IATA report on airline performance should set panic bells ringing in government

Airline body, International Air Transport Association (IATA) announced international scheduled traffic results for January showing a deepening year-on-year demand slump.

International passenger demand fell by 5.6% in January 2009 compared to the same month in 2008, a full percentage point worse than the 4.6% year-on-year drop recorded in December, and the fifth consecutive month of contraction.

Air cargo is a key indicator of economic and manufacturing activity. It had collapsed 22.6% in December 2008, and this has only worsened in January 2009 with a 23.2% drop. Simple translation, manufacturers are still shedding inventory and cutting production.

Clearly alarm bells are ringing, but it does not appear that governments are hearing them.

Giovanni Bisignani, IATA’s Director General and CEO statement says it best

The drop in demand is much more harmful. The industry is shrinking with revenues expected to fall by US$35 billion to US$500 billion, delivering a loss of US$2.5 billion this year.

Airlines remain in intensive care, but while others ask for government bailouts, our demands on Governments are much more modest. First, don’t tax us to death in order to pay for investments in the banking industry. This includes the UK government’s plans to increase its multi-billion pound Air Passenger Duty and the Dutch Government’s misguided departure tax.

In 2008, even as governments delivered tax breaks to stimulate economic growth, the airline industry took on an additional tax burden of US$6.9 billion.

Second, give airlines the commercial freedoms that every other business takes for granted. With the world’s capital markets in disarray, archaic ownership restrictions are an unnecessary burden that must be lifted. Today’s crisis highlights the need to change the structure of this hyper-fragmented and fragile industry

See the detailed results here.

Do you agree with Giovanni Bisignani's view ? Post your opinions via a comment.

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British Airways performance reflects global meltdown in manufacturing ouput

British Airways released it performance figures for January 2009. In the month, passenger capacity, measured in Available Seat Kilometres (ASKs), was 2.6 per cent below January 2008. Traffic, measured in Revenue Passenger Kilometres (RPKs), fell by 1.3 per cent. This resulted in a passenger load factor increase of 1 per cent, to 73.2 per cent.

Reflecting the deepening impact of the recession and cost cutting by passengers, premium traffic (first and business class) dropped 13.7 per cent compared to a 1.4 per cent rise in non-premium traffic. A direct barometer of industrial manufacturing ouput, cargo performance, measured in Freight Tonne Kilometres (FTKs), fell by 16.7 per cent, which should be a cause of concern to all of us, as even post 9/11, when global airline fleets were grounded, cargo output fell only 13.7 per cent. It appears global manufacturing has just stopped, because we consumers have stopped buying.

We have to fight the "FUD factor" (Fear Uncertainity, Doubt).

Also, British Airways has re-cast its financial performance and restated it performance for the 9 months ending December 31, 2008

• Operating profit of £89 million (2007: £744 million - restated) down 88 per cent
• Loss before tax of £70 million (2007: Profit £816 million - restated)
• Revenue £7,046 million (2007: £6,634 million - restated) up 6.2 per cent
• Passenger revenue at £6.2 billion was up 6.6 per cent
• Cargo revenue at £537 million up 18.8 per cent, before the recession kicked in
  
• Cargo performance, (measured in FTKs) down 1.7 per cent primarily due to effects in last quarter of 2008
  
• Passenger Capacity (measured in ASKs) up 0.2 per cent
• Passenger seat factor 78.4 per cent down 2.3 per cent
• Fuel costs £2,244 million up 48.4 per cent

Cash at the end of December was £1.6 billion, £278 million lower than at March 2008. Net debt was £2.2 billion, up £0.9 billion since the year end, £0.6 billion of this increase due to exchange.

British Airways has responded by adding more discounted fares to its World Offers sale for travel between January and September 2009 with reductions on a range of longhaul destinations including New York, Cape Town and Grand Cayman and shorthaul destinations including Paris, Venice, Milan, Vienna and Prague.

Statements from British Airways clearly indicate the airline is looking at the medium to long term.

The new Club World longhaul cabin has been fitted on 19 of 42 Boeing 777s in addition to all 57 of Boeing 747s. The fitments will be completed by the end of 2009.

For shorthaul passengers, Club Europe will be in a new configuration to guarantee a window or aisle seat from February 23, 2009, with the removal of the use of the middle seat.

Fitments of the new First class cabin will start later this year and will added to the pending Boeing 777-300s due for delivery in 2010.

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IATA: Air cargo performance even worse than post 9/11. The FUD factor at work.

SCARY!!!!, there is no other word to describe the performance numbers and the forecast from IATA, the association representing 93% of the global commercial air transport industry.

For the month of December, it is now official -- ALL regions of the world, have reported major declines in cargo performance in December 2008 when compared to December 2007. Across the globe, air cargo, a vital barometer of world trade, is down 22.6%.

In November, Africa was the sole region showing positive compared to a year ago. Again, the Asia Pacific region, which represents 45% of global air cargo, led the world with a whopping 26% fall, when compared to December a year ago, this on top of 16.9% decline in November.

As per Giovanni Bisignani, IATA’s Director General and CEO

“The 22.6% free fall in global cargo is unprecedented and shocking. There is no clearer description of the slowdown in world trade. Even in September 2001, when much of the global fleet was grounded [post the 9/11 terror attacks on New York city], the decline was only 13.9%,”

The year on year performance does not reflect the oncoming tsunami of collapsing world commerce and trade. On an annual basis air cargo is down 4% with Latin America leading the world down 13.5%. Asia Pacific is down 6.6%.


Those of us, hoping for a global recovery in 2009, data from the Economist Intelligence Unit (EIU) and IATA, shatter those hopes. Business and consumer confidence are at historic lows. Leaders at the World Economic Forum meeting at Davos are talking about a mind numbing 0.5% growth for 2009. While India and China will experience moderate growth of around 6%, the recession in the developed economies will ensure the global recovery will commence only in 2010.



Semiconductors shipments are one the highest users of air cargo and a key barometer in global electronics production. The shipment performance of the global semiconductor industry reflects the deepening impact of the global recession.


Across the globe, the aviation market have been hit, and hit hard. Revenue Passenger Kilometers (RPKs) are down, and Freight Tonne Kilometers (FTKs) are way down.


Airlines have been retiring or parking their aircraft in record numbers. The silver lining in this saga, is that airlines, mostly in the middle east, have been taking deliveries of new more fuel-efficient aircraft, and refreshing their fleet to cut down operating costs.


Airlines across the world are facing deepening losses, and I am sure we are going to see the many airlines and brands simply disappear during 2009. US airlines were smart and cut their capacity ahead of the drop in demand, unlike airlines in other regions. This will aid them in returning to profitability sooner.


The bad news is going to continue in 2009. Passenger markets are expect to decline another 3%, which freight will decline another 5%.


Part of this precipitous drop in global trade is due to the "FUD Factor". Fear Uncertainty and Doubt. Every procurement manager, and individual consumer has retreated in to a shell. Stop all purchases. Buy only the bare minimum. This has slammed the brakes on the global economy so hard, that there is hurt everywhere.

Life is going to be difficult, but the world is still here. Caution is needed, but so is pragmatism. Surely there is no need to retreat so hard, and withdraw so deep.

As the world emerges from this shell, and consumption re-starts, the shelves are going to be bare, as existing inventories would have been fully consumed, and capacity cuts in manufacturing will be take supply well below demand. At that point air cargo will increase with a vengeance.

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Shocking drop in global air cargo confirms global economic meltdown

The recently announced results by The International Air Transport Association (IATA), is nothing short of shocking.

International air cargo is down by a whopping 13.5 per cent in November when compared to November 2007, and passenger growth is down by 4.6 per cent.

Graph legend
RPK - Revenue Passenger Kilometres (sales)
ASK - Available Seat Kilometres (capacity)
FTK - Freight Ton Kilometres (sales)
ATK - Available Ton Kilometres (capacity)


Even for year to date comparisons January to November between 2008 and 2007, global air cargo is down 2.2 per cent


Globally air cargo transports about 35 per cent to 40 per cent of global trade, by value. The negative growth in air cargo clearly shows the rapid fall in global trade, and the broadening impact of the deepening economic slowdown.

Even the middle east, the region showing consistent growth, slipped in to negative territory at -1.6 per cent. The largest air freight zone, Asia Pacific, which contributes 44.6 per cent to global air freight, contracted by the largest -16.90 per cent. Capacity cuts of 1 per cent in passenger and 3.7 per cent in cargo, could not keep up with the rapid declines.

India
As per data from the Airports Authority of India, available till October 2008; India year-to-date passenger performance is significantly worse than the rest of Asia Pacific and global performance. Passenger growth is down to -3.4 per cent vs. -0.8 per cent (Asia Pacific) and +2.2 per cent global.

However on the freight front, India has a Y-T-D growth of 4.2 per cent based on actual tonnage, compared to -4.7 per cent in Asia Pacific and -2.2 per cent globally.


Bangalore
For some unexplainable reason, Bangalore's performance is way below the national standard, at -14.8 per cent and -5.3 per cent for monthly passenger and freight performance, and -8 per cent and -7 per cent for year to date passenger and freight performance.

Highlights of the IATA report :

International Passenger Traffic

• The November passenger decline of 4.6% is a considerable worsening from both the 1.3% demand contraction in October and the 2.9% fall in September.
• Asia-Pacific carriers face the most difficult operating environment with a 9.7% decline in November, following a 6.1% contraction in October. The region also had the most aggressive capacity cuts at -5.1%. While Chinese domestic traffic rebounded after the Olympics, travel to and from international markets continues to decline, reflecting the weakness in both global trade and consumer confidence.
• North American carriers saw international traffic decline by 4.8% - the second largest drop among the regions. Until August, the region’s carriers had been shifting capacity to international markets. With the near collapse of the investment banking sector and consequent reductions in business travel, North Atlantic travel slumped. Carriers have started to cut international capacity with a 0.8% drop in November (following 0.4% growth in October)
• European carriers saw international traffic drop by 3.4% as all the region’s major markets (intra-Europe, North Atlantic, and Asia) slumped.
• Smaller emerging markets fared better. African carriers saw traffic decline by 1.6%. This is a considerable improvement from the 12.9% drop in October, resulting from stronger intra-African traffic. Middle Eastern carriers saw traffic increase by 5.6%. This is up from 3.5% growth in October, but represents a step-change from the double-digit expansion that characterized growth prior to the current financial crisis. Latin American carriers saw a slight decline in growth to 3.3% (compared to 4.5% growth in October), buoyed by the region’s positive, albeit slower, economic growth.

International Freight Traffic

• Asia-Pacific carriers (representing 44.6% of global freight) saw freight traffic fall by 16.9% in November - the largest decline of any region. As freight accounts for a larger percentage of revenues for the Asia-Pacific carriers, fourth quarter profits for the region’s carriers will be disproportionately (and negatively) impacted by the downturn in the global air freight market.
• Double-digit freight declines were also experienced by Latin American carriers (-15.7%), North American carriers (-14.4%) and European carriers (-11.0%). Freight traffic for Middle Eastern carriers turned negative (-1.6%), following 1.0% growth in October. African carriers, while being the only region posting freight growth (2.2%), saw a decline from the 3.0% growth posted in October. Plummeting business confidence and the continuing turmoil in financial markets indicates that the worsening trend will be continued in December.

Giovanni Bisignani, IATA’s Director General and CEO said

“The industry is now shrinking by all measures. The 1.0% capacity cut in international passenger markets in November could not keep pace with the 4.6% fall in passenger demand. We can expect deep losses in the fourth quarter,”

“With no end in sight for the worsening global economy, the 2008 gloom will carry over into the new year. Relief in the oil price has been outstripped by the falls in demand and capacity cuts are not keeping pace. The industry is back in intensive care. Improving efficiency everywhere will be theme for 2009,”

While the end to the global economic slowdown is still much further away than expected, the freight performance in India, shows us, the Indian economy is still performing well. We have to defeat the FUD Factor (Fear Uncertainty Doubt) that is in our minds.

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Airlines must cut fares for survival and growth

The current slowing economy needs an extra large dose of stimulus to bring it back on track. Unlike previous slowdowns, this time a 360 degree effort is required to prime the pump and beat the "FUD" factor (Fear Uncertainty Doubt).

The government has to do it's part and focus on areas like infrastructure and other plan expenditure, the companies have to do their share, improve efficiency and reduce prices, and this time around, we the consumers are also going to have to do our bit, spending a bit more than we are comfortable with, even though we face FUD.

In the aviation sector the government has done a little bit like extending credit periods and partially reducing some taxes on aviation turbine fuel (ATF) , but it needs to bite the bullet of populism, and place ATF in the declared list, to ensure a uniform 4% tax across the nation. Government has to resist the political need to distribute populist largess, in the face of elections that are looming around the corner.

I doubt, the airline companies have fully appreciated the fact, that survival, and only then, growth, will be realized, if there is more revenue and with it, potentially greater profits. Selling more products or services is a challenge in the best of times, but in the current economic environment, regardless of business segment, it is a monumental challenge, most especially if one imagines maintaining current price points.

As consumers, all around us, we are seeing prices falling. Be it cars, trucks, two-wheelers, electronics, industrial goods, clothing, even consumer consumables like toiletries, cosmetics, and higher-end restaurants. The exceptions being the two major "F"s - fuel and food, and airline ticket prices, at least in India.

Following the lead of the private counterparts in the car, two-wheeler, who have begun announcing price cutting deals, and have even passed on the savings of the 4% reduction in Central VAT (Cenvat) to customers, the airline companies too have to pitch in and bring down their fares drastically, if they are to return passengers and cargo to the skies, until now, lost to road and rail.

Instead of learning from the global airline industry, the Indian airline industry seems to be playing the same goodwill loosing strategy as that of the Indian real estate industry, who continues to blame high interest rates as the reason for their lot in life, just as airlines continue to whip the fuel demon.

We keep hearing from airlines that fuel represents about 40%~50% of their total operating costs, and that taxation on ATF must be reduced. Most passengers agree on both statements. But, when fuel prices have retreated by almost 50% from a high of Rs. 71 per litre to Rs. 38 per litre, and yet the fuel surcharge levied by airlines is brought down by a paltry 13%, that too at the behest of government "suggestions", the airlines will have to face the cynicism and a complete lack of sympathy of the general populace, and may be, even some of the ministers.

In any organisation, may be with the exception of government, and some of most the iconic luxury brands, the first response to any slowdown is to cut costs, improve efficiencies, and offer customers a better price . The cost cutting could be anything from nominal to extreme, but the more the better.

India, and Indians, are renowned as one the most cost-conscious buyers on the planet. Give them a good deal, and they will flock to you. Keep prices high, and, you better have a big wad of cash sitting in the safe for your fixed costs, for you are going to be one very lonely organisation; and that is the downward spiral to bankruptcy.

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Shooting scare at New Delhi airport

All the major airports across India have been turned in to fortresses following perceived threats.

The jitters created a security scare at New Delhi’s Indira Gandhi International airport in the early hours of Friday, and triggered panic among passengers and sent security officials into a tizzy.

The chaos began when a sound similar to gunshots were reportedly heard from the facility.

The control room of the CISF received a call at around 1.10 am IST from passengers that they heard sound of gunshots from the vicinity of Gate 4 of international departure lounge of the airport.

The security was immediately stepped up but police could not ascertain the cause and the nature of firing. "We received a call that some passengers heard a sound similar to two gunshots, but there were no eyewitnesses. No evidence has so far come up to suggest that it was a firing and we cannot confirm it as a gunshot," DIG, CISF Udayan Banerjee said.

There is speculation that the initial "cracks" heard could have been a plastic bottle or tetra-pak coming under the wheels of some vehicle.

Post the 26/11 carnage, some pranksters are taking cheap thrills by attempting panic amongst an already jittery public.

But to re-iterate, everything at Delhi and across India is normal. Do not give in to "FUD".

-- Fear, Uncertainty, Doubt.

Images courtesy AP

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Bangalore airport to go slow on expansion, awaits UDF clearance

Madhumathi D.S. of the Hindu Business Line reports that the 5 month young Bengaluru International Airport, which was expected to have a dream take-off on the back of phenomenal traffic growth during 2005-08, now seems to be going slow on its expansion plan in the face of a traffic decline.

“There has been a dramatic fall in monthly traffic for all airports in India since June 2008. We are currently conducting a study on the current trend and based on the results, which will be out in two-three months, we will take a decision on our next expansion plan,” the operator, BIAL, said in response to queries from Business Line.

Until a couple of months ago, BIAL CEO, Mr Albert Brunner, was hoping to take up a mezzanine expansion now and a larger Rs 3,500-crore phase 2 in early 2009 with a second terminal, pending the board’s clearance.

Bangalore's traffic numbers, reflect the overall slowdown across the country. BIAL said, “The overall annual growth of passenger volume [at Bengaluru International Airport] has dropped to 3 per cent since June 2008” compared to an anticipated 8 per cent growth rate.

The Southern sector has been especially dented. “There has been a drop of approximately 15 per cent in the flights operating in the Southern sector (Kochi, Coimbatore, Hyderabad, Chennai) from Bangalore since May 2008. The Mumbai, Kochi, Coimbatore, Delhi, Goa, Hyderabad, Chennai and Pune routes have collectively seen a 12 per cent reduction in the number of flights,” as per BIAL sources.

The dip could also not have come at a worse time than now for BIAL, which is awaiting the Civil Aviation Ministry’s clearance to start collecting a user fee (UDF) from domestic fliers leaving the city. The UDF is one of the main revenue sources for its ambitious expansion plan.

BIAL started collecting a user fee of Rs 1,070 each from its outbound international passengers from the first day of its operations.

The May, June, July period is lean all over India, but traffic has continued declining instead of picking-up in late August and September as it does every year. Clearly the "FUD Factor" (Fear, Uncertainty, Doubt) of the global economic melt-down is having its effect on the psyche of India Inc.

Bangalore’s air traffic, the third highest in the country, was until a few months ago the envy of some other larger cities. BIA opened in May 24, taking over 10.1 million annual passenger traffic from the HAL airport. In fact, the traffic growth was so large and unforeseen – from 4 million in 2005 to over 10.1 million in FY 2007 – that BIAL had to insert two unscheduled expansions into first phase of the project in 2006-07, a move that pushed the project cost from the original Rs 1,400 crore to Rs 2,500 crore.

That happily poised graph has changed its course downwards. Even as BIA completed 100 days in late August, the writing was on the wall. Peak hour traffic did not grow to match the capacity, though BIA handled 2.42 million passengers, on the wing of 30 per cent rise in international airlines and air freight carriers into the city.

From 170 flights per day and 340 air traffic movements (ATMs) when it launched, BIA will now end the Summer ‘08 season with 162 flights (324 ATMs) per day. Winter ‘08 flights would see a small 1.5 per cent gain with 165 flights (or 330 ATMs). According to the operator, “Although the domestic air traffic reflects a [fall] of 1.5 per cent, the overall positive growth is due to the increased international flight operations from Bangalore.”

This is in spite of adding six new international carriers since it began services - Dragon Air, Tiger Airways, Oman Air, Air Mauritius and most recently Kingfisher Airlines and Jet Airways. International flights, BIA said, have increased over 230 per cent year on year for the Winter season.

BIAL said the domestic UDF, once cleared, will be part of the airline ticket cost; the airlines will collect it while issuing tickets, as directed by the Directorate General of Civil Aviation. BIAL plans to set up counters to collect the fee by cash or credit card from those who have booked their tickets in advance but will be flying from the levy date.

UDF has become a double-edged sword for BIAL. They are facing the "Devil's Alternative". Imposition of UDF will have its impact on an already weak aviation scenario, and not imposing UDF, will have disastrous consequences on the finances of BIAL. I do not envy Mr. Brunner's seat at this moment, he has some very delicate balancing to do, and hard choices to make.

All I can offer is my support during these tough times.

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A commercially oriented machine, without heart or soul

A commercially oriented machine, without heart or soul Business sense

‘Small thinking has sunk in in the infrastructure at BIA’
Chairs in the international departure area are uncomfortable

BAD PLANNING: A view of departure lounge at Bengaluru International Airport.

Reading, day in, day out of the challenges facing Bangalore’s spanking new international airport, one begins to wonder whether proximity to a few hundred information technology companies might not have rubbed off on the airport as well, afflicting it with this high tech disease: instant obsolescence.

In normal circumstances, it would seem to be a fairly bizarre situation, when a new facility like an airport which is presumably planned by experts reaches the limit of its rated capacity on the very day it opens — or so we are told by the many committees that are bending their minds to the question: How do you solve a problem like BIA? Clearly it cannot be solved so smoothly as the problem like Maria, that enthralled us in our younger days in The Sound of Music.

Having passed through the airport a day after it was opened — and about half a dozen times since then, I emboldened to share with readers, my theory of why people continue to grumble and curse when talking about what should be the pride of India’s Silicon City. The issue is not a few overflowing trash cans, or leaky toilets or aerobridges with teething problems. All that can be changed. But attitude cannot.

I am coming round to the belief that the airport was conceived and executed by small minds, who either lacked the vision of what the mature, internationally savvy passengers who patronise the airlines serving Bangalore came to expect — or just decided that the interests of their shareholders would be best served by getting away with the narrowest definition of contractual responsibilities… and cutting every corner in sight.

Here are some examples: The pre-boarding waiting areas is where passengers, especially on international flights, tend to spend most of their time in airports — up to 2 hours is common. So world over, designers provide the most comfortable seating they can. The new Terminal 5 at Heathrow has invested in a number of corners with literally “sink in” sofas in which one can cacoon oneself in comfort. Incheon, Korea; Changi Singapore, the new Hong Kong airport on Lantau island, are all examples of thoughtful seating. But at BIA, they have standardised on a particularly hard and unyielding upright chair that will have you squirming within a few minutes. There are, in my experience, only two international airports worse in this respect — Bangkok’s Suvarnabhoomi, where they have gone all metal, and Frankfurt, that has created a unique torture instrument: a rounded metal bar on which one is expected to balance one’s posterior. Is this a German thing? BIA after all is part owned by Zurich Airport and that reputed name Siemens — both bywords for efficiency and quality. BIA is a poor showcase for your brand, mein damen und herrn.

Elsewhere, small thinking has sunk in — literally — into the infrastructure. You will be hard pressed to find smaller display boards for flight information, anywhere in the world. They have made do, with standard home theatre sized LCD TV screens, which cannot be read (at least by me) without spectacles. And at that size, they are unable to display enough lines and cannot show a departure that is just an hour away. This is a disgrace by any international standards. After a hue and cry about lack of public phones, they have stuck a few portable coin operated phones among the departure gates — the type your corner grocery store keeps on the counter.

This is the IT capital of India: It would have sent a splendid signal to the world, if arriving passengers found a few computer terminals with free Internet to check their mails. You can see them in Hong Kong, and in some 20 locations in Changi, Singapore — with two at every departure gate.

One could go on and on… Bangalore has waited for over a decade for a decent airport that measured up to the splendid image that its IT industry has created for India. What it has got is a cold, commercially oriented machine, without heart or soul. It may work — just — but it will never thrill. We deserved better.

ANAND PARTHASARATHY

© Copyright 2000 - 2008 The Hindu

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My personal observations :

Every business has a right to make a living and a duty to make a profit. At the same time, it has to balance financial needs with aspects of Corporate Social Responsibility and good customer service. I know the operational leaders at the new BIAL airport and they are good people and genuinely interested in meeting the needs of Bangalore both passenger and cargo. They realise the needs as raised by this article, but, I fear, they are being pushed to the wall by the financial promoters. It is all together possible that the storm over having two airports in Bangalore, has created the FUD factor (Fear, Uncertainty, Doubt), in the minds of the financial promoters, and they are looking to earn the maximum possible returns in the shortest possible time.

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