Analysis: SpiceJet to launch Delhi-Macau

by Vinay Bhaskara

A report in the Macau Business Daily states that Gurgaon based low cost carrier (LCC) SpiceJet is planning on launching nonstop flights between Delhi and Macau. SpiceJet has already won approval from the Indian government to launch Delhi-Macau, likely using Boeing 737 equipment. But it has not yet filed for approval from the Macau government. A Macau airport statesman had this to say about a potential SpiceJet application:

We have been aware of communications [about the route] between the Macau International Airport Company Ltd and the airline. SpiceJet had previously contacted us to obtain some initial information on the application procedures, which is a common practice for any interested airlines.

No airline currently serves Macau nonstop from India. The current bilateral air service agreement (ASA) between India and Macau allows each side's airline to operate up 600 seats per week with 2 return flights per week. However, both governments have agreed in principle to negotiate an expansion of the ASA later this year.

Macau, China's largest gambling center in the vein of Las Vegas in the United States, is an important and growing leisure destination for the increasingly affluent Indian upper middle class, and India's wealthy. However, demand for Macau is more concentrated in Bangalore and Mumbai than in Delhi, which may bode poorly for SpiceJet's chances on the route. The Macau international market is currently dominated by flag carrier Air Macau, a subsidiary of China's national carrier Air China, who serves 22 destinations on a fleet of 15 aircraft.

If the reports are true, it would mark just the latest step in SpiceJet's international growth track. The carrier now serves five international destinations from Delhi (Dubai, Guangzhou, Kabul, Kathmandu, and Riyadh) with 32 flights per week. Overall, SpiceJet serves nine international destinations (the aforementioned five plus Colombo, Muscat, Sharjah, and Male) with 87 flights per week. And along with the regional operation using Bombardier Dash 8 Q400 turboprops, the international growth has been an important contributor to SpiceJet's swing to profitability.

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Kenya Airways to receive its first Boeing 777-300ER in October

by BA Staff

Kenya Airways is set to receive a Boeing 777-300ER this October to commence revenue service in November. The aircraft, which seats 400 passenger in a 2 class configuration (28J / 372Y), will be the largest aircraft in the airline's fleet to date.

Dr. Titus Naikuni, Kenya Airways Group Managing Director and Chief Executive Officer, had this to say about the aircraft: 

This will be the largest aircraft in our fleet. Our current B777-200ER aircraft has a seating capacity of 322 passengers while this one has 400 seats. It  will give our business a major lift due to its enhanced product quality, excellent range and impressive cargo capacity ( more than 7,000 cubic feet of cargo volume; over 20 metric tons). The Boeing 777-300ER aircraft is a perfect fit for our network expansion plans as it will enable us serve our existing markets much more effectively and facilitate the opening of new long-haul routes in the near future.

Image Credit: Kenya Airways

The Premier World seats include full flat-bed seats with leather foot-rests, laptop stowage, and armrests. They also have a high quality entertainment system to go with 15.4 inch screens, a power socket, and a USB port. The Economy class seats contain articulating seat bottoms for better legroom, four-way adjustable headrests, and 10.6 inch monitors to go with a USB port, power sockets, and an in-flight handset.

This acquisition is part of Kenya Airways 10-year strategic plan dubbed ‘Project Mawingu’ in which the airline targets to increase its fleet size from the current 44 to 107 aircrafts by 2021 and destinations from the current 62  to 115. The new Boeing 777-300ER will commence direct flights from Nairobi to Guangzhou from November this year.

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SpiceJet to launch services to Guangzhou

Indian low cost carrier (LCC) SpiceJet will be launching flights 4 times per week between Delhi and Guangzhou, the hub of the Chinese Pearl River Delta. Services will begin on 8th February, 2013 with the following schedule:


SG 81 -- DEL - CAN -- 1720-0035+1 -- 2467 --  737-800
SG 82 -- CAN - DEL -- 0155-0525 -- 1357 -- 737-800

SpiceJet's competition on this route will be SkyTeam member China Southern, who operates a daily 757-200, and is the only other airline to ply the route between India. While the timings are far from optimal, they do offer good connections to Chennai in both directions, which is an important connection between India's manufacturing center and the hub of Chinese manufacturing.

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

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

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

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

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

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

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

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

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

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

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

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Opinion: QANTAS' Asian carrier should base at Guangzhou

Earlier this week, QANTAS, the beleaguered Australian national carrier, announced part of its major restructuring plan for the international division; doing so ahead of the initially planned August 24th date. There were numerous changes announced, but the carrier plans to hash out the details in the coming weeks so more news is still forthcoming.

QANTAS Airbus A380-800 VH-OQD lifts off from runway 27R at London Heathrow

These are some of the highlights of the announcement.

• Qantas will defer delivery of 6 of its remaining 10 Airbus A380s on order to the 2018-2021 time frame.
• Qantas is to acquire 110 Airbus A320 family aircraft, of which 78 are firm orders for Airbus' new A320neo, which promises 15% reduction in fuel burn over current generation aircraft.
• The carrier will improve premium cabins and check in for Trans-Tasman flights, as well as invest in new and bigger lounges in Singapore, LA, and Hong Kong.
• 9 Boeing 747-400s will be refitted with the A380 cabins and these aircraft will remain in Qantas' fleet till at least 2018
• 1,000 jobs will be cut from Qantas Group
• Jetstar Japan, a joint venture with Mitsubishi and Japan Airlines will be started, first on Japanese domestic flights before expanding to international routes.
• A new premium carrier in Asia will be launched (location and date still TBD) using 11 A320s at the start
• They are looking at Kuala Lampur as a good hand-off point for passengers traveling to Europe/the Middle East alongside their new OneWorld partner Malaysia Airlines
• Switch the flight to Buenos Aires to Santiago to feed into LAN's larger hub
• End Bangkok and Hong Kong to London sectors and simply transfer passengers onto British Airways at those two points - London flying to be focused at Singapore only.

While all of the changes mentioned above are news-worthy, the one that perhaps is the most important is Qantas' new carrier in Asia. The development of this new premium carrier is likely to dominate Qantas' international strategy for at least a few years; until the 787 has arrived in significant numbers. Indications have been that the premium carrier would be based at either Hong Kong or Singapore, though Kuala Lampur has also been mentioned as a potential hub.

Qantas' international wing has shriveled in the face of increased international competition and rising costs. Qantas has said that its mainline international business will post a loss of about $200 million AUD in FY 2010. Its market-share in the foreign sector has shrunk drastically - to just 18% last year. Asian market-share is just 14%, and competition has grown even to encompass their previously comfortable duopoly with United to Los Angeles.

Qantas' main strategic mistake has been that it failed to capitalize on the growing demand to and from China. While most of the airline serving Australia were surprised at the speed with which Chinese demand grew, Qantas has been by far the slowest to respond; even cutting flights to Beijing. China is now Australia's largest export market (especially to Western Australia with its rich natural resources), and in-bound tourism from China is the fastest growing segment of leisure passengers.

And therein lies part of the problem with Qantas' new premium carrier. Basing at Singapore or Kuala Lampur doesn't really solve the issue of flights to China; SE Asia is too far away to be a fully effective connecting hub. Furthermore, Singapore would see strong competition from a myriad of carriers, who have driven fares lower in recent years. Singapore Airlines with its golden service reputation and lower costs will likely draw more premium passengers while still being able to undercut "Qantas Asia" on economy class fares. Kuala Lampur presents its own problems; the market for premium travel at KLIA is relatively small, and with Qantas' new partner Malaysia Airlines facing financial troubles, Qantas may be reluctant to enter Malaysia.

And while Hong Kong would provide better access to China, it is also the home base of one of Qantas' OneWorld partners; Cathay Pacific. The Hong Kong airline market is also much more consolidated, with Cathay Pacific (and subsidiary Dragonair) combining with Hainan Airlines subsidiary Hong Kong Airlines to control more than 60% of the market. Thus Qantas would have to compete fiercely for origin and destination passengers (O&D).

So what's the solution for Qantas? For a carrier that has been criticized repeatedly for its placid strategy with regards to international flights, the time has come for them to take bold action. Thus, I propose that Qantas base its new Asian premium carrier at....

A Chinese airport, utilizing a joint venture with a China-based carrier to get over any regulatory hurdles. Of the choices, perhaps the best one is basing at Guangzhou in a joint venture with Air China.

Basing at Guangzhou makes sense for multiple reasons. Firstly, Guangzhou is one of the fastest growing markets to and from Australia. Its status as the hub of the Pearl River Delta, China's largest industrial production base and soon to be world's largest megalopolis, means that demand should continue to grow into the future. Moreover, with an expanding base of premium traffic to short-haul destinations, Qantas would be able to grow more quickly, and capture a larger share of the market than in the (relatively) more stagnant premium markets of KLIA, Singapore, or even Hong Kong. The shorter range of the A320 would also not be a problem, as Qantas could first "cut its teeth" in the highly profitable domestic sector before jumping into the international fray. Guangzhou's market is currently dominated by SkyTeam's China Southern Airlines, with no real viable second competitor.

QANTAS Airbus A330-300 VH-QPC departs Mumbai airport runway 27. Photo copyright Vedant Agarwal.

More importantly, Guangzhou is perfectly located to cater for a strong hub to Northern, Eastern, and even Southeastern Asia, as well as Europe and the Middle East. All major destinations in Australia and New Zealand are easily within the range of the A330-200 from Guangzhou.

If, after a few years, the venture is successful, Qantas could shift the A330s replaced by 787s at Jetstar to the new carrier; and allow it to open flights connecting all Australian points (as opposed to just Sydney) to Asia and beyond. Even the European market is (semi) ripe for the taking. China Southern operates to just Amsterdam and Paris in Europe, leaving such prime markets as London Heathrow and Frankfurt open to competition. With its growing demand base, coupled with smart connections to and from Australia, there's no reason why Guangzhou could not function as an effective scissors hub for the Kangaroo route.

Part of Qantas' problem in the past few years has been that it has effectively ignored the markets of Brisbane, Melbourne, and Perth; while electing to build up Sydney in the British Airways London-Heathrow model. But with a scissors hub in Asia, especially at the strategically located Guangzhou, Qantas could re-attack those passengers with well designed connections, especially on European flights where an Australian passenger has to connect somewhere.

The choice of Air China as a partner is also important; as it solves many logistical issues. As China's "flag" carrier, Air China's involvement is likely to speed up regulatory processes and the like. Furthermore, Air China has strong ties to oneworld member, Hong Kong based, Cathay Pacific, so even as a member of Star Alliance, they could work with Qantas as well.

For Air China, the benefit of the deal is twofold. Firstly, they'd get a stronger presence in the Guangzhou market; the largest one in China without a major Air China presence. And with Qantas likely to be the driving partner behind the venture, Air China's risk and capital requirements would also be minimal.

While this plan may be shocking to more than a few readers (as well as probably Qantas itself), the time has passed for Qantas to maintain the status quo. Further cutting its operations (as the changes above indicate) will lead Qantas into obscurity; it's time for a change.

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