Boeing lowers 747-8 production rate as demand slows

By BA Staff

Boeing announced that it will adjust the production rate for the 747-8 program from 1.75 airplanes to 1.5 airplanes per month through 2015 because of lower market demand for large passenger and freighter airplanes.

Eric Lindblad, vice president and general manager, 747 Program, Boeing Commercial Airplanes said:

 "This production adjustment better aligns us with near-term demand while stabilizing our production flow, and better positions the program to offer the 747-8's compelling economics and performance when the market recovers. Although we are making a small adjustment to our production rate, it doesn't change our confidence in the 747-8 or our commitment to the program."

The company expects long-term average growth in the air cargo market to begin returning in 2014, and forecasts global demand for 760 large airplanes (such as the 747-8) over the next 20 years, valued at $280 billion. To date, the 747-8 has accumulated 107 orders for passenger and cargo versions, 56 of which have been delivered. The first delivery at the new production rate is expected in early 2014. The production rate change is not expected to have a significant financial impact.

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Infographic: Boeing 777 engine manufacturers' shares

by Devesh Agarwal

The Asiana Boeing 777-200ER which crashed at San Francisco International airport was powered by Pratt and Whitney PW4090 series engines.

Three engine manufacturers have offered power plants for the Boeing 777. Pratt and Whitney offered the PW4000 series. Rolls Royce offered its Trent 800 and General Electric offered its GE90 series.

The infographic below shows the share of market each manufacturer has on the 1,113 Boeing 777s delivered till date.

Since the last few years, GE90-115B and GE90-110B are the exclusive engine series for the currently manufactured 777 variants - the 777-300ER, 777-200LR, and the 777F freighter. So eventually it will have a 100% share of the market. Even on the upcoming 777X project, GE is expected to remain the sole source supplier with a new upgraded engine.

Boeing 777 - share of market for engine manufacturers

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Analysis: Jetihad partnership a big winner for the two airlines

by Devesh Agarwal

Jet's A330 fleet is expected to be deployed to Abu Dhabi

The 24% stake sale by Jet Airways to Abu Dhabi owned and based Etihad Airways is a bonanza for both the airlines.

For Jet Airways it gets a significant amount of cash it desperately needs to reduce part of its massive two billion dollar debt, since it is issuing fresh shares. Apart from this cash Jet gets from the stake sale, Etihad will also inject a further $220 million in to Jet.

The gulf carrier has already paid $70 million to purchase Jet Airways’ three pairs of Heathrow slots through a sale and lease back agreement, which Jet Airways will continue to operate flights to London utilising these slots, for now.

Etihad will also invest $150 million to gain a majority equity investment in Jet Airways’ frequent flyer program Jet Privilege, expected to be completed within the next six months. This is a major coup for the gulf carrier as it gets controlling access to the top frequent fliers in the country. Since Etihad is essentially owned by the rulers of Abu Dhabi just like all other major institutions, Jet Airways will also get access to low interest loans, estimated a 3% per annum, which it will use to retire high cost debt.

What does Etihad get in return? Much as the leadership at Jet or their many government supporters may deny, Etihad will get control of Jet Airways' international operations. As of now, the planned shareholding will be Naresh Goyal 51%, the public 25%, and Etihad 24%. Any future issue of shares or dilution of share-holding by Naresh Goyal will be offered on a basis "right of first refusal" to Etihad. To remain a publicly listed company, a 25% public shareholding is required.

I have been advocating a new name for Jet Airways on its 20th anniversary. Jetihad Airways.

Our analysis of Jetihad

The speed at which the bi-lateral air services agreement (ASA) with the United Arab Emirates, excluding Dubai, was re-negotiated shows the sheer political muscle of the promoters of Jet Airways. In the blink of the eye, without Etihad even asking for it, the capacity between India and Abu Dhabi has been almost quadrupled. Anyone who believes this is not a direct quid pro-quo is naively denuding themselves.

The main beneficiary of this capacity increase will be Jet Airways from India and Etihad from Abu Dhabi. Jet Airways, very recently, sought additional rights of 41,600 seats a week from 23 Indian cities to Abu Dhabi for the next three years. That’s more than the 26,600 seats a week available for all Indian and Abu Dhabi-based airlines put together to fly between the two countries. The capacity from Abu Dhabi is of course, reserved for Etihad.

Based on the seat capacity requests Jet will more than double its share from 31% to 76%, as will Etihad in reverse.

Market share of Indian carriers to Abu Dhabi

The ASA also allows for gauge-change and code-sharing and this will allow Jet to leverage its domestic network and ferry passengers from India to Abu Dhabi on a combination of narrow bodies from smaller cities and wide-bodies from larger cities, which will then be fed on to Etihad's network of 87 passenger and cargo destinations in 55 countries served by its 66 aircraft operating 1,300 flight per week. This will allow Etihad to leap-frog ahead of fellow UAE carrier and competitor Emirates airline, in one fell swoop. Emirates already deploys more than 12% of its capacity to India, and is asking for a doubling of its 50,000+ existing weekly seat capacity.

India's west bound international traffic is growing at 10% per year and is expected to reach 40 million from the current 28 million soon. Assuming Jet will try and target about 10% market share, but since Etihad will carry passengers the longer distance from Abu Dhabi to destinations in Europe, North America, Africa, and South America, expect that airline to earn bulk of the Indian passengers' money, not Jet.

The partnership with Etihad will also allow Jet to lease many of its wide-bodies to the carrier who needs aircraft capacity right now, as well as utilise the large Boeing 777 fleet, much of which has spent its life being leased to other carriers. With the rulers of Abu Dhbai owning Etihad, Jet can use its A330 fleet to ferry passengers from India to Abu Dhabi and onwards using fifth and seventh freedom rights.

With Etihad covering the west, will Jet be allowed to focus east to Japan and Korea? What about down under to Australia? One cannot say for certain at this moment in time.

On the alliance front, Jet can now kiss goodbye to the Star Alliance which is vehemently opposed to Gulf carriers, and this is now further compounded with the growing size and clout of existing member Turkish airlines. Turkey wants to construct the world's largest airport.

Apart from traffic and operations, the main question still remains, who will head the board of directors and who all will run it operationally? We can expect the nominal executive leadership to remain with Jet, but all effective operational control will pass to Etihad despite rules in India requiring management to be Indian. These are all very easily "handleable". The middle management of Jet faces significant uncertainty on their future career prospect.

Jet Airways - the powerful Gemini

The Jetihad deal and the events surrounding it are a revealing insight to the enormity of the political clout commanded by Jet Airways and its promoter Mr. Naresh Goyal, a former travel agent. Goyal's influence is widely regarded as the catalyst for forming aviation and financial policy, many times contrary to the national interests of India, but well suited to the needs of private airlines like Jet Airways. This included a policy preventing foreign airlines to invest in Indian carriers, which was done to block the Tatas and Singapore Airlines starting a domestic Indian airline.

He is also believed to be responsible for passage of rules requiring Indian carriers to operate a minimum five years and have a fleet of 20 aircraft, before they could fly internationally. Again to benefit a very nascent Jet Airways at that time, but one which allowed foreign carriers, not required to follow these rules, to come in to India and establish market share, while Indian carriers could only look on.

Till about February last year, Jet Airways and its subsidiary JetLite (the former Air Sahara) were the largest airline in India, both domestic and international. Then upstart and irreverent low cost carrier, IndiGo, usurped the crown of largest domestic carrier. There were some months when, even the hopelessly inefficient Air India, topped Jet Airways in the market share standing. Losses mounted, debt ballooned.

Also, influenced by the imploding Kingfisher Airlines and its promoter and Member of Parliament, Dr. Vijay Mallya, the Indian government started talking about liberalising the airline sector by permitting foreign airlines to invest up to 49% stake in Indian carriers.

When he saw the writing on the wall, in a very smart move, Goyal switched tact, leveraged his middle-east connections, and commenced negotiations with Etihad, which, after many a false start, has culminated in the deal at hand.

Given the history of Jet Airways and its promoters over the last 20+ years, one has to take a huge pinch of salt to digest Goyal's statement

“I would like to thank the Government of India, especially the Ministries of Civil Aviation, Commerce and Industry, and Finance, for having the foresight to introduce the historic reform of allowing foreign direct investment into civil aviation in India. Infusion of FDI in the domestic sector will result in the improvement of the economics of aviation, grow traffic at our airports and create job opportunities."

India - UAE (Abu Dhabi) Bi-lateral air services capacity

Normally negotiations of bilateral air services agreements take years, and are normally commenced only after existing capacity is exhausted.

In 2011, the Comptroller and Auditor General of India, indicted the government and aviation ministry officials for their liberal policy of doling out bilateral seat capacity like candy. The CAG even suggested a roll-back of the capacities. Yet, barely 18 months after that report, political clout is amply demonstrated by the haste with which the Indian government enhanced its ASA with Abu Dhabi.

This despite the vehement objections of the operators of Delhi, Mumbai, Bangalore, and Hyderabad airports, and virtually all airlines, who fear their expensive investments will be now rendered uncompetitive, as another hub is created in Abu Dhabi, with Jet Airways ferrying passengers from even the smallest cities to the Emirate.

Even a strong letter, against expanding capacity, by former minister Dinesh Trivedi seems to have had no effect.

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INFOGRAPHIC: Airline-wise share of international passenger traffic, to and from India, 2011 to 2012

Based on a report in The Economic Times we have prepared this infographic showing the airlines' market share of international passenger traffic to and from India during fiscal 2011~2012.

The chart throws up some surprises. SriLankan Airlines and Oman Air feature on this list, but Singapore Airlines does not. Hard to accept? and where is AirAsia? Share your thoughts via a comment.

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Air traffic plunges 11.5%, as air fares rise. Jet Airways group crashes almost 21%, IndiGo down 11%.

Talk about irony. In March this year, Dr. Dinesh Keskar and Bangalore Aviation were discussing the double digit, yet profitless growth occurring in the Indian airline industry.

Less than six months later, air traffic continues its fifth consecutive month of decline. Within, just the third calendar quarter, (second quarter of the fiscal year 2012~13), air traffic plunged over 11.5%, from 4.537 million passengers in July, to 4.018 million in September. August at 4.369 million passengers was down 3.7% from July, and September was down 8.03% from August.

No airline could avoid the contagion. Jet Airways group is down a whopping 20.63% for the quarter, dropping from 1.207 passengers in July to 0.958 passengers in September. Even market leader IndiGo which is steadily growing its fleet, is down a significant 10.77%. SpiceJet is down 8.04%, Air India down 5.95%, and Kingfisher down 9.62%. GoAir performed the best, losing 2.85% of its passengers.

Year on year for the nine month period January to September this year 43.839 million passengers travelled by air domestically, compared to 44.218 million last year. Down 0.9%.

For the month of September, IndiGo continued its market leadership, but it appears the fare war unleashed by Air India has gained it passengers at the expense of all other airlines. Air India even beat Jet Airways, carrying 0.775 million passengers compared to 0.729 million by Jet Airways.

Put the blame for this contraction on the significant increase in airfares over the last six months, driven by the collapse of Kingfisher Airlines. Airlines are reducing the excess capacity, which has already increased fares over 20%. For the winter schedule which commences October 28, Indian carriers will fly 20% less flights than last year. 10,935 vs. 13,541 flights per week. Experts, expect air fares to rise another 10%~15% during the winter season which is also highest in terms of demand.

No airline crossed a passenger load factor of 70%, even the traditional leader IndiGo which used to regularly be in the top of the eighties or low nineties.

How will this capacity decrease impact passenger numbers? What is your view? Share a comment.

Also, do you think such major fare increases bodes well for the Indian consumer? Share your thoughts.

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Ajit Singh's desire for Air India to be number one unleashes a fare war amongst Indian airlines

Less than a week ago the Union Minister of Civil Aviation Mr. Ajit Singh asked Air India to submit a plan to enhance its share in the domestic passenger market, with the ultimate goal of being number one. This desire, against a continuing decline in domestic air passenger numbers. In August only 4.369 million passengers travelled, down 4% from the 4.537 million of July, thanks to surging airfares and a slowing economy.

Jet Airways (down 1.4%) and Kingfisher (down 0.3%) were double hit, as more passengers shifted towards the low fare carriers IndiGo, SpiceJet and GoAir, but Air India kept its market share steady; an decent performance for a full fare carrier, in these trying times.

Mr. Ajit Singh asked Air India to come out with innovative and customer focused strategies to achieve optimum utilisation of all planes and also maximum utilisation of each plane, but it appears the folks at Air India seem to know only one way to increase market share, a method on which, my fellow analyst, Vinay Bhaskara, made a telling comment

"Once the chase for market share commences, industry-wide bankruptcy looms"

Yes, you guessed right dear readers; to meet the minister's "wishes" Air India has unleashed a fare war to gain market share. It promptly dropped its 30 day advance purchase fares by 15%. The very next day, the country's largest private full service carrier, Jet Airways, followed suit with fare drops on 30 day and 21 day advance purchase APEX fares. Yesterday, other Indian carriers, including, IndiGo and SpiceJet have joined the fare slashing party.

Yet, this is no fun party. These airlines, for all practical purposes, are eating their young to survive. In this war of attrition, everyone is going to be the loser. As passengers we maybe getting a good deal in the short term, but in the long term, it will be us passengers, who will have to make good the losses of the airlines by paying higher fares.

Additionally, as tax-payers, our tax Rupees are being forcibly wrested to infuse Air India with an unlimited lifeline, and if anything, the carrier, and its political masters, have a moral obligation to be more careful and judicious in the use, some may say, waste, of our money.

Surely a well educated Ajit Singh, an alumnus of the prestigious I.I.T. Kharagpur and Illinois Institute of Technology, Chicago, realises what his well intentioned comments are resulting in, and reigns in this disastrous fare ware before it gets out of hand.

What are your thoughts on this situation? Please share a comment.

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IndiGo pips Jet to become largest domestic carrier in India. Mumbai airport most punctual.

Carrying 1.226 million passengers in July 2012, Gurgaon based IndiGo pipped the Jet Airways' group (Jet Airways and JetKonnect) at 1.207 million, to become the largest domestic carrier in India. IndiGo's market share has grown to 27.02%, at the expense of a failing Kingfisher Airlines whose market share has declined to a mere 3.44%.

The country's aviation regulator reports based on passenger traffic data submitted by various domestic airlines. Total passengers for July 2012 was 4.537 million, down almost 10% from the 5.108 million of June. The ending of the summer holidays, as well as dampening due to rising airfares are the primary factors.

Year to date from January to July 2012 the total domestic passengers are 35.452 million up a meagre 1.74% from 34.847 million for the same period in 2011.

Growth rates have been steadily declining in both seat capacity, measured in available seat-kilometres (ASK) and, passenger demand, measured in revenue passenger-kilometres (RPK). From a high of almost 20% a year ago, demand is in negative figures and capacity is flat for the last three months.

IndiGo's secret sauce of high punctuality, coupled with a 'no-fuss no-frills' service has continued to hold it in good stead. From the past few months, the DGCA has been collecting and presenting 'On-Time Performance' (OTP) reports, based on data from the six largest airports in India. IndiGo leads the airlines across the country with 90+ OTP performance.

Mumbai airport enjoys the best OTP across all airlines with OTP scores of 90 or higher. Is it a function of larger block times, which give cushion to airlines, or a positive response by airlines, airport operations, and ATC to the DGCA diktat issued in 2009 to streamline operations? May be it is a combination of both. But ultimately, all long as results are being delivered, the passengers couldn't care less.

Time for Delhi airport to pull up its socks, and for Bangalore to work closely with SpiceJet and Air India to get in to the '90+ club'.

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Infographics: April Data for the Indian Airline Market

The image above shows the load factors at each of India's airlines. Considering that Kingfisher has shrunk so much, it is surprising that their seat factor has not elevated past its pre-downsize levels.

The image above shows on-time performance for April. Two interesting things to note about the data. First, Kingfisher's OTP has come back down to earth. In earlier months after the downsizing, Kingfisher had recorded an OTP of up near 90% but this appears to have been an outlier caused by too many cancellations at Kingfisher. Also interesting to note is GoAir's superb performance. We have personally reviewed GoAir's schedule, and it is heavily concentrated on rush hours in the Metros; I wonder how they manage to outstrip their competitors who have a more balanced schedule?

Market Share data is pretty much as expected, though IndiGo continues to encroach on Jet Airways' position at #1. To give these figures a bit of color, overall domestic traffic figures were 5.1 million for the month, meaning that Jet Airways and IndiGo each carried more than 1 million passengers in April. It's also sad to see Kingfisher as a shell of its former self, stuck in last place - almost the opposite of Gordon Bethune's book "From Worst to First - Behind the Scenes of Continental's Remarkable Comeback"- at Kingfisher they went from First to Worst.

And finally, cancellations and complaints. Air India was predictably atrocious in the cancellation department (and this will only get worse with the IPG strike in May), but held up surprisingly well in the Passenger Complaints department. IndiGo and GoAir on the other hand performed the worst; one has to wonder if under-staffing has become an issue at these two frugal carriers.

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IndiGo and Jet lead performance and market share but also in passenger complaints

India's Directorate General of Civil Aviation reported domestic performance metrics of the seven Indian carriers for February 2011. Overall traffic was up 18.46% to 4.576 million passengers from 3.863 million passengers a year earlier. Cumulative traffic for 2011 is up 19.62% to 9.511 million from 7.951 in 2010.


The Jet Airways group, comprising of Jet Airways, Jet Airways Konnect and Jet Lite, led the industry with a market share of 21.6%. IndiGo led the low cost segment with an 18.7% share.

Compared to a year ago, the value carriers GoAir, IndiGo, and SpiceJet have captured significant market share from national carrier Air India and Dr. Vijay Mallya promoted Kingfisher Airlines, both of whom have been facing financial problems and have not expanded their fleet with the resurging market.

In a recent survey, many passengers place a high priority on on-time performance (OTP), and most airlines have been working hard to address this. Certain guidelines imposed by the regulator, the Directorate General of Civil Aviation, have resulted in a streamlining of operations at Mumbai and this is reflected by the industry leading performance of Jet Airways. Kingfisher, which was facing a steady erosion of customers due to a poor OTP, appears to have pulled up its socks to rank second, ahead of traditional punctuality leader IndiGo.


On flight cancellations, IndiGo was the best in the industry at 0.1% and Jet Airways at 0.6% was below the industry median 0.8%. Kingfisher (0.9%), Air India (1.3%) and JetLite (1.4) were the three most unreliable airlines.


Passenger seat factors dipped as the traditional winter travel concluded in January. IndiGo continued to be industry leader filling 87.6% of its capacity, while Air India was the laggard at a pathetic 68%.

In complete contradiction to their industry leading performance, Jet Airways and IndiGo also topped the month on the negative; with the most passenger complaints. Jet received 4.1 complaints per 10,000 passengers and IndiGo was close behind at 3.1, both well ahead of the industry median 2.5.

Contradicting its stereotypical poor image, Air India has the best record in the industry with 1.1 complaints per 10,000 passengers and Kingfisher posted a second best at 1.7 complaints per 10,000 passengers.

What reasons would you attribute to this contradictory performance by both Jet and IndiGo? Conversely why are passengers not complaining about Air India? Post a comment.

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Potential impact of Japan earthquake on the air transport industry

Japan, which suffered a devastating earthquake recently, has long been a major player in the air transport industry with a total market size of $62.5 billion annually.

While it is too early to assess the long-term infrastructural impact of the quake on the industry, an understanding of the industry structure in Japan can provide us with some insights.


The most immediate impact will be felt in the $19 billion domestic segment of the market which carries 83 million passengers annually. In comparison India is just around 52 million domestic passengers.

However, on the international front, Japan's $62.5 billion annual aviation market contributes 6.5% of worldwide scheduled traffic and being considered a "high value market", 10% of the industry’s total revenues.


Long term impact will be felt by the countries that connect to Japan, led by the United States, China, South Korea, Taiwan, Hong Kong, and others as represented in the graph above showing the top ten countries connecting to Japan.

IATA Chief Bisignani says

"A major slowdown in Japan is expected in the short-term. And the fortunes of the industry will likely not improve until the effect of a reconstruction rebound is felt in the second half of the year,”

However, there can be a significant impact on the air transport industry in China, which is the most exposed to Japan. Japan accounts for 23% of China's international air transport revenues.


Taiwan and South Korea follow China with Japan operations contributing 20% each. Thailand, the United States, Hong Kong follow.

With Japan contributing 9% to the Singapore air transport market, Singapore Airlines is already scaling back its flights to Japan, and has delayed the March 27th upgrade to Airbus A380 of its profitable Singapore-Tokyo-Los Angeles SQ11/SQ12 service.

Soon after the quake, many economists were suggesting that while travel markets will weaken in the short term, it would pick-up sharply as the Japanese economy re-bounded once re-construction commenced in the second half of 2011. However, the radiation problems at the Fukushima Daiichi nuclear power facility are now diluting that initial optimism.

On the manufacturing side, the Japanese aerospace industry is a major contributor to Boeing, especially on the 787 Dreamliner programme. While the major vendors are located away from the quake epicentre and therefore their facilities are not impacted, there is a rolling blackout throughout Japan and there is still no clarity on their downstream sub-vendors. This raises questions on whether there will be a further impact on this already delay plagued airplane?

What is your take on the situation both short and long term? Post a comment.

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Analysis of fleet share vs. passenger share in the Indian airline industry

Every month passengers are bombarded with statistics by various airlines in India. Best on-time performance, largest market share, most preferred airline ...... the list is endless.

Mathematical logic would dictate that an airline with the largest fleet of aircraft will have also have the largest share of the market, but an analysis of the passenger market share vs. the fleet share, based on the number of aircraft in each airline's fleet, throws up some very interesting results.

Indian domestic airline market - Fleet share (based on number of aircraft) vs. market share (based on number of passengers)

The airline with the largest fleet in the domestic market is Air India, but its market share of the number of passengers is low, and therefore results in a low fleet hare to passenger share ratio of 0.62.

Kingfisher leads the full service carrier segment with a fleet to market share ratio of 0.95, but this also includes figures from their low cost Kingfisher Red service. Passenger market share leader Jet Airways is at 0.82 and this includes their low fare service Jet Konnect.

For a better comparison between Jet and Kingfisher, if we add-up the numbers of Jet's other low fare subsidiary JetLite, the total group ratio of Jet at 0.865 still remains well behind Kingfisher's 0.95, suggesting a far more aggressive fleet utilisation strategy by Dr. Mallya's airline.

Expectedly, the low fare carrier side, shows much higher ratios, due to their higher usage of aircraft and also the higher number of seats offered per flight due to an all-economy configuration. The laggard is JetLite with a ratio of 1 while SpiceJet and IndiGo are neck and neck at 1.75 and 1.76. In defence of SpiceJet, their figures appear lower since they inducted their 22nd aircraft only at the end of the month which skews the results.

The surprise of the whole exercise are the results of industry minnow GoAir, who have an industry leading, fleet to passenger share ratio of 2.04. Clearly the airline has shaken off the demons of the past and is aggressive in their fleet utilisation.

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