Jet Airways and Garuda Indonesia sign code share agreement

Jet Airways and national flag carrier Garuda Indonesia have concluded a code share agreement for connectivity between India and Indonesia.

Under the arrangement, using Singapore as a hub, Jet Airways will place its marketing code on Garuda Indonesia’s flights between Singapore and Jakarta and Garuda will place its marketing code on Jet Airways’ flights between Singapore and Mumbai, Delhi and Chennai.

The two airlines have also signed a frequent flyer partnership, allowing members of each others loyalty programs to accrue and redeem mileage on the code-share flights, the entire domestic network of Garuda Indonesia, and on Jet Airways' complete network, domestic and international.

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Analysis: Air India to begin several new routes - including San Francisco and Madrid?

by Vinay Bhaskara

Earlier this month, erstwhile Indian national carrier Air India placed a tender asking for fuel supply contracts at 9 different stations as seen below. The tender includes Sydney, where Air India is planning to launch 4 weekly nonstop and 3 weekly one-stop flights (in a triangle routing with Melbourne) on-board the carrier's new Boeing 787 Dreamliner. Australian services are scheduled to commence August 29th as of press time.

As the document states, just because the destinations are mentioned in this fuel tender, it does not necessarily mean that they will in fact be operated. The airline business is transitory, and airline plans are rapidly changing. That being said, if we take this document at face value, it represents a major international expansion, both for Air India's under-utilized fleet of Boeing 777-200LRs (5 are currently being shopped) and Boeing 777-300ERs, as well as for the 27 787 Dreamliners on order.


Sydney is already a known quantity, but Jakarta is an interesting destination. Indonesia and India recently revised their bilateral air service agreement (ASA) in 2011 to allow carriers from either side to operate up to 28 flights per week with aircraft of size up to a Boeing 747-400. Indonesian carriers are allowed to serve Mumbai, Delhi, Kolkata, and Chennai, while Indian carriers are allowed to serve Jakarta, Medan, Bali, and Surabaya. Garuda Indonesia was reportedly planing on serving Jakarta - Mumbai/Delhi with 737-800 aircraft but those plans never materialized. The largest Indian population in Indonesia is actually on the island of Sumantra, and India-Medan demand is under-served. Even so, Air India would have the first mover's advantage on connecting these two burgeoning regional powers.

The addition of Nairobi on this list raises an interesting question - the biggest demand center from Nairobi is with India's commercial hub in Mumbai thanks to historical ties of Indian expats to Africa and the type of business traffic on the route. However, Air India looks committed to building a proper connecting hub in Delhi, where there is some demand to Nairobi, but low yields and existing competition in the form of SkyTeam member Kenya Airways. It will be interesting to see where Air India chooses to route its Nairobi services from. Perhaps a nonstop Nairobi-Mumbai service that continues on to Delhi could work; as the 787 is the right aircraft for the job but all of the 787s are currently based in Delhi.

The European centers vary in feasibility - Milan and Rome both have strong O&D demand - and Milan in particular has a large North Indian community with more than 76,000 annual passengers (in each direction) demand to Delhi. Rome is a more tourist-oriented destination but it too has a strong VFR (visiting family relatives) traffic component. Delhi-Milan was previously tried by Jet Airways with an A330-200, but Air India is stronger in Delhi than Jet Airways is, and the 787 has a better cost profile for the route than Jet Airways A330s.

Zurich is a premium destination with growing Indian tourist demand to Switzerland. But there isn't the volume required to sustain nonstop services for Air India - the premium segment of the market is already dominated by Swiss. However, the size of the fuel contract indicates that Air India will be likely serving Zurich as a tag-on to one of the other European destinations - likely Rome or Milan.

Moscow has strong demand thanks to growing business ties but will face strong competition from Aeroflot's existing flights to Sheremetyevo. Madrid is an odd one. There are no significant business or leisure ties between Indian and Span, and with Spain in the midst of debilitating recession, demand is not set to grow any time soon.

San Francisco is another interesting case. Air India is the only Indian carrier with the aircraft required to launch San Francisco nonstop from Delhi (a flight of 7706 miles) - the Boeing 777-200LR and the Boeing 777-300ER (Jet Airways' configuration of the 777-300ER is too heavy to do so)  - however, the size of the fuel tender involved implies that San Francisco will be served as a one-stop destination; likely via Milan given the inflated size of the tender in Milan. Delhi-San Francisco is a large market, with 159,520 annual O&D passengers, but yields are extremely low. Meanwhile, Bangalore-San Francisco is a much higher yielding market with still 70,802 passengers of annual demand in 2011 alone (has likely crossed the 85,000 mark given the boom in Silicon Valley). Bangalore-San Francisco is doable on Air India's 777-200LRs.

Regardless, the expansion from Air India is interesting to behold. These routes will likely not return Air India to profitability given the massive debt. But on an operational basis; a few of them could be sustainable and break even.

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Analysis: Malaysia Airlines entrance into OneWorld strengthens the alliance's network and Indian presence

by Vinay Bhaskara

Malaysia Airlines A330-300 9M-MTE in oneworld livery

On February 1st. 2013, Kuala  Lampur based Malaysian national carrier Malaysia Airlines will officially join the OneWorld alliance, a partnership of11 airlines around the world that serves more than 849 destinations globally. Malaysia Airlines serves 61 destinations on a fleet of 105 aircraft, and enjoys a strong reputation as one of the premier airlines in Southeast Asia, and the world. While it ran into some financial difficulties in 2010 and 2011, a successful restructuring program involving capacity cutbacks and fleet streamlining under the leadership of Malaysia Airlines Group chief executive Ahmad Jauhari Yahya has restored the airline towards a more optimal path.

From a OneWorld perspective, Malaysia Airlines fulfills an important strategic hole from a network perspective. Prior to its entry, OneWorld had very little presence in Southeast Asia outside of long haul service to major destinations like Singapore and Bangkok. Meanwhile Star Alliance has the networks of both Singapore Airlines and Thai Aiways International to leverage for travel to secondary and tertiary Southeast Asian destinations, while SkyTeam can tap into the fast growing markets of Vietnam and Indonesia through the newly minted membership of Vietnam Airlines and Garuda respectively. However, with Malaysia Airlines (and Sri Lankan to some degree) now in the fold, OneWorld instantly shoots into second place in the region, with the partnership of a world-class airline with a strong service reputation that has a strong network of Southeast Asian destinations.

The network improvement is especially important for OneWorld carriers because it now offers them another premium option with a strong onboard product and excellent ground service to offer to high yield frequent flyers and business travelers. It adds several new Southeast Asian destinations to OneWorld’s offering which makes OneWorld more attractive relative to SkyTeam and Star Alliance. Frequent flyers and high yield business travelers will now be more likely to fly OneWorld member airlines.

From an Indian perspective, Malaysia Airlines serves Bengaluru, Chennai, Dellhi, Hyderabad, and Mumbai; every major Indian Metro outside of Kolkata. But the real value comes in the fact that it offers the first easy connecting service  between India and Southeast Asia. Before, passengers flying between India and Vietnam, Indonesia, Cambodia, Thailand, the Philippines, and even Australia would have had to endure a significant detour to Hong Kong or Tokyo in order to fly OneWorld carriers. Now, there is a more direct option for Indian travelers. Best of all, they can earn rewards points in a OneWorld frequent flyer program, which can be redeemed for travel throughout the OneWorld network, and earn elite benefits. This should help shift customers with significant Indian travel onto other OneWorld flights to and from India as well, improving group profitability as a whole. The addition of Malaysia Airlines (and Sri Lankan to some degree) significantly strengthens OneWorld’s presence in the Indian market, and the alliance as a whole.

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Analysis: Etihad equity stake in Jet Airways likely to benefit both carriers

Over the past few weeks, it has become increasingly likely that Abu Dhabi based Eithad Airways will be purchasing a 24% stake in India’s largest full service carrier, Jet Airways, perhaps as soon as the end of this week. The deal for a stake in Naresh Goyal’s airline, is reportedly worth somewhere between Rs. 1600 to 2200 Crore, which would value Jet Airways as a whole at somewhere between Rs. 6,666 Crore and Rs. 9,166 Crore ($1.22-1.69 billion). This deal makes Jet Airways the first carrier to benefit significantly from the Indian Government’s decision earlier this year to allow Foreign Direct Investment (FDI) by foreign airlines into the Indian airline sector. On the flip side, it puts increased pressure onto the rest of India’s airlines, especially low cost carrier (LCC) SpiceJet and now defunct full service carrier Kingfisher Airlines, as they now lose one potential investor. The former lacks capital for profitable expansion of its fleet of Bombardier Q400 turboprops whereas the latter is desperately seeking an infusion of capital before it is grounded permanently.

Immediately, it is important to note that Jet Airways will benefit greatly from this capital infusion, allowing it to make critical investments in simplifying and improving its fleet, product, and brand. As they continue to adjust and restructure their international operations, including the swap of several smaller A330-200s for their larger cousin the A330-300s, the reconfiguration of some of its Boeing 777-300ERs to a more dense configuration, and the termination of several poor-performing international routes. When combined with the swap of 5 ATR 72-500s for new ATR 72-600s, Jet Airways does have a large requirement for capital in the near term, especially as the returns from sale-leaseback continue to diminish (Jet has already sold off many of its assets). And it is Bangalore Aviation’s opinion that the moves that Jet Airways has made will be beneficial in the long term; so the Etihad deal is a vehicle for important long run changes.

But the far more interesting question is what effect will the deal have on Jet Airways’ operations so as to make the deal beneficial for Etihad? The immediate benefit is the expansion of bilateral capacity – allowing Etihad to feed more Indian travelers into their “superhub” in Abu Dhabi. Under the current system of bilateral capacity, Etihad’s rivals Emirates and Qatar Airways are granted more capacity and frequencies into India thanks to the O&D targeting system. Meanwhile, Etihad has all but maxed out its bilateral capacity to and from India, which puts it at a competitive disadvantage relative to Emirates and Qatar Airways in one of the world’s fastest growing demand centers. On the flip side, the Indian airlines have not yet maxed out their available seats and flights to Abu Dhabi, so Jet Airways could jump in and apply for several frequencies between Indian cities and Abu Dhabi using some of its spare narrowbody capacity (aircraft utilization at Jet has been falling for more than a year). This sort of setup is not without precedent – Etihad has already invested in and tied up with several carriers around the world, most notably AirBerlin, Virgin Australia, and Garuda Indonesia.

Each of these carriers either launched new services or increased services to Abu Dhabi following the deal(s) – AirBerlin and Virgin Australia created new flights to Abu Dhabi, and Garuda shifted their Jakarta-Dubai-Amsterdam triangular routing to fly via Abu Dhabi instead. But critically, in each of these cases, the carriers in question did not suddenly halt all other international operations. Garuda continued to expand in its niche in East Asia, AirBerlin actually expanded its long haul operations with new service to New York, and Virgin Australia continued to challenge the Qantas hegemony in the South Pacific.

Similarly, Jet Airways will not just all of a sudden become a regional feeder for Etihad a-la ExpressJet or SkyWest in the US. Moving the westbound international scissors hub from Brussels to Abu Dhabi makes little sense, given that Jet Airways’ longest range aircraft, the Boeing 777-300ER, cannot do runs from Abu Dhabi to the West Coast of the US (at least at its current weight though the flights are theoretically possible), a commonly speculated expansion point. As with each of the other Etihad partners, Jet should be allowed to focus on its strengths, which include the milk runs to the US, the Heathrow flights, and regional flights to the Gulf and East Asia, as well as potential flights to Star Alliance partner hubs. In fact, the value of an Etihad partnership will likely facilitate an expansion in regional international routes for Jet. These are just some of the implications of an Etihad equity stake in Jet. As the deal gets finalized and more details emerge over the coming months, important, and positive changes will be coming to the new Jet Airways.

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