airline, SpiceJet has reportedly placed an order for 42 Boeing 737 MAX Aircraft. Considering the airline’s fleet to be comprised mostly of Boeing 737-800s, the order may very well be entirely made of Boeing 737 MAX 8 airplanes.

The Boeing 737 MAX 8 is expected to enter service in the third quarter of 2017, almost 4 years from now. With already 1,763 orders for the 737 MAX airplanes, it may be easily close to 2-3 years after the 737 MAX 8 enters service that SpiceJet receives its first 737 MAX, assuming that Boeing will up the production rate of the 737 jets to 47 a month, or higher to 60, from the present 42.

SpiceJet is now one of 298 yet “Unidentified” Customers who have ordered 737 MAX airplanes. The airline is yet to receive 18 Boeing 737-800 airplanes from the US airplane manufacturer. In 2013, SpiceJet received 10 Boeing 737NG airplanes, its highest ever in a calendar year.

This order that speaks of an airline poised for growth 5 years down the road, is a precursor to “something” big in the airline. Note the 737NG delivery trend for SpcieJet, below, and you’ll notice that 2013 was a very happening year, for an airline about to make a big announcement in 2014: the news of the much awaited investor.

Quarters are Calendar Quarters, not Financial Quarters.

January 5th: A day of Incidents and Accidents

06 Monday Jan 2014

Posted by theflyingengineer in Flight Safety

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200, 600, 767, A320, Accident, Air, Airbus, Aspen, Boeing, Bombardier, Challenger, CRJ, Emergency, HS-BKE, Incident, India, Jaipur, N115WF, Saudi, Spicejet, VT-ESH

The black book of aviation safety suddenly experienced a spike in entries on January 5th, 2014. There were three accidents and one incident on Jan 5th, 2014. There was only one fatality.

At around 01:00UTC, A Saudi Boeing 767-300, registered HS-BKE, landed at Madinah (Saudi Arabia) with the right main gear still retracted. The crew were first made aware of the situation when they were on approach, and extended the gear only to observe an unsafe indication for the right main. The crew put the aircraft into a hold, followed applicable checklists, including what appears to be a gravity extension, but after being unable to resolve the issue, landed on the third attempt, on the left main, and the right engine. There were no injuries as a direct result of the accident, but because of chaos during the evacuation. The aircraft seems to have sustained substantial damage.

At around 13:00UTC, a Bombardier CRJ200 registered N8758D, landed at New York’s (USA) John F Kennedy’s runway 22L, and slid off the taxiway exit J, and came to stop on soft ground, temporarily shutting the airport for 2 hours. No injuries were reported.

At around 14:00UTC, an Airbus A320-231 with the double bogey landing gear, registered VT-ESH, landed at Jaipur International Airport (India), burst its tyres, and damaged its left wing significantly. The aircraft was operating a scheduled domestic into Delhi, but was forced to divert to Jaipur due to visibility at Delhi, where it declared a fuel emergency and reportedly landed below minima (landing in visibility below the allowable runway visual range (RVR)), due to a fuel emergency. Uncertainty remains on the cause of wing damage: whether the wing scraped the ground, or the wing hit obstacles after reportedly (but unlikely) veering off the runway after landing. The closure of Jaipur Airport due to this accident forced a Spicejet 737, registered VT-SGU, which was supposed to have landed at Delhi, but was forced to divert to Jaipur due to visibility, to return to Delhi, where it declared a fuel emergency, and reportedly landed below minima.

At around 19:20UTC, a Bombardier Challenger 600 registered N115WF, reportedly land, turn into a fireball, flipped a few times, and skid to a stop, upside down, on runway 15 at Aspen-Pitkin County Airport, CO (ASE, USA). The accident left the airplane charred, took the life of one on board, while seriously injuring another, and mildly injured the third person on board. The right wing had snapped off. The aircraft had executed a go around, citing a tailwind, and came to rest in this condition on the second landing attempt. Other traffic had reported mild windshear and gusting winds.

Spicejet: What it did, what it must do, and the Tiger it may very well get into.

30 Monday Dec 2013

Posted by theflyingengineer in General Aviation Interest, Operations

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Acquisition, Airways, Bain, Co, Customer, Experience, Factor, Indigo, Kapoor, Load, Merger, Offer, Profits, Sanjiv, Spicejet, Tiger, Tigerair

This piece has 3 parts: the first entirely factual, the second, Spicejet’s offer and what it should do to make itself more appealing (based on actual feedback), and the third: a focus on Spicejet, its COO, and its investor: is a part factual and part well informed yet speculative section.

The Big Sale left no great Tale.

In the 3 months of February, March and April 2012, Spicejet had flown 838,911 empty seats that made up 25% of the airline’s average seat capacity in that 3 month period. Based on the airline’s past performance and future growth projections, 25% in that 3 month period, in 2013, was to have translated to 987,644 seats. Make that 1,000,000 (10 lakh) for the arithmophobic.

That’s the exact number of tickets that were on sale, mid January, for an all inclusive fare of INR 2013, during the airline’s Big Sale offer, valid for travel during February, March and April, 2013.

The numbers made sense; everyone was convinced, and the figures added up to a promise. The load factors were expected to lean towards 100%, by roping in travellers who otherwise would have preferred the Indian Railways. It should have made perfect sense.

But it didn’t. In that 3 month period, the airline flew 900,733 empty seats, 7% more empty seats than those in the same period, in 2012. Capacity had grown 17%, demand grew 20%, but the average load factor had grown a dismal 2.8% to 77.3%.

But did it have the effect of siphoning off passengers from other players, including its biggest, true low cost competitor, IndiGo? In the same period, Feb-April 2013, IndiGo’s capacity grew 24%, demand grew 27%, and load factors increased, eerily, by the exact same amount as Spicejet’s: 2.8%, to 82.7%.

And yes, both airlines flew 900,000 empty seats each in that 3 month period.

Focusing on the consistent, business traveller.

It’s that time of the year, again, and Spicejet has a new offer: the Spicejet Corporate Flyer Offer, which offers to corporate companies 1 free one way ticket for every 6 completed one way journeys and 2 free one way tickets for every 10 completed one way journeys, with applicable T&C. This year, until probably any other offer is introduced, the airline has shifted focus from the Aam Aadmi, and focused on Corporates.

Will it pay off? Maybe. But unlike targeting the rail-going population, the corporate traveller needs something more: good service. And from what we’ve been hearing, including from a top management guy from one of the world’s largest manufacturers of computers, with a strong India presence, the service needs a makeover.

Agreed, India is a price sensitive market, but it’s not always the fares and offers that attracts a passenger: promise must be met with delivery. Because everyone remembers the bad and not the good. And an airline wouldn’t want to risk that, if one of its passengers is a decision maker at a big, big company.

Pilot in Command: Sanjiv Kapoor

This small, yet deepened focus on the corporate traveller may be one of the changes brought about by the Sanjiv Kapoor guided airline. Sanjiv Kapoor, interestingly, was employed by Bain & Co for over 5 years, the last position that of a Principle. His profile spanned strategy, turn around, alliances, network planning, revenue enhancement, procurement, post-merger integration, and customer experience transformation.

His absorption into the company is very interesting. Customer Experience can do way, way better in the airline, and hopefully, he’s here to deliver. Alliances: he’s already entered Spicejet into an interline agreement with Tigerair.

And the most interesting part is here: procurement, and post-merger integration. Very surprisingly, Sanjiv appointed consulting Bain and Co. to restructure the airline’s network and return it to profitability. Sanjiv also held the position of Senior Director, Temasek Holdings for 1yr 8 months. Temasek Holdings, directly and indirectly through Singapore Airlines has a significant stake in Tiger Airways, which operates as Tigerair.

Some wonder if Spicejet hired Sanjiv, or Tigerair placed Sanjiv in Spicejet. The quarterly loss of Spicejet is eerily similar to that of Indonesian carrier Mandala Airlines, which was grounded in 2011, for a year, following debt related issues. The airline took to the skies again, reborn as Tigerair Mandala.

The winds point to Tigerair investing in the Indian low cost airline. The winds are strong and steady, and the dawn of 2014 will show us the airline and its investor, striped or not.

SpiceJet: Crushed Pepper?

25 Monday Nov 2013

Posted by theflyingengineer in Operations

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Indigo, loss, performance, profit, Q2, Spicejet

This post briefly compares SpiceJet and IndiGo, and talks of SpiceJet’s financial performance and cost breakup, the Q400 woes, the airline’s route and fleet expansion between end Q2 12 and end Q2 13, the new COO, and also: graphically showing the ATF price trend in India.

SpiceJet, which commenced operations in 2005, is unique. It’s a low cost carrier that flies to 55 destinations (45 Domestic and 10 International), has a dual fleet of 55 airplanes : Boeing 737NG (Boeing 737-800 and Boeing 737-900s), and the turboprop Q400: The only operator of the type in Middle East, South and South East Asia. The 737s have a good market resale value, while Q400s are not in demand. Its 737 fleet has ovens on board, some of its airplanes could be cleaner, and its ground vehicles could be parked better. All its Q400s are fully owned, and the airline is gradually moving away from 737 ownership to leased airplanes. It has mulled a narrow body jet fleet switch to Airbus A320NEOs, and is presently without a CEO since Neil Mills left the airline and went to Philippine Airlines. Spicejet posted the worst ever Q2 loss, ending September 2013, of INR 559 Crores (INR 5.59 Billion), and reported a reported a loss of INR191 Crore during 2012-13 (INR 1.91 Billion). Since the Jan of 2013, till September end 2013, the airline has flown on domestic(international) routes 8.6Million(0.7Million) passengers on 82,569(6,216) flights, and has experienced its best load factor of 81%(78%) in the month of May(June), and 68%(69%), its worst in the month of September(July). Over this 9 month period, the airline had an average load factor of 74.7% (74.2%).

IndiGo, which commenced operations in 2006, is very unique. It’s a low cost carrier that flies to 35 destinations (30 Domestic and 5 International), has a single fleet of 71 airplanes : Airbus A320 airplanes only (not even A319s and A321s): The only operator of a single type and single variant fleet in the country. The A320s have the highest market resale value. Its airplanes have no ovens on board, all its airplanes are clean, and its ground vehicles parked in an organised manner. All its airplanes are leased through a profitable sale-leaseback practice. As part of natural fleet expansion, it has ordered Airbus A320NEOs, and is presently with the same, apparently satisfied CEO since 2008: Aditya Ghosh. Indigo reported a profit of INR 787 Crore (INR 7.87 Billion) during 2012-2013. 2012-2013 was its 5^th consecutive year of profits. Since the Jan of 2013, till September end 2013, the airline has flown on domestic(international) routes 13.2 Million (1.1 Million) passengers on 103,439 flights, and has experienced its best load factor of 90%(88.9%) in the month of May(Jan), and 70.3%(73.3%), its worst, in the month of September. Over this 9 month period, the airline had an average load factor of 80%(82.8%).

And yes, SpiceJet is publicly listed, and IndiGo isn’t.

The financial quarter ending September was very challenging for SpiceJet, as for other airlines. Statistically, the months of July, August and September witness a lower domestic demand. Adding to its troubles was the weak rupee, rising fuel prices, increased maintenance costs due to “bunching up of engines sent for shop visits”, the start up costs associated with two new destinations: Muscat and Bangkok, and, as per airline insiders, an operationally troublesome Q400 that lead to a recent cancellation of many flights in October. The aircraft, according to one captain, isn’t probably suited for Indian conditions, but “maintenance could do better”. Few maintenance personnel feel internal issues in the airline management are partly responsible for the Q400s maintenance and operational reliability that “can actually be better”. Some in the airline believe that the Q400s are “wretched aircraft”. In the December of 2010, Bombardier announced that SpiceJet had placed a firm order for 15 Q400s, with an option for another 15. Exercising the option for the other 15 hasn’t yet happened, and very likely, won’t.

Operational costs in the airline have understandably increased, with SpiceJet’s addition of almost 22 new routes, and addition of 8 Boeing 737-800s and 3 Q400s to its fleet, between October 2012 and September end, 2013. Despite this, and the increased fuel prices, fuel costs haven’t increased much. Maintenance, and depreciation and amortisation expenses have been the most significant increases compared to the same period last year, which has had the effect of reducing the fuel cost’s share in the airline’s expenses.

SpiceJet stated, “In order to improve its competitive position, the management is putting in place a strategic plan to refine the network, enhance revenues, rationalize costs and further improve reliability to deliver better value to customers.”

Question is, are the dual fleet and aggressive route expansion helping the airline? Or is something more needed?

On November 1st, Sanjiv Kapoor joined the SpiceJet as the Chief Operating Officer. Sanjiv started his airline experience with Northwest in 1996, where his role spanned across corporate finance, business planning, procurement and operations. He later joined a world renowned consulting firm, leading their business that caters to airline consultancy. He’s been an advisor to a Bangladeshi airline, as well. How Mr. Sanjiv helps transform the airline is to be seen. But that also depends on how much the airline allows him to implement changes.

Truth be told, unless the top management steps out onto the apron and spends days with operations, many decisions may be based what may not be reflective of ground reality. And it’s on the ground, that most issues are seen, as felt by many of the airline’s staff.

Quoting Firstpost Business’ Sindhu Bhattacharya, with regards to plain survival, “…one or two months of better performance alone may not be enough for SpiceJet to survive — it needs funding and needs them urgently.”

Spicejet: Inaugral Bangkok Service: Detailed Trip Report

02 Saturday Nov 2013

Posted by theflyingengineer in Operations

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737, 800, Bangkok, Banglore, Boeing, ETOPS, Inaugral, Raja, Report, Route, Spicejet, Trip, Winglets

Spicejet launched its Bangalore-Bangkok and Pune-Bangkok services on the 27th of October, 2013. The Flying Engineer was invited, along with 12 others from the media.

Here is a detailed trip report that you will not want to miss. Get to know a bit about operations, the seat comfort,about the men and women making the airline fly, and a bit about the airline’s plans and history. Everything that you’d want to know, with just the right amount of depth.

Read the trip report HERE.

The Hare and the Tortoise.

18 Monday Mar 2013

Posted by theflyingengineer in Manufacturer, Operations

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72, ATR, Citilink, Economics, Q400, Seats, Spicejet

Last Year, ATR produced 60 ATR 72 aircraft. Bombardier had produced 36 Q400s. 2012 saw ATR selling 115 aircraft (74 firm orders and 41 options), while Bombardier witnessed a sales of 81 aircraft (50 firm orders and 31 option aircraft).

This year, ATR is projected to produce 80 aircraft, almost all being the ATR 72-600. This will widen the gap between deliveries of the ATR 72 and the Q400, in 2013. A sign that the slower of the two turboprops, the ATR 72, is actually racing ahead of the Q400.

Maybe it’s the operating economics of the ATR 72. Or the average regional route lengths suited to its typical missions. Or the large number of operators in a region. Or the access to proximate training facilities. Or the rise of the developing nations while the developed saturate.

The aviation market in Asia, especially South-East Asia, is booming, in contrast to slowdowns and downsizing in Europe and the United States. In the February of 2013, ATR won an order for upto 36 ATR 72-600s, from Malaysia Airlines (MAS). Prior to that order, MAS had ruled out the ATR 72-600 series, on the grounds that there was no -600 simulator in the area. Says ATR’s CEO Filippo Bagnato, “In the last five years, Asia-Pacific has accounted for 50% of sales; so it is quite an important market for us”. So important is the market that ATR, in December, set up a ATR 72-600 training centre at Singapore, just because one customer demanded it.

What resulted in the ATR epidemic in Asia, particularly South East Asia?

The rise of the South East, Average regional route lengths, superior operating economics, Aggressive Sales, local availability of ATR type-specific qualified pilots and engineers, Luck #1, and Luck #2.

The Rise of the South East.

Says Neil Dave, Consulting Analyst, Aerospace & Defense, Frost & Sullivan Asia Pacific, “Many ASEAN countries currently lack comprehensive and well developed ground transport infrastructure and countries in these regions are divided by vast seas, therefore there is a demand for a well-knit, flexible air-transport system,” said Dave.

“Also, with the increasing popularity of air-travel as mode of transport, there is a rise in demand for low cost travel among countries in the ASEAN region which are not connected,” Dave continued.

Quoting a CAPA report, “The continued strength of the economies in ASEAN, led by booming Indonesia, and the continued rapid rise of the region’s middle class should ensure another big year of traffic growth for Southeast Asian carriers – particularly LCCs and, to a lesser extent, full-service carriers.”

Lucky with Route Lengths:

The ATR 72 is typically packed with 68 -72 passengers. Air Dolomiti in Europe flies its -72s with 66 seats, while Jet Airways (South Asia) has 68 seats, and this number can easily rise to 70-72 seats for South East Asian operators, thanks to the average height of the average male in the respective countries (Germany: 5′ 10″, India: 5′ 5″, Indonesia: 5′ 2.2″), which allow for a lower seat pitch.

The typical baggage weight limits for ATR flights in the SE-Asian region are 10kg for cabin and 15 kg for check in, totalling 25kg. With the average assumed body weight of 70kg per passenger, this total weight per passenger, including baggage, is 95kg.

With 95kg/passenger and 72 passengers, the payload goes upto 6840kg. Considering headwinds of upto 80kts at the cruise levels of the ATR, the useful range of the ATR 72-600 can be very safely assumed to be 500 NM. (ATR Literature claims 825NM for the -600 “option” [23,000kg MTOW] under the following conditions: ISA – No wind – JAR Fuel Reserves – Typical European Airline OEW)

500NM circles, centred at Mumbai, Delhi, Kolkata, and Bangalore, cover the whole of India.*

A 500NM circle, centred at Manila, covers almost the whole of the Philippines.*

A 500NM circle, centred at Bangkok, covers the whole of Thailand.*

500NM circles, centred at Kuala Lumpur and Kuching, covers all airports in Malaysia.*

500NM circles centred at Jakarta, Surabaya, Makassar, Ambon and Jambi cover most of Indonesia.*

The regional routes are tailor made for the ATR 72-600. Luck #1.

*Does not consider terrain and elevated airports beyond the performance limits of the ATR 72.

Operating Economics

The ATR 72 is less expensive to buy (by list price, though the heavy market demand for the type may make Bombardier offer the Q400 for lesser), less expensive to operate (the Q400 consumes almost 30% more fuel than the ATR 72-600), and due to its simpler design and systems, has a very high dispatch reliability.

The lower operating costs results in a lower breakeven load, of around 35 passengers, which is about 6 to 10 passengers lesser than the Q400.

Aggressive Sales

ATR and Airbus share the same parent company: EADS. The not-spoken-of fact is that if you buy an ATR aircraft, you get a good deal on Airbus airplanes. And vice-versa. On top of this, ATR’s sales team is comprised of an aggressive one, that can help with support from European export credit agencies. Further, ATR goes out of the way to secure a customer.

Bombardier is milder. “The aircraft sells for itself” is the attitude of key sales personnel. Plus, Bombardier has two nearly competing aircraft under its brand: the Q400, and the CRJ700. Both are in the 70 seat category, and have similar range. Bombardier, and the customer, are easily confused.

Bombardier, unlike EADS, does not, as yet, offer a comprehensive product line. The yet to fly C-Series will be Bombardier’s first single aisle mainline solution, which will well complement the Q400. But Bombardier still lacks the entire product line and capacity that would be needed for domestic operations: products the size of the A321 and A320.

Local availability of manpower and training facility.

There are only 5 operators of the Q400, in 4 countries of Asia. ANA and JAC in Japan, Air Niugini in Papua New Guinea, PAL Express in the Philippines, and Spicejet in India. There is no abundance of Asian Q400 pilots and engineers.

Although South and South-East Asia is teeming with ATR type pilots and engineers, the demand for the type is so high that there is a shortage of such qualified crew. This is where luck#2 plays a role.

ATR has one ATR 72-600 training centre at Singapore, which will help significantly reduce the costs of training and sim-checks.

Luck#2

There are ATR-type-rated pilots in Europe who could come to SE countries such as Indonesia. Lufthansa’s ATR operation Air Dolomiti, for example, will be downsizing, which will make ATR pilots available. They will need jobs, and they are in good demand.

The curious case of Citilink Indonesia:

Citilink, the low cost carrier of the national flag carrier, Garuda Indonesia, had considered the Bombardier Q400 for its turboprop fleet. It was believed that the Q400 would be chosen, to differentiate from the competition: Wings Air’s ATR 72 fleet.

Arif Wibowo, the CEO of Citilink, said that there were three key considerations to selecting the aircraft type: economic, such the purchase price; financing; and aircraft performance. In the request for proposals, Citilink required bidders to present a plan to provide pilots, and ATR had agreed to this.

Incidentally, after Citilink announced in the December of 2012 that had decided to order ATR 72-600s, it placed a firm order with Airbus for 25 A320neo, in the January of 2013.

The Head or the Heart?

Just because two or more aircraft are in the same class, it doesn’t mean that they’ll perform to the same standard. An airline’s requirement stems from route demand, and this demand defines the desired capacity, and range; Everything else that define the aircraft then play an important role in deciding the best.

In an airframe market, filled with competition, which results in options, the airline is caught between choosing a product that stands out from the other players, and choosing a product that makes the most economical sense. More often than not, what ego-driven airlines look for, is a differentiator, while truly customer focused airlines that are keen on operational viability, look for, is a suitable performer.

Citilink is a low cost carrier; and no 70-80 seat airplane beats the operating economics of the ATR 72-600. The Q400 has a greater performance (greater range, faster climbs, higher cruise speeds), and promising potential (upto 8 more seats on the same flight), but a potential remains a potential until tapped. Forego the 8 seats and you break even with lesser passengers. Look at the typical routes in South East Asia and they are all suited for an ATR 72, as typified by Wings Air, which is set to becomes the largest operator of the ATR 72. Watch the ever increasing fuel prices and you’ll want a less thirsty aircraft.

The Q400 promises more revenue potential, with more seats and an extra flight. But it has to fly more passengers to break even, and more passengers to make the same amount of profit that operating the ATR 72-600 will make. Not many regional sectors bring in 100% loads to tap that potential.

True that the Q400 flies faster, but there must be customers willing to pay for that speed. In a booming aviation environment that is low-cost driven, where the markets are yet to mature and loads are yet to pick up, economics is paramount.

In short, in most of Asia, a low cost carrier can only beat the ATR 72-600 with an ATR 72-600. For everywhere else, like in North America, you have the Q400.

Fly-wise, Fly cheap. Seriously.

28 Sunday Oct 2012

Posted by theflyingengineer in General Aviation Interest

≈ 5 Comments

Tags

Bangalore, Cleartrip, Delhi, Goibibo, Indigo, Ixigo, Lowest Airfares, MakeMyTrip, Search, Spicejet

Make My Trip’s Challenge. Unfortunately, they couldn’t offer the lowest, as they promise.

TheFlyingEngineer Update: A kind Spicejet FO pointed me out to Akbar Travels, which offer truly low airfares! Please do check out the last screenshot right at the bottom of this short article. Akbar travels’ low airfares, which are the lowest for all airlines and all flights that I searched for Mar 30 2013, are definitely worth a note!

MakeMy Trip dot com is strong in its advertising. It claims to bring you the cheapest fares, if not, it will pay you double the difference in fare. I wanted to see which method, and which site got me the cheapest of tickets. (and see the screenshots below: MakMyTrip couldn’t stand up to their own test).

I tried these five sites: Indigo, Spicejet, MakeMyTrip, Ixigo, Goibibo and Cleartrip. Why these six? The first two to see how much the “Major Low Cost” airlines charge, and the last four as these are very “well branded”.

I set my departure date as 30^th March, 2013, for a one-way flight from Delhi to Bangalore. Cheapest was my only criteria, not the flight time, time of flight, or OTPs, and I relied on the airline / website to filter my results as lowest fare first.

Here are what you should know:

1. The flight fare of Indigo and Spicejet are the same, for the date in consideration in this case.

2. Indigo charges INR 100 as “Covenience Fee” per passenger when booking through their website. Spicejet charges none, making a Spicejet ticket cheaper (in the event that both competitor’s fare prices pre-“convenience fees” are the same)

3. MakeMyTrip, Cleartrip, Ixigo/Arzoo*, and Goibibo charge a convenience fee of INR 125 per passenger. So if you’re booking a ticket early, through any of these sites, then you’ll stand to lose INR 25 when booking an Indigo flight, and INR 125 when booking a Spicejet flight!

4. Arzoo did the best job. *Now, a search on Ixibo led me to Arzoo, and Arzoo gave me by far the cheapest flight: Spicejet, INR 4017. With the “Conveninece fee” of INR 125, this came up to 4,142, which is still a good INR 1,068 cheaper than the lowest you can expect from Indigo!

Look at all my screenshots below. Read the captions carefully. So when booking a flight, search everywhere, and know that those “promise-you-the-lowest” sites may actually prove to be costlier than the airline’s parent site! Moral: Search well before buying.

As for MakeMyTrip, I wonder what they now have to say about the “lowest airfare challenge”: Here’s proof that they’re not always the lowest!

Indigo’s airfare, which is priced the same as Spicejet’s, is costlier by INR 100 when booking through their website, due to the “convenience fee” that they charge.

Spicejet’s fares are priced as much as Indigo’s, but the convenience fee of INR 100 isn’t charged. This makes their fare the lower than the competition’s.

The Best Make My Trip could get me (from Indigo and Spicejet) was INR 5110, INR 1 costlier than Go Air’s fare. But add their convenience fee of INR 125, and you have INR 5235 to shell out. Even if you would have purchased Spicejet’s you’d have to pay the same: this is what all the websites charge: INR 125 on domestic!

ClearTrip couldn’t do any better than the other sites.

Ready to pay! NO, I didn’t purchase the ticket!

I don’t know how Ixigo managed it, but they had the lowest of all fares! INR 4017 + INR 125 Convenience fee = INR 4142. Compare this with Make My trip’s lowest. (below)

Make My Trip’s lowest could not beat Ixigo’s. Wonder what I can do to benefit from the lost challenge!

GoIbibo didn’t do any better than the others.

Akbar Travels, which was brought to my notice today, had the lowest steady airfares on offer!

Live from the Q400!

14 Wednesday Mar 2012

Posted by theflyingengineer in General Aviation Interest, Manufacturer

≈ 2 Comments

Tags

India Aviation 2012, Q400, Spicejet

Live from the Q! (More text below)

VT-SUG is on display at India Aviation 2012! This is the very first public display of the Q400 in India, and the aircraft is all prim and proper. It smells good, it feels good, and the flight deck: as good as it ever will be. Very ergonomic, and not too crammed except for the act of making your way to the flying seat. (more text below)

Good overhead cabin bin space!

The Cabin!

ANVS control panel

Capt Surinder Singh (Chief Pilot) and my friend Deepankar Singh

With 78 seats, and loads of interest from curious onlookers, the jet engine core- driver turboprop aircraft is making heads turn. The cabin overhead is spacious, the lavatory is more accessible, but just the seats make you uncomfortable.

Says Eric Sharma of Bombardier, “There are a line of seats available that can be chosen by the operator. This is typically the low recline one for high density seating”.

Enjoy the photos of this prim and proper bird! (And oh, don’t miss the ANVS control panel!)