Lufthansa to start charging fees for advance seat reservations

by Devesh Agarwal

German flag carrier Deutsche Lufthansa will start charging passengers fees for advance seat reservations (ASR). However, unlike fellow European carrier British Airways, Lufthansa will limit its fee to economy class as of now.

From November 26, 2013, for a fee of 10 euros Lufthansa passengers can reserve in advance, their preferred seat in economy class when booking flights on German and European routes. For emergency exit row seating, which offers more legroom, the fee is 20 euros on European routes and 60 euros on intercontinental flights. In the mid-price and flexible booking classes in Economy, advance seat reservations will be free.

HON Circle Members and Senators as well as companions travelling with them are exempt from the ASR fees. Initially these seat reservations can only be made from sales through the Lufthansa Service Center and at Lufthansa ticket counters, and at travel agencies. They will also be available on-line from spring 2014 for flights booked at the Lufthansa website.

Seats will be available free of charge during online check-in 23 hours in advance of the flight.

Read more »

Exclusive interview: Giorgio De Roni - CEO GoAir - Part 2: We first deliver results, we do not over-promise.

Continuing from part 1 of the interview with the the soft spoken CEO of GoAir, Giorgio De Roni, who has quietly turned around the Wadia family promoted airline from a rock bottom position, dismal market share, and reputation for frequent cancellations, to a top performing contender in the Indian airline industry, with some of the best performance parameters in the industry.

In the concluding part of this broad ranging two-on-one interview with Devesh Agarwal and Vinay Bhaskara, De Roni, shares his management mantras, techniques and methods utilised in the turn around of GoAir.

Q: How are things developing at GoAir and in the Indian airline industry as a whole over the past year?

Well the industry is going through a challenging period due to many issues in the market.

Certainly and foremost the cost of fuel and taxation on fuel. We have recorded an increase of 7%, which is a huge increase given that fuel represents more than 50% of our total costs.

Then we have a market that I’m fully confident and sure that in the medium to long term is growing. But unfortunately in the latest few months, we have recorded a drop in respect to last year, and that is a big concern in the short period.

We have some infrastructure bottlenecks and again this is penalizing airlines in India.

That said, I remain confident in the growth of the Indian aviation sector. We might require some revision of the regulatory environment which is a little bit old fashioned. If I’m not wrong the base of the legal framework is dated 1934, so even before the Chicago Convention.

I feel that some commitment from the government to revise and improve efficiency in the system is necessary. I feel confident that all stakeholders will be able to deliver us such an environment.

In my view, a country with 1.2 billion people should have a much stronger aviation sector. Definitely there is an opportunity to create a hub in India, and there is probably also a space for more than one hub. But we need some efficiency in all of the systems.

Q: Till a little more than a year ago, GoAir did not enjoy the best reputation in the industry in terms of dispatch reliability. In the last 1.5 years, that has turned around literally 100%. GoAir ranks, right at the top in terms of least cancellations and best on-time performance. Can you share with us what were the issues confronting GoAir and some of the steps you took to solve them when you joined the airline?

Well I think that quality to customer is one of the pillars of any airline, and we are committed to deliver value for money. Definitely I am aware that in the past, GoAir was suffering in terms of on-time performance. We are now averaging around 90%. And notwithstanding the high on-time performance, we also have high aircraft utilization, because in July we achieved 13 block hours per aircraft per day, which is remarkable for a narrow-body airline.

I think that the only thing that I am trying to reach within the organization is trying to deliver consistent strategy, and a consistent approach throughout the management team and down to the front line. We are investing hugely in terms of training and hugely in processes and procedure. We were IOSA approved [IATA Operational Safety Audit] at the end of 2010. Since it is a 2 year approval, we are now going through the renewal of that certificate. All these aspects are contributing to keep our quality and standard of performance high.

IOSA? We didn’t know that you had undergone IOSA. We only knew that Air India had undergone IOSA.

Well, one of our characteristics is not to overpromise, but first to deliver the result and then communicate. Sometimes my shareholder [Wadia family] blames me, saying that we [GoAir management] should be more proactive in communication.

Well my view is that we have to communicate only what we are able to deliver. And definitely IOSA is a good achievement.

But in the end, does a passenger choose GoAir for being IOSA certified? No I don’t think so.

I think that it is more important to deliver on-time performance, and good service, both on-board and on the ground. And that is why we are investing significantly in training.

Q: You mentioned that GoAir is achieving 13 hours aircraft block utilisation time, That is almost 20% or 30% more than IndiGo or SpiceJet. You appear to have probably the best aircraft utilization in the country?

Well last year we received an award by Airbus for being the best operator of the A320 in whole of Asia Pacific, Middle East and Africa in our fleet size. [Editor's note: A320 behemoths AirAsia and IndiGo are in the same geography]

And this is remarkable because of course the higher utilization continues to keep fixed costs more efficient , but also it is remarkable because it is accompanied by a very good on-time performance.

Q: How long are you looking at keeping the same level of aircraft utilization?

I hope that as soon as we get approval, we can start operating on international flights and increase the aircraft utilization by adding some flights at night. Of course on a daily basis we need to carry out maintenance checks on all the aircraft. And these keep the aircraft grounded for 3.5~4 hours every day, so the limit for the utilization is 20 hours.

We have a turnaround time of between 25 and 30 minutes depending on the size of the airport and efficiency of the airport in providing turnaround services. And that’s the limit I cannot go beyond.

Because our first departure is at 05:15 and our last arrival is at 01:00 the following day. Of course not all of the aircraft have such an intensive utilization, but we manage to have a pretty good utilization.

Q: So does this high utilization change the timeline on heavy maintenance checks for the A320s?

We do have C-checks. Another policy of the company is to keep the fleet as young as possible, because this brings efficiency in maintenance and efficiency in fuel consumption, and a good product to our customer. It means that C-checks. Yes we have undergone 8 C-checks for the fleet. These keep the aircraft grounded for around 3 days. We outsource the C-check maintenance. We also have engines updated but considering that we have spare engines, the high utilization is not as much of a concern.

Q: Many Indian carriers are moving to the concept of "power by the hour" with engine manufacturers. Is GoAir using this business method?

[Editor's note: In this business method, airlines agree to pay engine manufacturers a unit price per hour of usage of the engine. The manufacture is then responsible for the performance and maintenance of the engine.]

We do not do so currently, but we are exploring this method. If it saves us money and helps us improve our despatch reliability we will consider it most strongly.

Q: Can you share some of your operational numbers? What are your average number of flights per aircraft per day?

We operate roughly 100 nonstop flights, but the network is constructed to offer as many “via” [connecting] opportunities as possible, particularly via Delhi and via Mumbai. And we carried roughly 3.5 million passengers last year and we have a target of 5.5 [million]. Why? Not only due to the increase of aircraft, we grew capacity by 22% as well.

Q: So you will be targeting growth up to 5.5 million passengers this year?

Yes 5.5 million. Due to increasing capacity by 22% and a higher seat factor. We also slightly increased the productivity by 15 minutes – which is peanuts. But at the end of the day, we can deliver some positive results.

Q: How many rotations do you achieve on average per aircraft per day?

We achieve 7.6 legs per aircraft per day.

[Editor’s Note: Mr. De Roni clarified that he meant 7.6 one way flight segments per aircraft per day.]

Q: Can we ask you for CASK or RASK numbers? (Cost per Available Seat Kilometre, Revenue per Available Seat Kilometre)

Sorry No.

Q: You mentioned the enhanced connectivity that you are looking at through Delhi and Mumbai. Looking forward, how much do you want to grow connections? Will it play an increasing role in the business model or will the primary focus still be point to point connections (P2P)?

Well the main focus will continue to be on point to point, but definitely connectivity might increase without diluting the overall revenue. Furthermore, we also must consider that due to some infrastructure bottlenecks, it wouldn’t be easy to add additional slots in Mumbai or at peak times in Delhi. So we also have a strategy to increase our presence in other areas of the country. We are already relatively strong in the Northwest; in Jammu and Kashmir we are the market share leader in Srinagar. We have recently deployed second aircraft nonstop at Bangalore Airport and the January A320 delivery will be most probably deployed in the South of the country, bypassing both Delhi and Mumbai.

Q: What do you see happening in Mumbai with regards to an integrated terminal? Will it be something similar to Delhi where you have an LCC terminal and a separate integrated terminal.

First of all, I am not Indian and I am not particularly able to forecast Indian decisions. And even if I am able to forecast, since it is sometimes a frustrating experience, I prefer to keep to what is the final the result.

Because media coverage is unpredictable – one week they say that FDI will be approved by Friday, the next Saturday, it is next month, and the next month, it is in a few months time.

So I have the habit of let’s see what happens and planning consequently.

Q: The reason we ask is that if in Bombay they structure the integrated terminal similar to Delhi, will the cost structure be similar to Delhi?

Yes. And it will create inefficiencies in the cost structure if we have to share activity between two terminals. So I do hope that this kind of consideration will be analyzed before any sort of decision is made.

[Editor's note. Please see part 1 of this interview where Mr. De Roni explains how high fees are impacting Delhi airport with reduced traffic]

You recently asked the DGCA to grant you a waiver from the 5-year and 20-aircraft rules for international flying. How confident are you in receiving a waiver, and would this signal a shift in strategy towards more international flying?

No, the core business will remain domestic. I personally see a strong potential for more growth domestically, considering that only 60 million passengers travelled by air last year out of 1.2 billion people.

If there are opportunities to fly internationally, I feel relatively confident to be authorized to fly internationally.

We already have, as you know, the 5 years of experience required, but we are flying less than 20 aircraft. I do not see why foreign airlines are allowed to fly international flights to India with just 1, 2, or 3 aircraft and Indian carriers are not allowed.

In my view, allowing GoAir to fly international, will increase opportunities for employment, flows of currency and tourism, and will serve the economy of the country better, and at the end of the day, it will create a dynamic competitive environment to the benefit of the final customer.

[Editor’s Note: Just to give some examples of this disparity. Avia Traffic Company, an airline with 5 aircraft that is banned in the EU, is allowed to operate in to India. Bhutan's Druk Air with just 3 aircraft, and several sketchy Afghan airlines with very small fleets, operate non-stop international services into Delhi? Yet GoAir with its now sparkling reliability and safety record is not allowed to do so?]

Q: Looking at your network, Mumbai and Delhi seem to be roughly equal in size. Will you increase in Delhi?

We are slightly more present in Delhi, historically due to a lack of slots in Mumbai. But definitely also due to the fact that the cost in Delhi has increased greatly. Thus the expansion plan will mostly be outside Delhi.

Q: One thing we’ve noticed is that the bulk of the expense at Delhi Airport seems to have occurred on Terminal 3. Yet GoAir, SpiceJet, and IndiGo passengers, who do not use T3, are made to pay fees for T3. Your comments?

Unfortunately, this is the common approach to airport development. And with this kind of approach we have weaknesses in the efficiency of the system. We have to survive anyhow.

Thank you sir for the revealing details. It was a pleasure.

Read more »

Exclusive interview: Giorgio De Roni - CEO GoAir - Part 1: GoAir is profitable

Over the last 18 months, the soft spoken Giorgio De Roni has been quietly turning around the Wadia family promoted GoAir. From a rock bottom position, dismal market share, and reputation for frequent cancellations, De Roni has grown GoAir to surpass Kingfisher Airlines and JetLite in market share, and made GoAir a contender in the Indian airline industry, with the confidence to place large orders for 72 Airbus A320neo aircraft.

In a broad ranging two-on-one interview, Devesh Agarwal and Vinay Bhaskara spoken to De Roni. During the interview, De Roni dispelled the misconception that IndiGo is the only profitable airline in India.

GoAir is profitable, and this profit is achieved purely by operations, without the income from sale and lease back of aircraft.

In the first of this two part report, we cover the financial and strategic aspects of the interview.

Q: In March this year, at India Aviation, Mr. Dinesh Keskar was saying that India is having "profitless growth." Airlines were experiencing growth in passenger numbers but profits were very hard to come by. In less than 3-4 months, growth has stagnated, but profits are there. What are your thoughts on this odd situation?

My thoughts are that the industry should not operate below cost of production. Unfortunately the situation in the past in India was that most competitors were more interested in market share rather than profit. So I more than welcome the shift in strategy from most of my competitors. And this has brought fares in line with costs, and in fact we have been able to deliver a profit for the first quarter.

Q: Any numbers you could share?

No, not really, we are not a listed company and as a policy, we do not share our results. I can say, that I am relatively satisfied of the results. The net profit was in percentage terms higher than IATA average, and differently from some of my competitors, it was purely reached by operational factors; so by revenue from passengers, and not from non-operational sources [referring to sale and leaseback income and other non passenger sources of revenue]. I never comment on my competitors, I try to learn from them…. And it’s [Sale and lease-back income] not something that only happens in India.

Editor’s Note: The IATA figure is 1.4%. Since GoAir’s figures came purely from passenger revenues, they outperformed the passenger figures at both SpiceJet and Jet Airways.

Q: You were mentioning your fellow competitors. If you look over the past year at your fellow LCC competitors, both SpiceJet and IndiGo have pursued a rather aggressive growth in their own form. SpiceJet has been going into virgin territory withthe Q400 in to Tier II and Tier III markets, and IndiGo has been adding a new A320 literally every 3 weeks; and they have gained a lot by the implosion or the contraction, of Kingfisher. However, GoAir has pursued a very modest growth path. In fact we think you’ve added only one aircraft net in the last year.

In this financial year we added two net aircraft. One in April and one in August, with a third one coming in January 2013. Yes, we have a more cautious approach to growth. We are exclusively targeting profitability and not really market share. We do have an ambitious expansion plan, and in fact last year we ordered 72 A320neos.

So we are committed to better serve the country. I think that we had some advantage in being a small carrier last year. Our losses were limited. It’s an airline 100% owned by the [Wadia] family . They are committed to the airline business, but I feel personally that we can grow only if we deliver profit. So I would prefer to deliver a profit and remain small as opposed to growing rapidly and having challenges on the bottom-line.

Q: Could you describe what trends you’ve seen in the unit PRASK revenues (passenger revenue per available seat kilometer) in the past several months, because we do know that SpiceJet recorded PRASK growth of more than 17% and Jet Airways recorded PRASK growth of more than 15% on its domestic network. Are you seeing similar numbers?

Yes, I would say that we are pretty satisfied of the [PRASK] growth. What is inconvenient is that the cost structure also suffered a significant increase. Airport charges increased due to the devaluation of the rupee against the dollar, fuel prices increased heavily. Since September 1st, I think we reached the historical peak of the cost of fuel in India, which is not the case in other parts of the world. So I just wonder how we structure the cost of fuel in India versus other geographical areas.

Q: Is it possible for you to share in percentage terms roughly the breakup of costs at GoAir?

Fuel costs are about 50%, more precisely it might reach around 55% of our total cost now with fuel at Rs. 72 per litre? That is the figure I remember most clearly, because it is a huge amount. I would say that the cost of personnel is pretty efficient, also because the most expensive community, the pilots are pretty well utilized with more than 900 hours per year, the cap being 1,000 per year in India. Certainly we are suffering from the weakness of the Rupee as far as lease rentals and maintenance costs are concerned; due to the fact that maintenance is performed primarily with US dollars.

Q: And you did mention airport charges?

Of course airport charges are huge. You are aware that Delhi Airport increased charges by 334%. It was a number that did not meet their expectation of a 700% increase. But I’m challenging anyone to find any other airport in the world with such a huge increase year by year.

And this is a serious concern.

Of course when we say that fares have increased year over year, we have to consider that we have to shift to the customer the burden of increasing costs. Because we cannot absorb any increase in costs, we have to transfer them to the customer. What is the result? The result is that volume and demand have decreased, as the data in June and July have shown.

So I don’t think that the way airports keep growing their costs and increase their inefficiency is smart. At the end of the day, they suffer due to a decrease in demand.

Q: Can you give us a brief financial outlook for the next year, and then maybe 3 years out?

Well I can tell you that we forecast to achieve a profit at the end of the year. Of course the first quarter was positive. The second quarter was the weakest from a cyclical point of view of the financial year, so we are definitely suffering. That said, for the entirety of the year, I am relatively confident that we will deliver a profit.

Q: What do you assume will be your revenue growth over the next one and three years, relative to 2011-12?

Well what is important to us is to remain flexible. Although we have a purchase order for roughly 80 aircraft between today and 2020, we should bear in mind that if the market is not growing, if there are turbulences, we have to be more flexible and be cautious. Or if the market offers more opportunities, we have the flexibility to take more aircraft and our part of the growth.

Q: Do you currently have any purchase options for the A320neo?

We don’t have options at the moment. 72 A320neo and the 7 remaining A320 classic orders are all firm. Anyway you know that there is a sort of over-production of narrow-body aircraft. And it’s not really a problem to add aircraft if the market requires.

Q: How do you think valuations in the used market are looking as both the 737MAX and A320neo are coming closer to delivery? Are you finding any impact on the secondary markets?

The residual value will be impacted definitely. We still have to see whether those manufacturers will deliver as per the schedule, or if, as it is normally, there might be some delays. But the impact on the present values might be negative.

Q: GoAir has selected the PurePower (Pratt and Whitney GTF) engine for the A320neo. And we’ve heard that CFM has not quite been able to deliver on the performance parameters of the LEAP-X?

I would disagree. First of all, we are very satisfied with CFM engines for the current fleet. Then, as I told you a few minutes ago, I don’t want to go for over-promising. And I don’t like my providers to over-promise. And since I’m not commenting on my competitors, I don’t understand why my provider comments on their competitors. They are free to do whatever they like.

[Editor's note: Our source of information on the LEAP-X engine is not Pratt and Whitney]

Q: So can you talk about some of the factors that drove your decision to purchase the PurePower engine?

So we did an overall evaluation from a financial and technical point of view and in the end we found Pratt and Whitney’s proposal to be better. But this is not to say that we are not satisfied with the present [CFM] engines that we have on our fleet.

Q: You did mention aircraft program delays briefly. And since both Boeing and Airbus have had trouble with delays recently on the 787 and A350 programs respectively, how concerned are you about delays [on deliveries].

We are among the first carriers in the world to receive the A320neo in the first quarter of 2016. So far, I do not expect any delays. But we aware that in new aircraft, some delays might happen. Although, considering that 95% of the airframe is common to the current airframe, and considering that the same engine technology will be utilized on other aircraft in the next year, I feel relatively confident that Airbus will be able to deliver the aircraft as per schedule. You are aware that anyhow that we have current engine A320s on order, and so we are not really planning for an environment with delays. But it might happen.

Q: Will GoAir be adding Sharklets to its A320 classic fleet?

Yes, our next [A320] delivery in January will be with Sharklets. In fact, I think we will be among the first airlines to have sharklets; most probably the first in India, though it’s not really a race against IndiGo.

[Editor's note: Sharklets are new wingtip devices fitted on the A320 family aircraft]

Q: Has Airbus indicated the possibility of retroffiting sharklets?

Yes they have. There is no clear picture on the cost involved and the time-frame of grounding the aircraft. As soon as they come out with a final picture, we will evaluate. We are keen to reduce fuel burn, both for savings and for the pollution reason.

Q: What sort of numbers are you looking at in terms of fuel burn reduction from the Sharklets?

Based on our network, we are looking at something around 1.5% savings.

Q: And what about the A320neo?

On paper, they [Airbus] say that there will be a saving in the range of 15%. That would be a great achievement.

Q: Your order for 72 A320neos have a list price of almost $5.6 billion dollars, which will require around $280 million in upfront financing costs. How is GoAir planning to pay for this order?

[De Roni laughs] Your calculation is pretty precise.

We are well funded. If there are opportunities in the market we will consider them carefully, but there is no concern [about paying for the aircraft].

Q: So there is no feeling at GoAir that it is time to turn to the public market with an IPO?

Well inside the company last year, there was a project to develop an IPO. It was not pursued due to the overall position of the market. We are open, but that is a question that needs to be asked of the chief shareholder. I will say that overall we are comfortable with the funding for the next set of deliveries.

Stay tuned for Part 2 of this interesting interview. Comments and feedback are always welcome.

Read more »

Jet Airways levies charge for duplicate e-ticket printouts

The below mail from Jet Airways is self explanatory. So please carry your ticket prints with you.

Dear Mr. Agarwal,

This is to bring to your notice that effective immediately, requests received for duplicate e-ticket printouts at Airline Ticketing Offices and City Ticketing Offices in India across Jet Airways and JetKonnect will attract a fee of Rs. 50 per e-ticket (revenue / award ticket) reprint. Please note that this fee is applicable only to requests for a reprint / duplicate copy of the existing booking.  JetPrivilege Platinum members are exempted from the e-ticket reprint charge.

Warm regards, Kaushal Satam  Head – JetPrivilege

Read more »