Cathay Pacific included on Dow Jones sustainability indices for first time

By BA Staff

Cathay Pacific Airways announced that the concerted effort the airline has made towards operating as a sustainable organization has led to it being included on the Dow Jones Sustainability Indices (DJSI) for the first time.

The DJSI are recognized as the leading global sustainability benchmark, tracking the stock performance of the world's leading companies in terms of economic, environmental and social criteria. The indices serve as benchmarks for investors who integrate sustainability considerations into their portfolios.

Membership of the DJSI is by invitation only and is based on both company market capitalization and overall performance scores. In joining the Asia Pacific listing, which commenced in 2009, Cathay Pacific now ranks alongside other major organizations in the region, including some of the world’s biggest airlines.

In the benchmarking scorecard produced for DJSI, the airline was assessed on a wide range of criteria ranging from brand management and anti-trust policies to risk management, fleet management and corporate philanthropy. In the Environmental Dimension, Cathay Pacific rated well above the industry average for its environmental policy/management system and environmental reporting.

 Cathay Pacific Head of Environmental Affairs Mark Watson said:

“The Dow Jones Sustainability Indices are a highly respected tool for assessing an organisation’s performance across key areas. At Cathay Pacific we are well aware of the need to operate in a socially responsible and sustainable way and it is a great honour to be invited to be included in the DJSI. The ratings given by DJSI analysts will provide motivation to further improve on our sustainability efforts.”

Read more »

Jet Airways Q1 FY2013~14 performance analysis - part 1 - Financials

by Vinay Bhaskara and Devesh Agarwal

Earlier this week, Mumbai based Jet Airways announced a net post-tax loss of Rs. 355.4 Crore (US $ 59.8 million) for the first quarter of Fiscal Year 2014, reversing from a Rs. 24.7 Crore net profit during the same period a year prior.

Total revenues declined a whopping 12.3% to Rs. 4, 064.4 Crore on a 15.0% decline in revenue passengers to 4.13 million, and an 11.3% capacity decline measured by available seat kilometres (ASKs) to 9.13 million ASKs. Seat factors cratered to 78.4% from 82.7% year-over-year (YOY).

Jet Airways recorded a large operating loss of Rs. 111.2 Crore in Q1 versus an operating profit of Rs. 223.5 Crore the year, translating to an operating margin of -2.8% versus +4.9% in Q1 of Fiscal Year 2013.

The nominal average fare paid by Jet Airways customers rose 2.3% to Rs. 8,278, but fell 4.2% on an inflation adjusted basis. Revenue per available seat kilometer (RASK) fell 0.8% year over year to 3.60 Rupees from 3.63 Rupees a year prior while cost per available seat kilometer (CASK) increased 8.7% to 3.92 Rupees. CASK and RASK are used to adjust revenue and cost figures for segment length.

Looking segment by segment, Jet Airways’ full service domestic operations once again performed abysmally, with a net pre-tax loss of Rs. 263.0 Crore versus a profit of Rs. 16.8 Crore the year prior. Operating margin domestically was an astoundingly poor -7.9% versus +6.8% a year prior – a swing of 14.7 percentage points! Domestic revenues fell 13.1% year over year to Rs. 1763.5 Crore, and while domestic RASK actually increased by 0.9% (down 3.3% on an inflation-adjusted basis), it was more than offset by a 17.6% increase in CASK.

Domestic operations continued to suffer from the poor Indian macroeconomic environment, as growth for Fiscal Year 2014 is projected to fall to 5.5% by the Reserve Bank of India. India’s growth prospects seem doveish for the next few years and airline will see growth plateauing over the next few months.

Importantly, fuel is not a major contributor to Jet Airways’ woes, as moderating fuel prices around the globe in Q1 meant that fuel cost per ASK fell 7.5% year over year. Despite the slowing economy, domestic capacity amongst Indian carriers was up 0.1% in Q1 and passenger demand rose 1%.

Low Cost Carriers (LCCs) SpiceJet, GoAir, and IndiGo have continued their rapid expansion despite slowing Indian growth, which has put increased fare pressure on Jet Airways at the lower end. At the same time, the expected fare bump amongst high yield business travellers and first class passengers after the demise of full service rival Kingfisher Airlines largely has not materialized thanks to aggressive pricing on the part of beleaguered national carrier Air India. Despite spotty operational reliability, LCC SpiceJet has continued to profit (Rs. 55 Crore in Q1 of FY14) and its maturing Q400 operation is taking away business from Jet Airways’ regional ATR operations, especially in the South.

International financial performance also weakened year over year, falling to a Rs. 92.4 Crore pre-tax loss from a Rs. 16.5 Crore pre-tax profit the year prior. Revenues fell 11.7% to Rs. 2300.9 Crore as Jet Airways continues to restructure its international operations in advance of the implementation of the newly designed Jetihad partnership with Etihad Airways. Revenue per available seat mile fell 2.1% (7.8% on an inflation adjusted basis), while cost per available seat kilometer grew 2.3%. The operating margin on international operations fell to 0.8%, from 5.6% in Q1 of Fiscal Year 2013.

Despite all the hubbub and media drama surrounding Jet Airways’ international operations, they are actually the better performer within the company on an operating and net basis. International operations came under some pressure thanks to the continued de-valuation of the Indian Rupee since many costs on international operations are accrued in US dollars. That pressure, which contributed nearly a third of Jet Airways’ losses in Q1 at Rs. 134.3 Crores, looks like it should subside to some degree as the Indian government is taking steps to increase in-flow of US dollars.

Bulk of Jet Airways' A330-200 fleet idle at New Delhi

The airline withdrew from many international routes like Mumbai Johannesburg, Chennai Brussels, Brussels New York JFK, and New Delhi Milan. The contraction in operations led to a severe under-utilisation of Jet Airways’ wide body fleet, especially the Airbus A330-200s, (as captured by Devesh Agarwal at New Delhi IGI airport), which led to a Rs. 128.2 Crore adverse impact on finances.

During the analysts earnings call, Jet Airways management indicated that the airline had already leased two A330s to investor Etihad Airways PJSC of Abu Dhabi, and is "close to signing" a deal with another west Asian carrier for five A330s. So the cost impact will reduce in the quarters moving forward.
 

During the call, the airline announced “load factors for the North American routes were at 79.1%, the UK routes were at 84.1%, Asian routes were at 82.1%, Gulf routes were at 83.4%, SAARC routes were at 75.1%.” However, thanks to its contraction on long haul routes, Jet has been unable to capitalize on recovering Western economies in the United States and in the European Union. Still, the outlook moving forward for the international operations. from a purely financial perspective (ignoring strategic considerations), the feeder operation with Eithad, which appears likely to be Jet Airways’ plan as the carrier undertakes a 10 year network planning study, is likely to return Jet to profitability on its international operations at least.
But the domestic operations remain challenging. In our opinion, from a financial perspective, Jet must solve its lagging domestic revenue and market share before the company as a whole can return to profitability. Structurally, the debt load facing Jet Airways, including US $300-400 million in high-cost shorter term debt, is the major challenge. Finance charges stood at Rs. 234.1 Crore in Q1, and with Jet Airways recently committing to order 50 737 MAX, as per a report in the Live Mint, the capital expenditures plan over the next 10 years only looks set to exacerbate that.

Stay tuned for Parts 2 and 3 of our analysis coming later this week, covering JetLite results, analysis of fleet and network plans, and a plan to tackle the debt load.

Read more »

US Airways upgrades inflight experience

by Vinay Bhaskara

Earlier this week, Tempe based US Airways announced several upgrades to its on-board product including the following (as per a report from Inflight Weekly):

US Airways Domestic First Class - Image credit - US Airways

• A new look and branding for the domestic First Class meal tray
• New china for domestic First Class to align with the Envoy design on long haul international flights
• Refresh of domestic First Class meals to address quality and provisioning ratios
• Snack basket for pre-arrival service on long-haul domestic flights
• New continental breakfast concept on domestic red-eye flights
• Newly designed Envoy amenity kit with enhanced content
• A new modern design wine glass for Envoy
• Complimentary headsets on transoceanic flights to Europe, the Middle East, and South America in Economy class
• Complimentary beer/wine during primary meal service on transoceanic flights in Economy class
• DineFresh Economy meals for purchase on return flights to the U.S.

Many of these changes are long overdue. US Airways has by far the poorest service of any domestic first class product; lacking meals on flights shorter than three and a half hours.

I flew US Airways First earlier this year La Guardia – Washington Reagan – Kansas City, and it was definitely underwhelming.

The addition of china for domestic First Class adds a significant touch of class and increases the product’s appeal for frequent flyers. The long haul economy class product on close to half of routes (those operated by Boeing 757/767) doesn't even have in-seat entertainment so the complimentary headsets are nice; as is the complimentary beer/wine for most travelers.

US Airways First Class snack basket - credit US Airways

DineFresh looks intriguing on the website with strong options including a vegetarian offer; premium meals in economy class are already utilized by Air France and KLM so the concept isn't unique. The price, at $19.99 is a little steep, but I’ll have the opportunity to try it out later this year when I fly either Philadelphia-Rome on the A330-300 or Zurich-Philadelphia on the 767-200ER (both in economy class).

As US Airways moves closer to a merger with Dallas Fort Worth based American Airlines, improving its product quality is an important, if under-appreciated step in smoothing the merger process.

Read more »

Indian aviation 2012 review Part 1: Overall trends

by Vinay Bhaskara

This is part 1 of our 2012 review of Indian aviation. Part 2 will come next week with a carrier by carrier review of  2012 in Indian aviation. 

When the story of Indian commercial aviation in 2012 is told, the overarching narrative across almost the entire industry will be one of cautious optimism (though Kingfisher Airlines obviously belies this trend). But the theme I’d rather focus on is capacity discipline, or rather the change that single handedly catapulted the Indian airline market back to some semblance of normality. If you remember my 2011 reviews for US and Indian aviation respectively, one of the biggest themes was how capacity cuts pushed the US airline industry to steady profitability, while the Indian airline industry added to much capacity and commensurately reported record losses.

It’s incredible how simple the airline industry can often be; it really boils down in many cases to the simple supply-demand equation. Match supply to demand and price accordingly; control supply to raise prices when your costs increase and you can maintain profits. This is basic microeconomic strategy yet the tendency in the airline industry has always been to chase market share at the expense of profitability.

The specific numbers are particularly heartening. Since March of 2012, monthly capacity growth in the domestic Indian market has not crossed 3% except in May after averaging more than 12% over the previous 20 months. And in the last part of the year, capacity actually decreased sharply, falling to -7.0% in October 2012, and -5.9% in November 2012.

It is important to note that all of this was sparked by the demise of Kingfisher, which had already pulled lots of capacity out of the market before its shutdown. While some mourn the loss of an airline that dared to dream big (and indeed there will be plenty of time to eulogize in 2013), I say that it was a necessary sacrifice insofar as much as the goal was to ensure a viable and sustainable airline industry.
While this process has certainly raised fares in the short term, I’d argue that that is good for the Indian market, in the sense that it will drive long run sustainability. Any unreasonably high fares are obviously bad for the consumer, but the flip side is that fares need to reflect the cost of operation, and through most of 2011 and into 2012, they just weren’t doing so.

The stabilization of fuel prices is another key contributor to the stabilization, if not quite success, of Indian airlines. Over the course of the year, rising oil production from unconventional sources and the easing of tensions in the Middle East after the Arab Spring have pushed the price of a barrel of oil (West Texas Intermediate measure) down to around $90 per barrel, where it has stabilized. While this has not reduced costs any versus 2011, the stabilization has at least bought the Indian carriers some time to reorganize their operations to operate in a high cost environment.

It is interesting to note that the Indian carriers face many of the same challenges as the broader economy. As economic growth slows to an anemic (by BRIC standards) 5-6%, the demand for air travel will continue to soften, not in the least because discretionary purchases like air travel are often among the first cutbacks made by consumers during economic slowdowns. Whether or not this derails the shoots of positivity amongst Indian carriers depends a lot on the government, more specifically the Ministry of Civil Aviation.

2012 was a good year in the Indian government’s management of aviation. The primary achievement of course, was the approval of foreign direct investment (FDI) by foreign airlines, as well as several other smaller rule changes that made the operating environment slightly more conducive to India’s airlines. (The move to end required flying to Northeast states early this year is also very beneficial).  But the main goals for India’s government in 2013 should be to reform the convoluted and confiscatory fuel taxation structure which has been crippling Indian aviation. A reduction in fuel taxes as well as unification under one single national tax combined with reduction in the sometimes exorbitant airport fees charged by places like Delhi Airport (which are hurting traffic growth beyond the existing economic slowdown) would be a very good agenda for the Ministry of Civil Aviation in 2013.

Turning back to FDI, whether or not Etihad buy a stake in Jet Airways in the near term, the clash around FDI in Indian aviation mirrors a broader question that pervades Indian aviation, and even the economy. At some point, India will have to decide whether it wants to let foreign carriers have expanded access and control over the market, or continue to support the Indian airlines. The former option can take two forms, first through direct investment, but also through expansion of bilateral capacity for carriers like Emirates, who has hit its 54,000 seat bilateral capacity limit. And the question is really something that the Indian people will have to make a decision on in the near future.

Basically, the choice lies between two paths. The first is to give foreign carriers near complete access to the Indian market. This would drive significant traffic growth, expanding affordable air travel to the growing middle class. However, this option would likely preclude the development of a robust Indian airline industry. So the question for India moving forward is, would it rather maximize the air service provided to its citizens at a quality price, or strategically opt for a strong aviation sector. My personal preference is towards economic growth, which is best achieved by maximizing aviation growth and lowering prices, but it is really a question for the broader Indian citizenry to decide.

Read more »

Opinion: India's government should allow A380 operations into India

Late last week, a report published in the Business Standard suggested that India’s erstwhile Ministry of Civil Aviation may finally loosen its rules governing Air Service Agreements (ASAs – or bilateral) by removing the aircraft type clauses from such agreements and restricting only seats,  frequencies, and route pairs allowed. What this means in effect, is that there would no longer be a ban on carriers such as Lufthansa and Emirates operating the Airbus A380 superjumbo into India.

Lufthansa applied last year to operate its 526 seat A380s between its largest hub in Frankfurt and India’s busiest international airport in Delhi. However, its application was denied by the Indian Ministry of Civil Aviation, on grounds that no carrier be allowed to operate an aircraft larger than Air India’s current fleet of 747s (in effect allowing no change to the current language of the Germany-India ASA, which allows Lufthansa to operate 747s of any type including the 747-8 to India).   Emirates is currently the largest non-Indian international carrier, and given its stated desire to increase its seat offering to India by 52% in the next few years. Other operators of the A380 including British Airways and Singapore Airlines might be interested in operating the type into India.

This editorial can be read as an open letter to the Indian Ministry of Civil Aviation and even to Dr. Manmohan Singh.  Mr. Singh, the positive reforms that you helped design in the 1990s helped usher in the current era of Indian prosperity. Now is not the time to seize up; continue to increase economic freedom and make the changes that will allow Indian economic growth to continue. There are those who think that allowing Emirates in particular to operate the A380 into India will have a detrimental effect on the Indian airline industry, pushing a group of airlines currently in a tenuous state of profitability back into the red, and turning beleaguered national carrier Air India into an even bigger money pit.

Admittedly, there will be an adverse financial effect on India's airlines, especially at the beginning, when they are ill prepared to deal with the incredibly low unit costs of the A380.  Jet Airways and SpiceJet in particular may see their profitable international operations flip into the red, while Air India's poorly designed international operations will be further decimated. This will cause some temporary pain. Wages and employment will be cut, domestic route networks might be pared with no international operations to cross-subsidize them, and the once robust fleet growth in India would likely die down.

But in the long run, this will result in a better Indian airline industry. Perhaps Jet Airways will be unable to compete with the lower costs from Emirates  (though Lufthansa'a A380s will likely help Jet given the ever growing ties between the two airlines). At the same time, maybe Jet Airways makes the necessary changes (reconfiguring aircraft into a more dense configuration, removing first class from long haul aircraft, improving onboard service, streamlining operations, et.al) to become competitive with Emirates. Most people are familiar with Dawin's theories of evolution (i.e. survival of the fittest); opening up India's airline market to the full brunt of international competition will result in a stronger airline market in the long run. In a scenario where India's airlines must compete or go bankrupt, only the most financially viable airlines will survive, resulting in a financially solvent industry.

Moreover, it is important to keep in mind that the ultimate goal of air travel should not only be to create a strong Indian airline industry, but rather to ensure that Indian travelers have the most options for air travel at the cheapest price.  In the end, if Indian's get cheaper fares for their travel to the US, Europe, Africa, and Latin America, it will be beneficial to economic growth and to the quality of life for Indians. International air travel is ultimately an ends to a mean; it exists so people can easily travel to and from their foreign business ventures (or to bring foreigners into India for business), or to allow people to travel abroad for leisure or to visit their families.  When these people pay cheaper fares to travel abroad (and vice versa when foreigners pay cheaper fares to come to India), it grows the economy. The more cost efficient it is to move people to and from India, the more likely foreign businesses are to grow their presence in India. As international air travel becomes cheaper, trade also increases. Lowering international fares will attract more tourists, and will allow the tourists that already come to India to spend more money on buying goods and services in India.

So allowing the A380,  with its lower unit costs and lower fares, will be beneficial to the economy. And as Indian economic growth has slid beneath 6% for several quarters, the government must act in the interests of the broader economy and the 1.3 billion Indians, not in the interests of a few thousand airline employees. Do the right thing; allow the A380 for international flights to India. 

Read more »

Cathay Pacific upgrades Delhi Hong Kong route to new Business, Premium Economy and Economy class cabins

Cathay Pacific Airways is upgrading its daily Delhi Hong Kong service with the introduction of the airline’s new Business Class cabin and its new Premium Economy Class cabin from October 29.

Cathay Pacific will operate this route with an Airbus A330-300 aircraft featuring a three-class configuration - new Business Class, Premium Economy Class and the new long-haul Economy Class seats.

The airline’s new Business Class cabin features private, lie-flat seats with direct aisle access. Cathay Pacific was voted “World’s Best Business Class” in the 2012 Skytrax World Airline Awards™.

Cathay Pacific’s new Premium Economy Class features a quieter, more spacious cabin than the traditional Economy Class with between 26 and 34 seats per aircraft. The seat pitch is 38 inches and the seat itself is wider and has a bigger recline. It has a large meal table, cocktail table, footrest, a 10.6-inch personal television, an in-seat power outlet, a multi-port connector for personal devices and extra personal stowage space.

For more details on the new premium economy cabin, read this story. For images of premium economy and economy cabins, read this story.

The new long-haul Economy Class seat features a cradle mechanism to enhance the level of comfort in the recline position. Each seat comes with the latest high-resolution touch-screen personal television, a USB outlet and an iPod/iPhone outlet to allow passengers to connect their own mobile devices to view content through their personal television. The seat also offers improved living space and more personal storage space.

Read more »

Photos and Videos: Air India's Boeing 787-8 Dreamliner cabin interiors revealed

At the India Aviation 2012 show in Hyderabad, Boeing finally unveiled the interiors of its 787-8 Dreamliner meant for delivery to Air India today. Bangalore Aviation was one of the first publications to be invited on board the long awaited aircraft. Line Number 35, test registered N1015B, which when delivered to Air India will become VT-ANH.

This video is a quick video walk through. We have focussed more on the economy class section as this is the bulk of passengers that Air India will carry. Photos of the business class cabin follow below the fold.



The business class cabin in a six abreast 2-2-2 configuration, but unlike competitors who offer a "lay-flat" seat, Air India gives its premium passengers full flat seats with a whopping 78 seat pitch.

The in-flight entertainment system (IFES) is from Thales with generous video screens.

There is in-seat power and USB connections allowing passengers to connect their own personal digital devices like iPod and iPhone a view personal content.

What is impressive that all economy class seats also feature the same in-seat power and USB connections, one for each seat.

In economy the USB is in the seat-back while the in-seat power is below the seat. One power connection for each seat. No sharing.

The economy class is a much more tightly packed nine abreast 3-3-3 configuration with seat widths of only about 17.5~17.8 inch widths with pitch of 32 inches. We cannot understand why Air India did not choose the more comfortable eight abreast configuration like launch customer All Nippon Airways.

The narrow seats with longer seat pitch reminds of Boeing 737 configurations. Observe the electronic window dimming control. Each window in the background is at one of five different settings available.

The 787 features huge overhead bins. As long as passengers put their bags correctly, space should not be a problem. In this photo, four of the standard 22 inch carry-on "strolley" bags are placed side by side.

The aircraft features the Boeing Sky Interior with the mood lighting.

The new electronic window dimming system is displayed in this photo. Each window is at a different level of control, also see the size of the windows.

This video demonstrates the dim-bright control on the new windows.



Hope your enjoyed this story. Share your thoughts via a comment.

Read more »

Editorial: European Union's Emissions Trading Scheme is Flawed

This week on Monday, I read an editorial in favor of the European Union's Emissions Trading Scheme (ETS) in the New York Times, and decided to respond with a op-ed.

In your editorial published on Monday, February 27th, your paper made the claim that Washington and other critics of the European Union's (EU’s) new Emissions Trading Scheme (ETS). Your editorial, while well intentioned, contained numerous misconceptions, and is, I believe, flawed at its core. Reduction of greenhouse gas emissions is an admirable goal, but doing it through this particular design is erroneous for both economic and sociopolitical reasons.

In the first case, air travel helps power the global economy, in multiple ways. If facilitates quick and easy transport of human capital and goods around the world, while simultaneously enhancing interpersonal relations and global awareness by transporting passengers to vacation and visit family around the world. The economic impact of the air transport is huge, accounting through direct, indirect, induced, and catalytic forces, for $2.5-$3.5 trillion annually, or 5-7.5% of global GDP. Our industry generates some 32 million jobs globally through the same confluence. Yet despite its position as a vital economic engine, the airline industry is a highly unprofitable venture; global commercial airlines lost a cumulative $5.5 billion between 2003 and 2011. And the European Union is no different. The region already has some of the highest aviation taxes in the world, with a myriad of passenger duties, entrance tariffs, and general taxes that have rendered its airline industry stagnant. The fallout from the EU’s misguided policies have already manifested themselves this year in the collapse of Spanair and Malev, and ETS will only serve to continue that trend.

In your piece, you claim that because the added cost increases would be of magnitude less than the $25 typically charged for checked baggage (though they will almost certainly be greater than the $2.60 claimed by the EU), they are not of consequence. While this relationship might hold true in most industries, the airlines are a special case. Airline flights are marginal at best; the profit margin on individual flights is often as low as 20 or 30 dollars in total. And because air travel demand, especially for long haul flights, is highly price elastic (meaning that a 1 % increase in price will decrease quantity demanded by greater than 1%). According to a compilation of estimates from various government sources and industry bodies, the price elasticity of air travel ranges from 1 to 1.1. Given that the price increases created by ETS range from 3-6% on most flights, the EU is facing a worst case scenario of losing up to 66 million passengers or $2 billion in revenue, or a best case scenario of losing 33 million passengers and a billion dollars of revenue. Can Europe’s tottering airlines afford such losses? The most likely answer, especially for marginal airlines, is no. Whenever taxes are increased, businesses at the margins suffer the most, and in the EU, that could mean the loss of dozens of valuable air service providers.

Secondly, and more importantly in most eyes, ETS represents a violation of the national sovereignty of other nations. Under the ETS, the EU will tax not only the portions of the flight that occur over its airspace, but all portions of a flight. This is akin to the US government taxing Chinese companies that sell in the US for their pollution in China; it is overstepping logical and legal boundaries. Moreover, the EU’s member nations (if not the EU itself because it is a trans-national body) are all signatories to various conventions of the air, none of which allow it to regulate the airspace outside of its borders as the ETS attempts to do. Thus Russia, China, India, and the United States are right to band together and denounce the European Union for this violation of their sovereign rights to the airspace in their country.

The worst part about ETS is that it hurts the EU’s own airlines the most. With emissions surcharges being levied on the whole portions of intercontinental flights, fast growing airlines such as Emirates and Turkish Airlines would have an advantage in transporting long haul European passengers because their flights would only face EU surcharges on less than half of the total distance of many itineraries. Europe’s economy is already tottering under the weight of its unbalanced debt structure. Is now really the time to be choking off a vital economic engine, especially with the threat of a double dip still looming?

Read more »

Images: Cathay Pacific's new Premium Economy and international Economy Class seats

Hong Kong based Cathay Pacific Airways has taken delivery of a new Boeing 777-300ER registration B-KPY which is the first aircraft to feature its new Premium Economy Class product and new long-haul Economy Class seats.



The new Premium Economy class features a quieter and more spacious cabin with between 26 and 34 seats per aircraft. The seat pitch is 38 inches – six inches more than Economy Class – and the seat itself is wider and has a bigger recline. It has a large meal table, cocktail table, footrest, a 10.6-inch personal television, an in-seat power outlet, a multi-port connector for personal devices such as iPods, and extra personal stowage space.

For full details visit the Cathay Pacific website.

Premium Economy will be offered from 1 April onwards on selected flights on the Sydney (CX101/100), Toronto (CX826/825/828/829), Vancouver (CX888/889), and New York (CX830/831/ 840/841/888/889) routes. In May, Premium Economy will be featured on some of the selected flights on the London route (CX252/255). As more aircraft fitted with these new cabins increases in the Cathay fleet, priority will be given to achieving daily availability on these routes.

Cathay plans to add the Adelaide, Los Angeles, Melbourne and San Francisco routes in August, Frankfurt in September, and Brisbane and Mumbai in later in October. 

By end of this year, Cathay Pacific plans to have 48 aircraft installed with the new product which will increase to 87 by the end of next year.

The new long-haul Economy Class seat features a cradle mechanism to enhance the level of comfort in the recline position, the latest in high-resolution touch-screen personal televisions, a USB outlet and an iPod/iPhone outlet that allows passengers to connect their own mobile devices to view content through the personal television.

The new seats will be fitted on all Cathay Pacific long-haul Boeing 777-300ER and Airbus A330-300 aircraft. The first aircraft will enter service in March flying to Sydney and Toronto initially. A total of 36 Boeing 777-300ERs and 26 Airbus 330-300s will be fitted with the seats by December 2013.

Full details of the new long-haul economy class can be found here.

Read more »

VIDEOS: The new Southwest Airlines cabin

On Tuesday, Southwest Airlines announced a series of changes to its interior, including the addition of 6 seats to their 737-700 aircraft and a reduction in seat pitch offset by a decrease in recline.

The new cabin also features, "recyclable carpet, a brighter color-scheme, and a more durable, eco-friendly, and comfortable low-profile seat that weighs less than the current seat."

All 372 of the airline's 737-700 aircraft will be retrofitted with the "Evolve" interior beginning in March 2012. Completion is targeted for 2013, and the interior will also be fitted onto the 737-800s which will begin to arrive on property this year, as well as on the carrier's plethora of 737 MAX aircraft which are tentatively scheduled for delivery starting in 2017.

The following video is a time-lapse of the first Southwest 737 to be retrofitted.



Read below for the full details of the new cabin.

The Evolution of the New Cabin Interior Improves Customer Experience and Preserves Personal Space

With a continued focus on Customer comfort, Evolve: The New Southwest Interior retrofit enhances the Customer Experience:

• Modern Cabin Design: The new design incorporates natural, earthy tones combined with Southwest's iconic Canyon blue and clean, aluminum accents for a more modern, fresh appeal. The redesign is inspired by Southwest's past with a nod to the future.
• Lighter and More Comfortable Seat: The redesigned low-profile seat is more durable, made of eco-friendly products, is lighter, and more comfortable.
• Increased Under-Seat Space: The new design allows for more under-seat room for carryon luggage and approved pet carriers.
• Customer Living Space: Reducing the recline from three inches to two inches preserves onboard personal living space while still allowing for ample seat adjustment for Customer comfort.
• Seatback pockets: The new netted seatback pockets are streamlined to provide more knee room.
• Headrest: The fixed-wing headrest provides better neck and head alignment with side-to-side support for sleeping.
• Improved Ergonomics: The combination of the low-profile cushion and fixed wing headrest improves ergonomics by positioning Customers "down and back" into the seat, allowing for better lumbar support, armrest alignment, and increased personal living space.

Read more »

Details of Cathay Pacific's new Premium Economy and Economy class seats

Hong Kong based Cathay Pacific Airways has released details of its new premium economy class and economy class seats which will be progressively introduced on its long-haul flights from March 2012 for operational commencement from April 2012 onwards. Unfortunately the carrier is not releasing pictures of the new cabin till next year.

With the carrier intending a clear differentiation between the two classes, the new premium economy product will feature a quieter, more spacious cabin than the existing Economy Class with between 26 and 34 seats. The seat pitch 38 inches, six inches more than economy class, with seats that will be 19.3 inches wide compared to 18.1~18.5 inches in economy. It will have a large meal table, cocktail table, footrest, a 10.6-inch personal television, an in-seat power outlet, a multi-port connector for personal devices, and extra personal stowage space.

Additional ground services like dedicated counters, priority check-in and aircraft boarding. There will also be an increase in baggage allowance from 20kg to 25kg (weight system) or two pieces of baggage from 23 kg to 25kg each (piece system).

Onboard, premium economy passengers will receive an amenity kit with dental kit, socks and eyeshade for use during the journey. Larger pillows and noise-cancelling headsets will be provided to enhance the onboard experience.

Cathay's new Premium Economy and Economy class seating compared to the existing

On the food front too, premium economy passengers will be welcomed aboard with juice and champagne, and enjoy an enhanced onboard meal selection. Each passenger will also receive a bottle of water and additional snack choices to include more fresh fruit, energy bar and dessert.

The new premium economy cabin will be installed on all Cathay Pacific long-haul aircraft including Boeing 777-300ERs, Boeing 747-400s, Airbus A330-300s and Airbus A340-300s.

The airline plans to have 87 aircraft fitted by the end of 2013. Initial routes to feature the new class include Sydney, Toronto, Vancouver and New York routes, followed by London, Los Angeles, San Francisco, continental Europe and other long-haul routes as the number of aircraft fitted with the product increases.

The new long-haul economy class seat will feature a cradle mechanism to enhance the level of comfort in the recline position, the latest high-resolution touch-screen personal televisions, a USB outlet and an iPod/iPhone outlet that allows passengers to connect their own mobile devices to view content through the personal televisions. The seat will also offer improved living space and more personal storage space.

The new economy class seats will be fitted on all Cathay Pacific long-haul Boeing 777-300ER and Airbus A330-300 aircraft and will be operated on Sydney and Toronto routes initially. A total of 36 Boeing 777-300ERs and 26 Airbus 330-300s will be fitted with the seats by December 2013.

Read more »

Air India's flawed sales and lease-back strategy for its 787 Dreamliners

A few days back Air India released a request for proposal (RFP) for their planned sale and leaseback of seven Boeing 787 aircraft. These are the first seven Dreamliners out of a planned order of 27 aircraft. The deal would also include “one or two spare” GE GEnx engines. Air India is currently requesting a 12 year lease deal from lessors in return for these 787s.

Sale and lease-back agreements allow cash-strapped airlines to raise funds by selling owned aircraft to lessors, and then leasing back those aircraft back on favorable terms. The money realised from selling the aircraft is used for more productive purposes by the airline.

With Air India suffering from a debt-load of more than Rs. 40,000 Crore, the additional cash would help them either pay down their debt, or at the very least fund their operations; an action for which Air India has already secured a Rs. 30,000 Crore loan for the next ten years.

Furthermore, this agreement will allow Air India to avoid incurring further aircraft related debt. IndiGo has made great use of sale-leaseback agreements on their fleet of Airbus A320 aircraft; the carrier made over Rs. 100 Crore from sale-leaseback transactions in 2012, and concurrently has managed to keep its debt level below that of its competitors.

Why a sale and lease-back instead of financing through the US Export-Import bank?

Air India already has a confirmed contract with the United States Export-Import bank to finance these 27 aircraft at a sweetheart rate of 2.6%, but the airline has been hauled up by the Comptroller and Auditor General for excess debt, so it prefers the sale and lease-back deal, which will end up with at least 4%~4.5% debt servcing cost since it will be a private financing deal rather than government.

A sale and lease-back also brings immediate cash relief to an ailing airline, but at a higher future cost. The closest individual parallel is, taking a mortgage on your house to pay off old debt on previous houses. It is a dual edged sword. In the hands of a disciplined and stake-holding management sale and lease-backs are a powerful financial weapon allowing airlines to reduce high cost operations expense debt burdens, grow the operations and earn more to cover the higher long term costs of a private lease. However, at the mercy of an uninterested management, demoralised work-force and a government "run" airline with a history of constant interference, this will most likely be time-bomb that will explode and add to the financial misery of the Indian taxpayers whose money is being squandered to run the airline.

A 12 year tenor is too long

At first glance, it would seem that this sale and lease-back RFP represents a very lucrative opportunity for leasing companies: the Boeing 787 is a new and highly valuable asset that will be worth a lot of money for many years to come.

However, the very tenor of the lease gives one reason to pause. Most lease agreements are typically about six years in length. Why? one may ask. In a business, like aviation, which is so afflicted by external forces, 12 years is an eternity. It is next to impossible to predict with any significant confidence, what the market for the Boeing 787 will look like so many years later.

To give an example, in 1995, the Boeing 777-200 (non-ER) was considered as revolutionary an aircraft as the 787 is today. Six years later in 2001, competitor Airbus increased the weight carrying performance of its A330-300. Just six years after its entry into service (EIS), virtually overnight, Boeing lost the business justification for their 777-200.

Today, the Airbus has an order backlog of over 200 A330-300 aircraft, while Boeing has not received a single order for the 777-200 in the last four years. Can such a fate befall Air India and its 787-8 variant? Sure it can. Today the 777 is a segment leader in its class but in variants other than the -200. Similarly the 787-9 is expected to be more popular, as could be a potential -10 variant. The 787-8 could be rendered obsolete by a competing product from Airbus or a market that finds the operating economics of a 787-8 not as good as originally envisaged.

Over the course of these 12 years, Air India's 787s are expected to lose more than 70% of their re-sale value. Even if the airline is able to lease out the airplanes at the end of the 12 years, the rates they would be able to get will be severely diminished. Air India should look at a lease tenor of five to six years. It will drastically increase the premium the airline can command.

In all probability Air India will not be able to command any sort of premium on these aircraft over its purchase price, and will receive less than 100% of what they paid. The most current list price of a Boeing 787-8 is US $195.3 million. In 2006, when Air India purchased these planes, the list price was $157.5 million. Airlines typically negotiate a discount of 25%~40% on list prices, but in the case of Air India, there is a offset agreement in place, so we have taken a value of 32.5% discount, which yields a purchase price of ~$106.3 million.

If we assume that the lessors will offer roughly 80-90% of this (taking into account the long tenor of the deal and Air India’s shaky credit), the resultant lessor purchase range is US $85.1~95.7 million. For seven aircraft, the total value of the deal becomes US $595.7-669.9 million, which is equivalent to roughly Rs. 3,100~3,500 crore at current exchange rates. While this value is significant to be sure, Rs. 3,500 crore would represent just 41.9% of Air India’s projected FY 2011 loss of Rs. 8,348.8 Crore (US $1.6 billion converted to current rupee valuation).

How much will the 787s cost to operate with the new deal?

Lease rates for aircraft tend to fluctuate around 0.7-1% of purchase value depending on the credit of the airline. While the Indian government has shown nothing but support (in terms of financing its operations) for Air India, Indian politics are noticeably mercurial; the mindset of the Indian aviation ministry can change in a hurry. Thus for lessors looking to ensure the reliability of the Air India 787 lease deal as an asset (future lease obligations are typically accounted for as assets), the lease rates will likely be in the higher end of the range we quoted above. For the sake of an analysis, if we assume that Air India is able to secure lease rates at 0.9% of purchase price, under the terms we outlined above, their monthly lease rate would range from US $851,000 to US $957,000.

In terms of operating costs, where finance/lease charges typically represent around 15% of trip costs for Indian carriers on long haul operations, the lease deals might actually decrease direct operating costs. However, this cost reduction is a mirage, as Air India will have accrued a heavy loss in selling the 787s off for less than purchase price. Still, the 787’s will likely be 10-15% more cost-efficient on a per seat basis than the 777s in Air India’s fleet, allowing the carrier to lose less money than ever before!

Air India 787 operating configurations revealed

As part of the RFP we reviewed, Air India included the following characteristics for their 787:

• Aircraft will be configured with 256 seats (18J/238Y)
• 9 abreast in economy (3-3-3), 6 abreast in business (2-2-2)
• Business class seat pitch = 74 inches (lie-flat), economy class seat pitch = 33 inches
• 3 crew seats
• Business class seats are Contour Aura, while economy class are Weber 5751. The same slimline uncomfortable seats in Delta.
• Inflight entertainment will be Thales i8000 Top Series
• 9 toilets on board (2J/7Y), 9 galleys

Air India has elected to configure these aircraft with relatively few premium seats, a smart move given the competitive realities of the Indian market. The economy class seats are liable to be uncomfortable though; 9 abreast in a 787-8 is akin to 10-abreast in a Boeing 777; not a enjoyable experience at all.

Tentative Delivery Schedule

Air India also noted the revised schedule for delivery of these 7 aircraft; delivery of the first airplane has been pushed back from December 2011.

The first seven aircrafts are expected to be delivered in January, March, April, May (2), and June (2) of 2012 as VT-ANA/ANB/ANC/AND/ANE/ANG/ANH, but there are doubts on this schedule as well due to FAA testing and certification issues at Boeing.

Ultimately, a sale-leaseback agreement will provide Air India with greatly needed cash on hand, while neatly side-stepping the issue of financing from the Export-Import bank of the United States which had driven a law suit from the Air Transport Association.

Sound economic logic shows that the long tenor of the deal will prevent Air India from maximising the economic value; but then a clause in the RFP demonstrates the lack of such logic in the thinking of the airline and its masters

AI [Air India] is not bound to accept the highest or any other offers received. The offers received may be accepted or rejected partially or in full without assigning any reason whatsoever.

Read more »

Delta Air Lines expands Economy Comfort Service

Earlier today, Delta Air Lines announced that it would be expanding its popular economy comfrot service to all domestic aircraft. 550 mainline aircraft, as well as 250 2-class regional jets will be configured with the new seating. Earlier this year, Delta implemented an international Economy Comfort section on 170 aircraft.

The new economy comfort sections will be installed in the first 3-5 rows of Delta's 767, 757, A320, A319, 737, MD-88, MD-90, and DC-9 aircraft, as well as in Delta's two class regional jets such as the E170, E175, CRJ-700, and CRJ-900. The new seats will offer the following amenities:

• 34+ inches of pitch: Current Delta economy class seats have between 29 and 31 inches of seat; so the new cabin will have 3-5 inches worth of extra legroom
• Priority Boarding: Customers traveling in Economy Comfort will board early, directly after first class passengers and Delta's elite frequent flyers.

Initially, customers who have purchased economy class seats can upgrade to Economy Comfort for a fee of $19-$99 after purchase. In 2012, the carrier plans to gradually introduce their international Economy Comfort directly into their booking engine, though it is not yet clear whether they will choose to do so for domestic flights as well.

Passengers who purchased a full-price economy class ticket will get access to Economy Comfort for free, and the following SkyTeam frequent flyer groups get some benefits as well.

• Diamond/Platinum/Gold: Complimentary access at time of booking
• Silver Medallion: 50% discount at the time of purchase or free access at check-in

When traveling domestically within the US, the lack of domestic seat pitch is perhaps the worst part of the experience. While I do not have extraordinarily long legs (being about 5'8"), I regularly struggle with the legroom on domestic passenger aircraft. Thus even if one does not care for the extra amenities of first class, paying for an upgrade to Economy Comfort can be well worth the price.

For Delta, who becomes the second US airline to implement a premium economy section after United Airlines, the addition of an economy comfort cabin will add incremental ancillary revenue, but more importantly will help the carrier retain its frequent flyers. Junior level frequent flyers often complain that their status lacks real perks; upgrades to first class are often limited to frequent flyers of the highest tier. But the ability to upgrade cheaply (or for free) to a premium economy cabin adds value to membership in lower frequent flyer tiers; helping Delta retain high value customers.

Read more »

India Budget 2010: Impact on the aviation sector

Keeping in mind the five year term of the Lok Sabha, the first year is the thank you budget, years two and three are the hard and bold budgets, year four is the status-quo budget, and year five is the populist budget meant to garner votes. With coalition politics in full sway, the union budget is also now subject to election needs of regional coalition partners like the TMC, DMK, and the NCP.

Mr. Mukherjee faced no election pressures this year, year two, of the UPA's second term. With no election pressures, the Finance Minister of India, Mr. Pranab Mukherjee missed a golden opportunity to take some bold initiatives in Budget 2010.

He did however raise indirect taxes by almost Rs. 46,000 crores which also includes re-introduction of customs and excise duties of petroleum products. He also broadened the base of services which will now come under the service tax net.

Service tax of 10.24% which until now was levied only on international travel in business and first class and showed up on tickets as JN has now been expanded to include all classes and all travel. My understanding is the the service tax will be levied on the total ticket price excluding the statutory taxes of governments.

The scope of the taxable service ‘Air Passenger Transport Service’ [section 65 (105) (zzzo)] is being expanded to include domestic journeys, and international journeys in any class.

Airports have not been spared either. Service tax is now levied on all services provided at airports, whether to passengers, or importers/exporters, or to airlines. There will be a price rise along the entire value chain.

The definitions of the taxable services, namely the ‘Airport Services’ [section 65 (105) (zzm)], the ‘Port Services’ [section 65 (105) (zn)] and the ‘Other Port Services’ [section 65 (105) (zzl)] are being amended to provide that,-

1. all services provided entirely within the airport/port premises would fall under these services; and
2. an authorization from the airport/port authority would not be a precondition for taxing these services.

On the fuel front, air passengers are going to feel the pinch when the oil marketing companies revise the price of aviation turbine fuel on March 1, 2010. With global crude prices increasing sympathetically with increasing demand as Asian economies recover, the effect is going to multiply.

Unlike 2008, airlines now are smarter, and with reasonably healthy demand, will be quick to pass on the fuel price increases in the form of increased fuel surcharges.

Everyone transacting at an airport, including passengers, can get ready for serious price jumps.

This does raise an interesting situation. Asian economies are recovering and forcing an increase in global fuel prices, which is impacting the whole world. The United States and European economies are still very fragile and residents of these countries face the daunting prospect of an expensive summer season without a corresponding income generation.

Coming back to India, the lack of credit off-take is symptomatic of the lack of capacity augmentation to cater to the rapidly rising demand and this is reflected in the supply shortage inflation the country is experiencing. With the new taxes announced today, Petrol is already up almost Rs. 3 and diesel by almost Rs. 2 per litre. These increases will only add to the inflation spiral as price of goods and services will increase.

The inflation spiral will force demands for salary increments from staff and price increases from vendors, both of which were suppressed until now thanks to the economic slowdown. The improving economy is also putting pressure on the HR front as more job opportunities open up, and there is bound to be attrition which will increase costs due to recruitment and training. Vendors too, have more market opportunities, and both airlines and airports will be hard pressed to retain suppliers.

Low fare airlines face the dilemma of passenger demand that is price sensitive. For full service airlines, premium and business traffic is generated by fresh investment by industry, and the lack of credit off-take is a cause for concern. The customers of airports, are airlines, and troubles flow downhill.

Clearly tough times are ahead.

Read more »