rootsair
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Expansion In India:will They Still Be Champions?

Wed Jan 17, 2007 12:01 am

A lot of growth is going on in India these years. As you may all know India was the big winner in orders placed at the Paris show in 2005! Don't remeber exactly how many it was but the bourget 2005 show was Indian !
Is Indian aviation still expanding so much? Do you think one can expect as many orders in 2007 as they did in 2005?

Regards

BM
A man without the knowledge of his past history,culture and origins is like a tree without roots
 
Kevin777
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RE: Expansion In India:will They Still Be Champions?

Wed Jan 17, 2007 12:40 am

I spent this fall in Ahmedabad in India, and did a bit of research once in a while on the industry (and flew!  Smile ).

I must say I was shocked by the apparent over-optimism/air-enthusiasm/outright stupidity of many players in this market. They are all flying half-empty at best, and with yields that made me feel like a thief everytime I booked a flight. They are constantly adding brand-new a/c, routes and frequencies, and some of them are constantly over-bidding each other on service. They have Indian labour costs in the cabin, but in the management and many of the cockpits they are paying western salaries. And oh yes, they are loosing money by the truck-load. ALL of them. A lot of debate was on it, and everyone - including all the airline CEOs - seemed to agree that this could not go on.

EVERY rational investor would pull out of this market and run like hell, but not here: Everyone seems to believe that in three months we'll be flying full taking in top-yields. Everyone bets that HE will stay, while the others will be the ones pulling out.

I paid an average of around 2.000 - 2.500 (45-60 USD) rupees per sector (1-2,5 hours); including everything, and mind you, booking a few days before departure many times. I rarely saw a load-factor above 70, and often we were below the 50-mark. Even on flights to Goa in December you could by a walk-up ticket for 2.000 Rupees, only to find the brand new Air Deccan 320 with Australian pilots with two out of three seats empty.

But to your question!: Yes, they are still expanding, but this CANNOT GO ON. It is as simple as that. And at some point some will have to pull out, and a lot of capacity will have to be pulled out. They are expanding like crazy, but they pax and yield figures certainly aren't. I'd bet on a serious slowdown within the next 12-18 months, where the capacity growth falls drastically; to approach the level of demand growth.

Kevin777  Smile
"I was waiting for you at DFW, but you must have been in LUV" CPH-HAM-CPH CR9
 
comorin
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RE: Expansion In India:will They Still Be Champions?

Wed Jan 17, 2007 9:16 am

Rs 256/- ( US $5 ) plus tax r/t BLR-GOI on Deccan - go figure...
 
blrsea
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RE: Expansion In India:will They Still Be Champions?

Wed Jan 17, 2007 9:39 am

Quoting Comorin (Reply 2):
Rs 256/- ( US $5 ) plus tax r/t BLR-GOI on Deccan - go figure...

The tax & surcharges etc amounts to atleast Rs 1000-1200 depending on the airlines. While only around 300-400 is the actual taxes and airport fees, the rest goes to the airlines.
 
comorin
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RE: Expansion In India:will They Still Be Champions?

Wed Jan 17, 2007 9:41 am

Quoting Blrsea (Reply 3):

Thanks for clearing that up! I was wondering how they could possibly price so low...
 
Nimish
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RE: Expansion In India:will They Still Be Champions?

Wed Jan 17, 2007 12:40 pm

Quoting Blrsea (Reply 3):
The tax & surcharges etc amounts to atleast Rs 1000-1200 depending on the airlines. While only around 300-400 is the actual taxes and airport fees, the rest goes to the airlines.

In reality the actual tax is only around Rs. 225 or so, the rest (Rs.1000 approx) goes to the airline's pocket. That's how they manage to sell Rs. 2 fares on BLR-MAA for most of next month!. Plus on DN - if you buy a ticket with base fare less than Rs 300, they levy a "Rs. 750 cancellation fee" - which means they eat up most of what you paid as taxes.
Latest Trip Report - GoAir BLR-BOM-BLR
 
Kevin777
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RE: Expansion In India:will They Still Be Champions?

Wed Jan 17, 2007 9:24 pm

Quoting Blrsea (Reply 3):
The tax & surcharges etc amounts to atleast Rs 1000-1200 depending on the airlines. While only around 300-400 is the actual taxes and airport fees, the rest goes to the airlines.



Quoting Nimish (Reply 5):
In reality the actual tax is only around Rs. 225 or so, the rest (Rs.1000 approx) goes to the airline's pocket. That's how they manage to sell Rs. 2 fares on BLR-MAA for most of next month!. Plus on DN - if you buy a ticket with base fare less than Rs 300, they levy a "Rs. 750 cancellation fee" - which means they eat up most of what you paid as taxes.

Regardless of whether or not the airline keeps most of the "taxes", 1000-1500 Rupees is way below cost with full loads, and with the planes often half-empty or more it's an economic disaster, still...

Kevin777
"I was waiting for you at DFW, but you must have been in LUV" CPH-HAM-CPH CR9
 
Aviator27
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RE: Expansion In India:will They Still Be Champions?

Thu Jan 18, 2007 12:43 am

Quoting Kevin777 (Reply 1):

I spent this fall in Ahmedabad in India, and did a bit of research once in a while on the industry (and flew! ).

I must say I was shocked by the apparent over-optimism/air-enthusiasm/outright stupidity of many players in this market. They are all flying half-empty at best, and with yields that made me feel like a thief everytime I booked a flight. They are constantly adding brand-new a/c, routes and frequencies, and some of them are constantly over-bidding each other on service. They have Indian labour costs in the cabin, but in the management and many of the cockpits they are paying western salaries. And oh yes, they are loosing money by the truck-load. ALL of them. A lot of debate was on it, and everyone - including all the airline CEOs - seemed to agree that this could not go on.

EVERY rational investor would pull out of this market and run like hell, but not here: Everyone seems to believe that in three months we'll be flying full taking in top-yields. Everyone bets that HE will stay, while the others will be the ones pulling out.

I paid an average of around 2.000 - 2.500 (45-60 USD) rupees per sector (1-2,5 hours); including everything, and mind you, booking a few days before departure many times. I rarely saw a load-factor above 70, and often we were below the 50-mark. Even on flights to Goa in December you could by a walk-up ticket for 2.000 Rupees, only to find the brand new Air Deccan 320 with Australian pilots with two out of three seats empty.

But to your question!: Yes, they are still expanding, but this CANNOT GO ON. It is as simple as that. And at some point some will have to pull out, and a lot of capacity will have to be pulled out. They are expanding like crazy, but they pax and yield figures certainly aren't. I'd bet on a serious slowdown within the next 12-18 months, where the capacity growth falls drastically; to approach the level of demand growth.

Kevin777

I recently worked for one of these carriers in India myself. I personally saw this on a first hand basis daily. I can confirm everything Kevin777 is saying is 100% true. He hit the nail right on the head when he stated that all the managing directors believe they are the one who will be left standing at the end of the day while everyone else will drop out. In the time being they bleed money profusely. The biggest problems in India are infrastructure constaints and overcapicity. The fundamentals are still good in the long term but hundreds of millions of dollars will be lost because of the present insanity.
 
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HAWK21M
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RE: Expansion In India:will They Still Be Champions?

Thu Jan 18, 2007 1:18 am

Tough competion,Lower fares & Higher salaries are reducing the profit margins of all commercial Airlines except Freighters.
Competion will have its casualties soon.Thereafter there will be a balance.
Currently though the Expansion plans are still on.
regds
MEL
I may not win often, but I damn well never lose!!! ;)
 
karan69
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RE: Expansion In India:will They Still Be Champions?

Thu Jan 18, 2007 2:00 am

Quoting Kevin777 (Reply 1):
must say I was shocked by the apparent over-optimism/air-enthusiasm/outright stupidity of many players in this market. They are all flying half-empty at best, and with yields that made me feel like a thief everytime I booked a flight. They are constantly adding brand-new a/c, routes and frequencies, and some of them are constantly over-bidding each other on service

Good observation mate, this cant seem to continuoe much longer i think by the end of this year or by FQ 2008 latest the market will have to consolidate, already evident by the fact that a carrier like GO Airways is not renewing leases of two of its A320s which will result in shortening of the fleet strength from 7 to 5 , as a result two routes God knows which one will go offline atleast till Oct 07 when their first owned A320 comes in from TLS.

Quoting Kevin777 (Reply 1):
Everyone bets that HE will stay, while the others will be the ones pulling out.

I have often heard that too and derived that from what they say in their press conference/interviews but can you please elaborate more on how you derived the above the statement.

Quoting Kevin777 (Reply 1):
Yes, they are still expanding, but this CANNOT GO ON. It is as simple as that. And at some point some will have to pull out, and a lot of capacity will have to be pulled out.

Yes from the begining of the Aviation Boom the Aviation DOOM is also not far away.

Quoting Comorin (Reply 2):
Rs 256/- ( US $5 ) plus tax r/t BLR-GOI on Deccan - go figure...

its a very smart way of airlines to fill their pockets as even aviation knoweldgeable passengers like your self think that this excessisive is going to the Govt. of India and they start blaming the Govt and cry foul to them rather than the airline.

Quoting Aviator27 (Reply 7):
The biggest problems in India are infrastructure constaints and overcapicity. The fundamentals are still good in the long term but hundreds of millions of dollars will be lost because of the present insanity.

The biggest point, out of curosity which carrier did you work with.

Quoting HAWK21M (Reply 8):
Tough competion,Lower fares & Higher salaries are reducing the profit margins of all commercial Airlines except Freighters.

Go figure with startups ordering 4 772LRFs and 6 A332F.

Karan
 
Kevin777
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RE: Expansion In India:will They Still Be Champions?

Thu Jan 18, 2007 9:45 pm

Quoting Aviator27 (Reply 7):
The biggest problems in India are infrastructure constaints and overcapicity. The fundamentals are still good in the long term but hundreds of millions of dollars will be lost because of the present insanity.

Fundamentals are essentially good, yes, but the trees don't grow into the sky. I think a major reason for the over-optimism is wrong analyses of the European LCC-story. In Europe, you used to travel by train everywere. Going Copenhagen-Berlin, no one except business travellers would consider anything but train (or bus sometimes). But then came LCCs, offering cheap plane tickets, stealing away train and bus pax by the truck load. I reckon many Indian LCCs thought the same - but here is the difference: In Europe, a train ticket had the same price as the break-even fare for an LCC-airline, and often more. But in India, you can ride trains for nothing - the gap up to the break-even fare for an airline is way too big.

Quoting Karan69 (Reply 9):
GO Airways is not renewing leases of two of its A320s which will result in shortening of the fleet strength from 7 to 5 , as a result two routes God knows which one will go offline atleast till Oct 07 when their first owned A320 comes in from TLS.

They would be one of the first ones to go IMO.

Quoting Karan69 (Reply 9):
Quoting Comorin (Reply 2):
Rs 256/- ( US $5 ) plus tax r/t BLR-GOI on Deccan - go figure...

its a very smart way of airlines to fill their pockets

In India's case, I think "filling" their pockets is the wrong word...

Quoting Karan69 (Reply 9):
Go figure with startups ordering 4 772LRFs and 6 A332F.

Who did that btw?

Quoting Karan69 (Reply 9):
Quoting Kevin777 (Reply 1):
Everyone bets that HE will stay, while the others will be the ones pulling out.

I have often heard that too and derived that from what they say in their press conference/interviews but can you please elaborate more on how you derived the above the statement.

I didn't really derive it from anything else than my personal feeling about this issue.. But here's the "proof" I guess: They all agree that there isn't room for everyone - yet they all choose to stay - hence, they must all believe that the others will go.

Kevin777  Smile
"I was waiting for you at DFW, but you must have been in LUV" CPH-HAM-CPH CR9
 
karan69
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RE: Expansion In India:will They Still Be Champions?

Thu Jan 18, 2007 10:59 pm

Quoting Kevin777 (Reply 10):
But in India, you can ride trains for nothing - the gap up to the break-even fare for an airline is way too big.



Quoting Kevin777 (Reply 10):
I think a major reason for the over-optimism is wrong analyses of the European LCC-story.

Thanks for bringing that from the back of my mind to the front of my mind i always knew a wrong analysis was one of the reason of the over indulgence of LCCs on Indian routes along with non-presence of secondary airports and infrastructure constraints.

Quoting Kevin777 (Reply 10):
Who did that btw?

Flyington Freighters

Karan
 
Kevin777
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RE: Expansion In India:will They Still Be Champions?

Fri Jan 19, 2007 4:05 am

Quoting Karan69 (Reply 11):
Flyington Freighters

Never heard of them! My God, that as horrible name!  Smile

Kevin777
"I was waiting for you at DFW, but you must have been in LUV" CPH-HAM-CPH CR9
 
detroitflyer
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RE: Expansion In India:will They Still Be Champions?

Fri Jan 19, 2007 4:46 am

Quoting Kevin777 (Reply 10):
But in India, you can ride trains for nothing - the gap up to the break-even fare for an airline is way too big.

 checkmark 
however the sevice on indian train and european trains cannot be compared...

most indian trains are extremely slow, uncomfortable and filthy... (no offense intended)
Boiler Up!!!
 
karan69
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RE: Expansion In India:will They Still Be Champions?

Fri Jan 19, 2007 5:21 am

Quoting Detroitflyer (Reply 13):
most indian trains are extremely slow, uncomfortable and filthy... (no offense intended)

None taken mate, it is the truth afterall.

Karan
 
SLCNate
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RE: Expansion In India:will They Still Be Champion

Fri Jan 19, 2007 12:01 pm

Quoting Detroitflyer (Reply 13):
however the sevice on indian train and european trains cannot be compared...

most indian trains are extremely slow, uncomfortable and filthy... (no offense intended)

That's how they keep the cost low and still make profit. Another point to note is that 90% of the Indian population cannot afford to travel by air on a regular basis.

Quoting Kevin777 (Reply 10):
But then came LCCs, offering cheap plane tickets, stealing away train and bus pax by the truck load. I reckon many Indian LCCs thought the same - but here is the difference: In Europe, a train ticket had the same price as the break-even fare for an LCC-airline, and often more.

I also totally agree and the factors like cost of living and per capita income come into play which differentiates the travellers in Europe and India.

Nate
 
karan69
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RE: Expansion In India:will They Still Be Champions?

Fri Jan 19, 2007 1:54 pm

Quoting SLCNate (Reply 15):
That's how they keep the cost low and still make profit. Another point to note is that 90% of the Indian population cannot afford to travel by air on a regular basis.

Agreed mate, but even if somehow there is a 5-10% increase in air traffic it will still be more than 40-50% of UKs air population.

Karan
 
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HAWK21M
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RE: Expansion In India:will They Still Be Champions?

Fri Jan 19, 2007 4:14 pm

Quoting Karan69 (Reply 9):
Go figure with startups ordering 4 772LRFs and 6 A332F.

You believe they'll start  Smile
I don't.Def not Indian Registered.
regds
MEL
I may not win often, but I damn well never lose!!! ;)
 
Kevin777
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RE: Expansion In India:will They Still Be Champions?

Fri Jan 19, 2007 6:17 pm

Quoting Detroitflyer (Reply 13):
however the sevice on indian train and european trains cannot be compared...

most indian trains are extremely slow, uncomfortable and filthy... (no offense intended)

Well, yes, you definitely can find filthy cattle cars as well as "First Class" cabins that cost the same as a (reasonably priced) air ticket, yet still with rats on the floor. Extremely slow is not true though; although many of them are, you have express trains that do pretty okay.

To be fair I think it's not that bad in many cases - at least not bad enough to make people switch over to planes. For instance, take Ahmedabad-Mumbai. It's a 1-hour plane journey, and add to that time to get to/from airports, check-in before etc. A sleeper train takes 11 hours and costs you around 700 Rupees in 3AC; 17-18 USD ors so. I reckon 3AC is OK; fairly clean and quiet, you get fresh bed sheets, pillows, blankets etc., it's all right. Or you can take the day express trains, which reach AMD or BOM in seven hours. I think prices are somewhat the same (AC chair car of course). Now although we are not talking airline standards, it's not that bad after all if you tarevl in the premium classes, and the price is still way, way lower than the break-even air fare.

Kevin777  Smile
"I was waiting for you at DFW, but you must have been in LUV" CPH-HAM-CPH CR9
 
manny
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RE: Expansion In India:will They Still Be Champion

Sat Jan 20, 2007 8:11 am

Quoting Kevin777 (Reply 18):
Or you can take the day express trains, which reach AMD or BOM in seven hours. I think prices are somewhat the same (AC chair car of course).

You are taking about the Shatabdhi Express, right. I traveled on it in last November from BOM-BDQ one way and it was a decent ride. The seat pitch was comfortable, the seats were old styled but very comfortable and the service on board was prompt. Overall it was a convenient and well timed option.
 
manny
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RE: Expansion In India:will They Still Be Champion

Sat Jan 20, 2007 8:17 am

Quoting Kevin777 (Reply 1):

Whenever there is an market poised or thought to be poised for massive growth it does not take long for irrational exburance to seep in. A good analogy was the late 90s dot com boom & its subsequent bust. But despite the bubble bursting did not mean that all dot com players were wiped away. And that holds true for the Indian aviation market. There will be quite a few players that will survive & be in good shape.

Quoting SLCNate (Reply 15):
Another point to note is that 90% of the Indian population cannot afford to travel by air on a regular basis.

Yeah but 10% of Indian population is equal to 100+ million. Thats a huge market!