The Hub-and-spoke structure is a mutation of the point-to-point structure. The point-to-point structure enables a greater number of routes (11) but some routes may have a low frequency of service, which is quite likely. The hub-and-spoke structure concentrates movements in a lesser number of routes (6), but the frequency of service is higher, thus minimizing time between most origins and destinations. Air transportation companies, such as National carriers and full service airlines, have massively applied this network structure to enhance the overall efficiency of their service and increase the number of serviced centers. Tuesday, January 30, 2007
Difference b/w Hub-n-spoke and Point-to-point System
The Hub-and-spoke structure is a mutation of the point-to-point structure. The point-to-point structure enables a greater number of routes (11) but some routes may have a low frequency of service, which is quite likely. The hub-and-spoke structure concentrates movements in a lesser number of routes (6), but the frequency of service is higher, thus minimizing time between most origins and destinations. Air transportation companies, such as National carriers and full service airlines, have massively applied this network structure to enhance the overall efficiency of their service and increase the number of serviced centers. 
Low Cost Airlines
What is a Low Cost Airline or a Low Cost Carrier ???
A low cost airline or carrier, also known as no-frills or discount or budget airline/carrier is an airline that offers generally low fares in exchange for eliminating many traditional passenger services. This concept first originated in the United States before spreading to Europe in the early 1990s and subsequently to much of the rest of the world.
What is the difference between a Full Service Airline and Low Cost Airline ???
A low cost airline is an airline that operates point-to-point network, pays employees below the industry average wages and offers no frills service to its customers. A regular full service airline operates hub-and-spoke network, pays employees industry or above industry average wages and offers a series of complex services. A traditional airline has a number of tools with which it can deter entry or lessen the competitiveness of recent airlines. These tools are predatory pricing, loyalty program and congestion at the nation’s most popular airports. These tools are somehow ineffective against low cost airlines with point-to-point network. A low cost airline can engage in Bertrand competition, with a high cost competitor, without pricing at its own marginal cost states Charles Najda from Department of Economics, Standford University. The low cost carrier can successfully neutralize the dominance of its competitors by competing on price. The low cost structure can be quantified by aggregating the costs of point-to-point networks, wage savings and savings from elimination of various add on services. Amongst other major cost factors defining the airline sector, labor costs are the largest single cost item.
Monday, January 29, 2007
Frequently Used Terminology
General Terms
Aircraft utilization : Represents the average number of block hours operated per day per aircraft for the total aircraft fleet.
ATF : Aviation Turbine Fuel.
Available Seat Kilometers, or ASKM : Represents the aircraft seating capacity multiplied by the number of kilometres the seats are flown.
Average stage length : Represents the average number of kilometres flown per flight.
Block hours : Refers to the elapsed time between an aircraft leaving an airport gate and arriving at an airport gate. Breakeven load factor : Represents the Passenger Load Factor that will result in Net Passenger Revenues being equal to Total Expenses less cargo and Non-operating Revenues.
Cargo tonnage : The total cargo carried on an aircraft expressed in metric tons.
Cost per ASKM : Represents total cost less cargo revenue net of commissions, excess baggage, other income and non-operating revenue including interest income, divided by the ASKMs.
CRS : Computerized Reservation System.
CRS costs : Cost paid to CRS service provider.
DGCA : Directorate General of Civil Aviation of India.
Flight Hours : Refers to the time elapsed from the moment the wheels of an aircraft leave the ground on a take-off until the wheels of an aircraft next touch the ground.
GDS : A global distribution system.
GSA : General sales agent.
MPD : The DGCA approved maintenance planning document.
MoCA : Ministry of Civil Aviation, Government of India.
MTOW : Maximum take-off weight as certified by DGCA.
PSF : Passenger service fee, a tax levied by the Government of India on passengers.
Seat Factor : Revenue passenger kilometres expressed as a percentage of available seat kilometres.
Route Dispersal Guidelines : Represents stipulation by the DGCA as regards capacity deployment as expressed in ASKMs by scheduled domestic airlines on certain lesser-developed regions in order to encourage air connectivity in these regions. Routes have been classified into 4 categories according to these guidelines, namely, Category I, Category II, Category IIA and Category III.
Variable aircraft rentals : Variable aircraft rentals are essentially termed as maintenance reserves, which are built towards carrying out long-term calendar based heavy maintenance of the aircraft (D Checks), overhaul cost of engine, Auxiliary Power Unit (APU) and landing gear as well as replacement of Life Limited Parts (LLPs). Rentals are specified in the lease agreements entered into between the airline and the lessor and are determined taking into account the age of the aircraft, proposed utilization of the aircraft (number of flight hours) and tenure of the lease. Yield : Passenger Revenue earned per kilometer flown.
Financial Terms (Basic)
Net Passenger Revenues : Represents the Passenger Revenues net of commisions paid to travel agents and GSAs.
Passenger Revenues : Represents the revenue recognised when transportation is provided to a passenger or when no claim for refund has been made by a passenger on an unused ticket for a period of two years.
Revenue Passenger Kilometers, or RPKM : Represents the number of kilometres flown by revenue passengers. Revenue passengers : Represents the total number of fare paying passengers flown on all flight segments (excludes passengers redeeming their frequent flyer miles).
Revenue per ASKM : Net Passenger Revenue divided by ASKMs.
Revenue per RPKM : Net Passenger Revenue divided by RPKMs.
Non-operating Revenue : Represents revenue from interest income, profit from sale of assets such as aircraft and engines and foreign exchange gains.
Operating Revenues : Represents Passenger Revenues, revenues from excess baggage and cargo and Other Income.
Other Income : Represents revenue from ticket cancellation and handling charges paid by the Government of India for PSF (being collected from passengers).
Other Operating Expenses : Represents the aggregate of variable rent, aircraft maintenance, landing and navigation charges and other airport charges, insurance costs and General and Administrative Expenses.
Total Expenses : Represents the aggregate of employee remuneration and benefit, aircraft fuel expenses, selling and distribution expenses, aircraft lease rentals, depreciation, interest and Other Operating Expenses.
Total Revenues : Represents the aggregate Operating Revenues and Non-operating Revenues.
BSP : Billing and Settlement Plan provided by IATA as a part of its passenger agency programme.
EBIT : Earnings before interest and taxation excluding Non-operating Revenues and excluding any adjustments to profit as required under SEBI Guidelines.
EBITDA : Earnings before interest, taxation, depreciation and amortization excluding Non-operating Revenues and excluding any adjustments to profit as required under SEBI Guidelines.
EBITDAR : Earnings before interest, taxation, depreciation, amortization and aircraft rentals (fixed), excluding Non-operating Revenues and excluding any adjustments to profit as required under SEBI Guidelines.
EPS : Earnings per Equity Share.
EBITDAR Margin : Calculated by dividing EBITDAR for the relevant period by Operating Revenues for such period. General and Administrative Expenses : Consists of expenses related to in-flight and other passenger amenities, communication costs, travelling and subsistence, rent, rates and taxes, repairs and maintenance, electricity, provision for bad and doubtful debts, directors’ sitting fees, loss on scrapping of fixed assets, loss on sale of fixed assets, loss on exchange rate difference and other miscellaneous expenses.
Technical Terms
C Check : A block “C” check in accordance with the MPD and includes all inspections up to and including those required every 4,800 Flight Hours, 4,000 cycles (defined as one take-off and landing) and 18 months.
D Check : The maintenance shop visit which shall include but not be limited to accomplishment of a block C6/8 year check in accordance with the applicable appendix of the MPD, all lesser checks, passenger cabin refurbishment (including lavatories and galleys) and strip and repainting of the complete fuselage, empennage, wings and pylons.
Sunday, January 28, 2007
Indian Aviation - A Friendlier Sky
Present Scenario ...
The explosion in Indian air travel is being driven by a booming economy, a rapidly growing middle class and increased deregulation (Open Skies policy launched in 1990s). It is expected that about 19 million people will have taken domestic flights in India by 2005 which in turn would be a 28% jump from the previous year and one of the highest growth rates in the world. However, ATF prices and high airport charges may prove to be initial hindrances for airlines optimistic about expanding international operations, as quoted by Travel Trends Today. Early starters like Jet Airways, Air Sahara and more recently Air Deccan, have had to confront bottlenecks and challenges that accompany a new airline project in India. In today’s scenario, 80% of an airline’s operating expenditure is taken up by fuel, landing and navigation, aircraft charges, maintenance and payroll costs and not dependent on the business model. India’s geographic position being halfway between Europe and Australia, an ideal crossroad between major markets and a huge home market proves a big advantage for the Indian aviation industry. Domestic and international passengers are growing at around 20 per cent annually, with 70 per cent of the top 30 domestic markets carried from Mumbai, Delhi, Bangalore, Chennai and Kolkata, and 90 per cent of the top 20 international markets also carried from the same destinations. Aviation experts forecast that India’s annual passenger load will hit 50 million by 2010. “It’s just amazing what’s happening there,” says Maurice Flanagan, vice chairman of Emirates Group. Emirates offer 12,000seats/week to India and operate at 85% occupancy, which is very high by industry standards. New deregulation measures could help India accelerate its growth. The Indian government permitted last February, two privately owned airlines to compete with Air India on routes to Singapore, Malaysia and London and another Jet Airways to fly to the United States as well. As many as five new privately owned Indian Carriers are expected to begin flying domestically this year. India is also opening up to foreign airlines, striking more flexible bilateral deals with other countries that have multiplied the number of flights foreign operators can operate to and from the country. The Asian Wall Street Journal quoted India and Britian to have agreed to double the number of flights with each permitting about 40 a week. India has also been expected to sign an open skies agreement with U.S. – the world’s biggest civil aviation market. That deal is likely to remove all restrictions on routes between the two countries currently flown by two million people a year – The Asian Wall Street Journal. Asian, European and Middle Eastern airlines are already ramping up flights to India. Britian’s Virgin Group even hopes to buy a stake in an Indian carrier, although there exits no such provision from the government yet. With the advent of more competitors in the market, prices of tickets which once upon a time were the preserve of the elites in India are fast plummeting. This is far different from the 1970s and 1980s, when commuting even domestic was difficult and an expensive affair. Service was often awful and delays interminable. Air India and Indian Airlines held monopoly on local air travel and access to India by foreign airlines was tightly restricted. The 1990s witnessed a transformation that changed the domestic airline industry forever. The government lifted ban on private owned airlines and India saw the emergence of many small carriers but the ones that sailed the tough times are Jet Airways, Air Sahara and Air Deccan. With Jet Airways loosing market share over the past year to 37% from 42%, its acquisition of Air Sahara for $500 million is seen as a defensive move by industry observers. In his bid to regain market dominance, Naresh Goyal, chairman of the INR 44.2 billion, Jet Airways is also crafting a deal with low cost rival Air Deccan which in turn will give him a total market share of about 57%. Indian Airlines market share has fallen drastically since the transformation in 1990s to less than 40% [Businessworld- February 2006]. The prime concern marring this high expectations and growth are rundown aviation infrastructure and retrograde airport services. All aspects of airport services starting from runway maintenance to air traffic control and baggage handling needs mammoth upgrades to cope up with this escalating demand. The government of India has earmarked $3 billion to upgrade the country’s main gateway airports at Bombay and New Delhi which are crowded and chaotic beyond definition and $300 million to build new airports at Bangalore and Hyderabad [financial figures from Asian Wall Street Journal- March 2005]. Significant upgrades are also in the pipeline for more than a dozen smaller airports which in turn is a very good sign for the fast growing Indian low cost airline industry. “Every element of infrastructure for aviation in India is going to be stretched over the next three years.” The need is urgent, says McKinsey’s Mr. Zainulbhai. The world has great expectations from India at the moment and is anxiously waiting for further reforms to take place in the near future. Boeing estimates that sales of new aircrafts to India will be worth at least $35 billion over the next 20 years, making it the fastest growing aircraft market in the world after China. Binit Somaia of CAPA, a Sydney based consulting firm quoted- “The industry has been transformed completely.”
The explosion in Indian air travel is being driven by a booming economy, a rapidly growing middle class and increased deregulation (Open Skies policy launched in 1990s). It is expected that about 19 million people will have taken domestic flights in India by 2005 which in turn would be a 28% jump from the previous year and one of the highest growth rates in the world. However, ATF prices and high airport charges may prove to be initial hindrances for airlines optimistic about expanding international operations, as quoted by Travel Trends Today. Early starters like Jet Airways, Air Sahara and more recently Air Deccan, have had to confront bottlenecks and challenges that accompany a new airline project in India. In today’s scenario, 80% of an airline’s operating expenditure is taken up by fuel, landing and navigation, aircraft charges, maintenance and payroll costs and not dependent on the business model. India’s geographic position being halfway between Europe and Australia, an ideal crossroad between major markets and a huge home market proves a big advantage for the Indian aviation industry. Domestic and international passengers are growing at around 20 per cent annually, with 70 per cent of the top 30 domestic markets carried from Mumbai, Delhi, Bangalore, Chennai and Kolkata, and 90 per cent of the top 20 international markets also carried from the same destinations. Aviation experts forecast that India’s annual passenger load will hit 50 million by 2010. “It’s just amazing what’s happening there,” says Maurice Flanagan, vice chairman of Emirates Group. Emirates offer 12,000seats/week to India and operate at 85% occupancy, which is very high by industry standards. New deregulation measures could help India accelerate its growth. The Indian government permitted last February, two privately owned airlines to compete with Air India on routes to Singapore, Malaysia and London and another Jet Airways to fly to the United States as well. As many as five new privately owned Indian Carriers are expected to begin flying domestically this year. India is also opening up to foreign airlines, striking more flexible bilateral deals with other countries that have multiplied the number of flights foreign operators can operate to and from the country. The Asian Wall Street Journal quoted India and Britian to have agreed to double the number of flights with each permitting about 40 a week. India has also been expected to sign an open skies agreement with U.S. – the world’s biggest civil aviation market. That deal is likely to remove all restrictions on routes between the two countries currently flown by two million people a year – The Asian Wall Street Journal. Asian, European and Middle Eastern airlines are already ramping up flights to India. Britian’s Virgin Group even hopes to buy a stake in an Indian carrier, although there exits no such provision from the government yet. With the advent of more competitors in the market, prices of tickets which once upon a time were the preserve of the elites in India are fast plummeting. This is far different from the 1970s and 1980s, when commuting even domestic was difficult and an expensive affair. Service was often awful and delays interminable. Air India and Indian Airlines held monopoly on local air travel and access to India by foreign airlines was tightly restricted. The 1990s witnessed a transformation that changed the domestic airline industry forever. The government lifted ban on private owned airlines and India saw the emergence of many small carriers but the ones that sailed the tough times are Jet Airways, Air Sahara and Air Deccan. With Jet Airways loosing market share over the past year to 37% from 42%, its acquisition of Air Sahara for $500 million is seen as a defensive move by industry observers. In his bid to regain market dominance, Naresh Goyal, chairman of the INR 44.2 billion, Jet Airways is also crafting a deal with low cost rival Air Deccan which in turn will give him a total market share of about 57%. Indian Airlines market share has fallen drastically since the transformation in 1990s to less than 40% [Businessworld- February 2006]. The prime concern marring this high expectations and growth are rundown aviation infrastructure and retrograde airport services. All aspects of airport services starting from runway maintenance to air traffic control and baggage handling needs mammoth upgrades to cope up with this escalating demand. The government of India has earmarked $3 billion to upgrade the country’s main gateway airports at Bombay and New Delhi which are crowded and chaotic beyond definition and $300 million to build new airports at Bangalore and Hyderabad [financial figures from Asian Wall Street Journal- March 2005]. Significant upgrades are also in the pipeline for more than a dozen smaller airports which in turn is a very good sign for the fast growing Indian low cost airline industry. “Every element of infrastructure for aviation in India is going to be stretched over the next three years.” The need is urgent, says McKinsey’s Mr. Zainulbhai. The world has great expectations from India at the moment and is anxiously waiting for further reforms to take place in the near future. Boeing estimates that sales of new aircrafts to India will be worth at least $35 billion over the next 20 years, making it the fastest growing aircraft market in the world after China. Binit Somaia of CAPA, a Sydney based consulting firm quoted- “The industry has been transformed completely.”
The Indian Aviation Industry - A Brief Introduction
How it alI started ...
India’s first air service was inaugurated in 1932 when J.R.D Tata landed on a mud flat land at Juhu in Bombay carrying mail from Karachi on a de Havilland Puss Moth. The planes initially used by Tata Airlines were too small to carry passengers on a regular basis and therefore focused more on regular mail service. In 1946 Tata Airlines became a joint stock company called Air India Ltd., providing domestic flights. Air India International, owned 49% by government and 25% by Tata’s, made its first maiden flight on June 8th, 1948 from Bombay to London via Cairo and Geneva using a Lockheed Super L-749 Constellation. On the domestic front, due to the availability of cheap DC-3s in the country after Second World War, 21 companies registered but only 11 were licensed to operate. Poor financial conditions instigated the government to nationalize the air transport industry. On August 1, 1953, Indian Airlines was formed by merging eight domestic airlines to operate domestic services while Air India International would operate international services. Eight erstwhile private airlines to be merged to form Indian Airlines Corporation are Deccan Airways, Bharat Airways, Air India, Himalayan Aviation, Kalinga Airlines, Indian National Airways, Air Services of India and Air- Services India. Nationalization opened a new chapter in the airline industry marked by fleet expansion and new routes. The Indian aviation industry entered the jet age with induction of Boeing 707 in 1960 by Air India.
India’s first air service was inaugurated in 1932 when J.R.D Tata landed on a mud flat land at Juhu in Bombay carrying mail from Karachi on a de Havilland Puss Moth. The planes initially used by Tata Airlines were too small to carry passengers on a regular basis and therefore focused more on regular mail service. In 1946 Tata Airlines became a joint stock company called Air India Ltd., providing domestic flights. Air India International, owned 49% by government and 25% by Tata’s, made its first maiden flight on June 8th, 1948 from Bombay to London via Cairo and Geneva using a Lockheed Super L-749 Constellation. On the domestic front, due to the availability of cheap DC-3s in the country after Second World War, 21 companies registered but only 11 were licensed to operate. Poor financial conditions instigated the government to nationalize the air transport industry. On August 1, 1953, Indian Airlines was formed by merging eight domestic airlines to operate domestic services while Air India International would operate international services. Eight erstwhile private airlines to be merged to form Indian Airlines Corporation are Deccan Airways, Bharat Airways, Air India, Himalayan Aviation, Kalinga Airlines, Indian National Airways, Air Services of India and Air- Services India. Nationalization opened a new chapter in the airline industry marked by fleet expansion and new routes. The Indian aviation industry entered the jet age with induction of Boeing 707 in 1960 by Air India.
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