China Eastern increases Kunming - Kolkata and Kunming - Dhaka

by Vinay Bhaskara

Chinese full service carrier China Eastern Airlines is increasing its service to the Indian subcontinent from its Southwestern Chinese hub of Kunming. From 27th October 2013, its offering on each of Kunming - Kolkata and Kunming - Dhaka will increase from daily to 10x weekly, using Boeing 737-700 aircraft configured in a 134 seat, two class configuration (8J / 126Y). Flight schedules for the new and existing flights to Dhaka are as follow:

Flight Number	Route	Depart	Arrive	Frequency
MU 2589	KMG-DAC	0810	0820	246
MU 2035	KMG-DAC	1255	1310	Daily
MU 2590	DAC-KMG	0910	1320	246
MU 2036	DAC-KMG	1410	1815	Daily
MU 2599	KMG-CCU	1425	1420	246
MU 555	KMG-CCU	2355	2345	Daily
MU 556	CCU-KMG	0030	0510	246
MU 2600	CCU-KMG	1510	1935	Daily

Kunming is China Eastern's third largest hub after Hongqiao and Pudong, Shanghai's two airports, with more than 180 daily departures. China Eastern will be able to offer passengers from Kolkata and Dhaka onwards connections to 67 domestic destinations within China, as well as to 16 international destinations around Asia (though these connections require a transit visa). It serves as China Eastern's primary gateway to the Indian subcontinent, with  services to Colombo, Dhaka, Kathmandu, Kolkata, and Male. The airline also serves Delhi from its largest hub at Shanghai.

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United Airways adds two new aircraft to its fleet

Courtesy Wikipedia. Image credit: Raihanspotter

Rapidly growing Bangladeshi private carrier United Airways has added two additional aircraft to its fleet. The aircraft are an ATR 72-200 registered as S2-AFU and a McDonnell Douglas MD-83 registered as S2-AEJ. The ATR 72-200 originated with LOT Polish Airlines, and then was transferred to LOT's regional subsidiary Eurolot before being sold to United Airways. Meanwhile, the MD-83 was delivered to US carrier Trans World Airlines (TWA) in 1995, became part of American Airlines' fleet after American acquired TWA in 2001, and then was sold to United Airways earlier this year after being parked in 2012.

The aircraft become the 10th and 11th airplanes in United Airways' fleet, composed of 2x Airbus A310-300s, 3x ATR 72-200s, 5x MD-83s, and 1x Bombardier Dash 8 Q100. The carrier also has 4x BAE Jetstream 31s on order to grow domestic operations, and a further A310-300 on order for longer haul flights.

Chairman and Managing Director of United Airways Capt. Tasbirul Ahmed Choudhury had this to say about the acquisitions:

These new addition of ATR-72 and MD-83 aircraft has increased the fleet strength of United Airways to Eleven. We definitely want to increase our fleet as this is the right time to procure desired aircraft to expand more domestic, regional and international destinations. The ATR-72 aircraft is having 64 economy class seats and the MD-83 aircraft 167 economy class seats.

United Airways serves 15 destinations (7 international) across Asia and the Middle East. It has its primary hub at Dhaka's Shajahlal International Airport.  

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Analysis: SpiceJet plots international expansion and should create an international hub in Delhi

When Gurugaon -based low-cost carrier (LCC) SpiceJet announced its latest round of international expansion, it continued the recent shift in strategy by India’s second largest LCC. Amongst the new routes announced or filed for (according to a report from the Mint, India’s local Wall Street Journal affiliate) were Madurai-Colombo, Delhi-Dhaka-Rangoon/Yangon, Delhi-Riyadh, Delhi-Guangzhou, and Trivandrum-Male. Of these, Madurai-Colombo has already been announced with SpiceJet’s Q400 turboprop with service commencing September 20th. The schedule for Madurai-Colombo services is as follows: 

SG3314 IXM-CMB 1230-1345 DH8 Daily
SG3316 CMB-IXM 1435-1520 DH8 Daily

The service is the first ever international service for Madurai, a town with population of about 1.5 million people in Southern Tamil Nadu whose airport served 511,000 passengers in fiscal year 2011-2012 and recently built a new terminal in 2010. The primary ties between Madurai and Colombo are ethnic ones (given the large Tamilian population in Sri Lanka), though there are strong business links as well, and as Madurai’s first international service, demand should be strong. SpiceJet is currently the largest operator at Madurai Airport with service to 6 Indian destinations and Colombo.

The flight timings seem a bit long given that the distance between Colombo-Madurai is only 350 kilometers, which requires only 35-45 minutes for the Q400 to traverse and that neither Colombo nor Madurai is so congested as to require a long time for takeoff and landing or taxiing at the airport.

Choosing to add new Q400 routes internationally is a smart move for SpiceJet. There are several SAARC routes, especially from the South to Sri Lanka and from the North to Bangladesh, Nepal, or even Pakistan that could one day be served by SpiceJet. Especially if SpiceJet focused these services on Tier 2 and 3 cities, it would likely generate strong demand by not forcing customers in these cities to waste time connecting at a Metro airport.

SpiceJet is also considering Trivandrum-Male service with the Q400, a move that fits with our suggested strategy. The route would be supported in part by the burgeoning medical tourism links between Trivandrum and the Maldives. However, making this route work may be tough, given that local carrier Maldivian serves the route with 37 and 50 seat Bombardier Dash 8 Q200/300 turboprops while Air India operates the route with its A320 family aircraft.

As for the other international routes, these will all be performed with SpiceJet’s fleet of Boeing 737 jets. Service to Dhaka has not yet been approved by India’s Ministry of Civil Aviation, nor has the extension to Yangon. Yangon currently sees Air India service only to Kolkata and Gaya (a Buddhist centre akin to Tirupathi for Hindus), thus SpiceJet would be the first airline to offer direct Delhi-Yangon service for a market that is set to boom assuming that the hard-line Myanmar government continues its recently enacted policy of social and economic reforms.

Meanwhile, Delhi-Riyadh is a huge ethnic market with more than enough room for SpiceJet to enter the market after full service carrier Kingfisher Airlines withdrew such service. But it is the Delhi-Guangzhou service which is the best move. No Indian airline serves Guangzhou today, China’s 3rd most important city and its manufacturing capital (the Guangdong province, which Guangzhou is part of, had a GDP in 2011 of close to US $900 billion, which is 20% of that of the entire Indian nation, despite having just 7% of the population). Most Indian small and medium businesses source their goods from the Guangzhou area, and SpiceJet should see excellent demand on the route. SpiceJet should also consider starting Chennai-Guanzhou, given that Chennai is India’s largest manufacturing hub and has strong business ties to Guangdong province.

Bangalore Aviation feels that it was smart for SpiceJet to continue to expand its growing international presence (currently they serve Dubai, Kathmandu, and Colombo). Even though domestic pricing pressures have temporarily receded, the presence of several new entrants domestically means that capacity discipline may yet again go out the window. Meanwhile, the collapse of Kingfisher means that international fares have shot upwards, leaving room for SpiceJet to come into the market and undercut the existing players with its lower costs. In particular, SpiceJet should continue to expand with new routings (like to Guangzhou and Yangon) that lack service from an Indian carrier. IndiGo has mostly chosen to service the existing major cities in the Gulf and Southeast Asia, and with lower costs than SpiceJet, it would do the latter well to avoid too much head to head competition.

Meanwhile, SpiceJet appears to have built up a strong portfolio of international destinations from its largest hub in Delhi, with services now to Dhaka, Colombo, Dubai, Riyadh, Kabul, Kathmandu, Yangon, and Guangzhou. As SpiceJet simultaneously expands its domestic presence in Delhi, we feel that the airline can succeed where Air India failed and build up a true regional hub at either Terminal 3 or Terminal 1D in Delhi. While it will take a lot of coordination with India’s Ministry of Civil Aviation to facilitate placement of FIS into Terminal 1, and especially to maximise international to international connections, this move would be strong for SpiceJet. Using its existing fleet of 737s, SpiceJet could continue to expand its services to the SAARC region, but also to Southeast Asia, the Gulf, and Western China. Bangalore Aviation also suggests that SpiceJet invest in a fleet of around 10 Boeing 737-700 aircraft. These have longer range than SpiceJet’s existing 737-800s and would allow the airline to open services from Delhi to every major city in East Asia excluding Tokyo and Osaka (even Jakarta is within the range of the 737-700), as well as to all of Central Asia, Russia, most of Eastern Europe (including Warsaw, Kiev, and similar), and most of Northeast Africa. Truly leveraging Delhi’s location, SpiceJet could make a visionary move and become the dominant player in Delhi and beyond.

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Financial Analysis of SpiceJet's Q1 Financial Results

Earlier this month, all 3 of India's publicly traded carriers announced their results for the first quarter of Fiscal Year 2012. Devesh has already taken a look at the operating parameters for the quarter, so I'll be digging into the raw data itself.


The three carriers to be studied are; Jet Airways Group; composed of full service carrier Jet Airways and its low cost subsidiary JetLite, (their second low fare service Jet Airways Konnect's numbers are rolled in to those of Jet Airways), fellow full service carrier Kingfisher which includes its low fare Kingfisher Red service in the mainline numbers, and low cost carrier (LCC) SpiceJet.

First up is SpiceJet.

The Gurugaon based carrier swung sharply to a net loss of 719.6 million rupees in the first quarter of FY2012 (ended 30th, June 2011), versus a net profit of 552.2 million rupees in the comparable quarter of FY2011.

The airline did, however, indicate that some of its performance metrics improved year over year.

• Revenue was up sharply to Rs. 9456.4 Crore, up 31.9% from Rs. 7168.6 Crore in Q1 2011
• SpiceJet carried 2.58 million passengers, with its growth rate of 25% outpacing the overall industry growth of ~15%
• Passenger yield was up 5.5% to Rs. 3,663
• Absolute non-fuel costs grew 29.8%, while absolute fuel costs grew 94.9%; all on capacity growth of 36.7%, an increase of 40% in the number of departure, and 28.0% increase in block hours
• Seat-kilometer revenues declined 3.5%, while seat-kilometer costs rose almost 14%; seat-kilometer costs excluding fuel decreased 5%.
  
• Interest payments increased 352.8% to Rs. 59.9 million, greater than the entire interest payments of FY11; Rs. 48.3 million; however this total is miniscule in comparison to other Indian carriers
  
• Total maintenance cost was up 33.6% on fleet growth of around 39.1%

Observations:

Fuel cost was obviously the biggest driver of SpiceJet's performance this quarter. With fuel prices paid by SpiceJet up more than 42.5% YOY; it would have been hard for SpiceJet to make a profit in the best of revenue environments.

Despite Q1 traditionally being a period of peak demand (April and May are peak summer travel months), the lack of capacity discipline hurt SpiceJet's ability to improve yields. As SpiceJet CEO Neil Mills put it:

"However, yields remained under severe pressure due to an irrational pricing environment that prevailed in the market, thereby undermining the airline’s ability to pass on the impact of the higher fuel price to the passenger in a growing market."

Passenger yield did grow 5.5%, but this lags far behind the regular 15%+ growth figures displayed by SpiceJet; this in spite of 15% growth in demand.

Part of SpiceJet's problem stems from the fact that its network is metro-heavy; the majority of its flights are in large cities; especially in the North. While Delhi is certainly a strong base for the carrier, having your largest bases in Mumbai and Delhi leaves a carrier vulnerable to fare wars. With margins on metro routes razor-thin due to competition amongst carriers, any increase in fuel prices is going to have a disproportionate effect on SpiceJet.

Thus, the new Q400 operation should help SpiceJet by balancing its route network with more smaller cities in the South (and later the North as well). Both Jet Airways and Kingfisher already have decent sized turboprop networks; these have higher passenger yield, less competition, and lower fuel costs. Look for SpiceJet's results to reflect these benefits starting in Q3 and Q4 (as the operation really kicks into gear).

In spite of these issues, SpiceJet did manage to grow at a significant clip; with market-share up from 13% to 14%. As the carrier continues to grow its fleet and increase its flight offerings, it should be able to capture an ever-increasing share.

International growth looks to be more stagnant. SpiceJet has not yet expanded beyond its initial two destinations of Colombo and Kathmandu, even though it has rights to operate to Dhaka and Male. This blog speculated in 2010 that the Maran take-over would drive an increase in international presence; especially to ASEAN nations. As of today, no such expansion has occurred, and with the focus shifting to the Q400 operation, serious international growth may be pushed deeper into the future.

Cost performance excluding fuel was positive, despite a drop in aircraft utilization from 12.45 hours per day to 11.43 hours per day. However, utilization may have dropped due to an increase in the number of bases from which flights are operated. Utilization figure analysis must always be tempered with a consideration of revenues; if such an approach yields revenue growth; then SpiceJet can get away with flying their aircraft for less time each day.

Longer term, the only major concern I see for SpiceJet that is independent of the broader market, is aircraft related costs. Assuming that lease rates for the 737NG remain roughly stable over time (a valid assumption given that the A320neo and possibly 737-7/8/9 are on the horizon to drive down lease rates on current generation aircraft), SpiceJet will have to deal with increasing depreciation and maintenance costs. With an average fleet age of just 4.4 years in May of 2011, SpiceJet has thus far escaped the worst of these fleet related costs. Depreciation and maintenance costs increase exponentially as aircraft age, so longer term cost performance will be trending upwards.

-Vinay Bhaskara

Twitter: @TheABVinay

Contact me at vinay@bangaloreaviation.com

Please feel free to comment on the post below

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Double goof-up lands Bangladesh Air India Express passengers in the wrong country

A good way to end the week on a humorous note.

Thanks to a comedy of errors due to a double goof-up by both passengers and airline Air India Express, four passengers from Bangladesh landed up in countries and cities far away from their destinations.

Air India's low fare subsidiary Air India Express operates a flight from the Bangladeshi capital Dhaka to Bangkok, Thailand via Kolkata.

On board were four passengers, Lokman and Nargis Akhtar who were destined to Bangkok, and D Moni and E Moni who were destined to Delhi.

The Akhtars who should have stayed on board and continued to Bangkok, mistakenly got off at Kolkata, while the Monis who should have disembarked and connect to the Kolkata Delhi flight stayed on board.

On disembarking, the Akhtars waited in a queue to undergo a H1N1 swine flu check. By the time they cleared the screening and ground officials realised the mistake, the plane had already taken off for Bangkok.

Why was the error not detected one might ask? Simple answer, the passenger head counts matched; remember the Monis had to disembark to connect to Delhi. Two passengers got off all right, just not the right two.

To fix this goof the airline has sent the two Bangkok-bound passengers, the Akhtars, back to Dhaka and assured them that they would be flown to the Thai capital this Sunday. In parallel Air India delayed its Bangkok-Delhi flight by 45 minutes to bring back the Monis who wrongly flew on.

As if this was not enough, the Monis were not even original Air India passengers. They were booked on the Jet Airways Dhaka-Kolkata-Delhi flight which was cancelled thanks to the ongoing sick-out at Jet and accommodated on Air India.

Thanks to inputs from the Times of India.

Have a great weekend.

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Kingfisher Airlines re-aligns international operations and fleet to contain losses

The financial woes at Kingfisher Airlines continue. Despite carrying the maximum number of domestic passengers, over dues are piling up. In some cases cheques issued by the airline are bouncing, salary and other cost cutting measures are making employees like pilots leave the airline to join competitors.

This photo from Digital Airliners on Flickr encapsulates the three stages of Kingfisher's crumbling international dreams and the sorry end of it's much awaited Airbus A340-500s meant for ultra long haul non-stop Bangalore to San Francisco operations.


At Toulouse we can see one of the three A340-500s sold to Arik Air in the Arik livery. Next to it is a "white tail", industry jargon for a plane abandoned by its buying airline, and next to it is one still painted in Kingfisher Airlines livery.

As oil prices sky-rocketed in 2008 Indian aviation collapsed. Kingfisher did not take delivery of it's ordered five A340-500s. Three were sold to Arik Air of Nigeria and two languished at Toulouse eventually becoming "white tails". Even narrow body A321s ordered by Kingfisher were diverted to other airlines like Turkish THY.

In times of high demand and long delivery lead times the ordering airline demands, and does receive a premium when diverting its aircraft deliveries to another buyer, but in these times of distress I am sure Kingfisher has made no money, and most likely lost money.

The Mint newspaper is reporting that Kingfisher Airlines has finally managed to sell off the remaining two Airbus A340-500s that were never taken from Airbus.

Aircraft maker Airbus SAS has sold two A340 passenger planes meant for delivery to Kingfisher Airlines Ltd to government buyers in West Asia, an executive at the European plane manufacturer said.

Kingfisher has taken delivery of five Airbus A330-200s. VT-VJK, VT-VJL, VT-VJN, VT-VJO, VT-VJP, three of which it is using on its services to London Heathrow from Bangalore and Mumbai. With improvement in their slot timings at Heathrow, Kingfisher will need only two and can keep one as a standby.

It is already in advanced talks with Arik Air to wet lease (aircraft and crew) these two A330s from the third quarter of 2009. At the same time it has initiated talks with Jet Airways for code sharing of flights.

Kingfisher has also launched international services between Kolkata and Dhaka using an ATR72-212A (ATR72-500) turbo-prop aircraft via it's low cost Kingfisher Red service.

Kingfisher has commenced services on the Bangalore Colombo and Chennai Colombo routes using it's narrow body A320 fleet, and the Colombo Bangalore service connects well to it's Bangalore London service. Sources indicate Kingfisher carried about 2,766 passengers between Colombo and London via Bangalore in the last four months or about 22 passenger per day. In the same period Kingfisher has carried about 6,200 origin and destination passengers between Bangalore and London. An average of only 50 passengers per flight is too low to justify an A330 operation.

As demonstrated by the Colombo experience, Kingfisher desperately needs to build connecting traffic by commencing operations between Bangalore and Bangkok and other ASEAN destinations like Kuala Lumpur, Singapore and Jakarta to feed it's London service and it needs to build connections beyond Heathrow to North America to create a greater pull at the same time.

However, repeated deferrals of announced international operations like Hong Kong and Singapore, Bangkok, and Dubai has left industry watchers including myself so sceptical that we do not even report the announced launch of a new route by Kingfisher till the aircraft actually flies.

Most analysts agree that the on-going financial woes are largely responsible for these repeated deferrals but the airline needs to get a move on. Either expand international services or withdraw completely.

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