Delhi Airport – A Success Or Just Another Scam?

Less than 2 weeks after Delhi’s Indira Gandhi International Airport instituted a tariff hike that made it the world’s most expensive airport, the Comptroller and Auditor General of India (CAG) has suggested in a report that the airport may be involved in a scam.

Delhi Terminal 3

The CAG suggested in its report that the government essentially gave away land worth ₹1.63 lakh crore (US$30 billion) to Delhi International Airport Limited (DIAL), a consortium of private partners GMR Group, Germany’s Fraport, and Malaysia Airports Holdings Bhd. along with Airports Authority of India, a Public Sector Undertaking. DIAL got almost 4800 acres of land on lease for ₹100 per annum for the next 60 years.

5% of this land (240 acres) is available to DIAL for commercial exploitation in accordance with the contract agreed with Airports Authority of India. Merrill Lynch, acting as a consultancy firm, worked out the land value as approximately ₹100 crore (US$18 million) per acre, meaning that DIAL was essentially given land worth ₹24,000 to use for commercial purposes.

According to DIAL itself, the earning capacity of this land over the next 58 years is over ₹675 crore (US$121 million) per acre, or ₹1.63 lakh crore (US$30 billion) overall.

Delhi Terminal 3

In addition to this ₹1.63 lakh crore, DIAL has also made Delhi the world’s most expensive airport, further crippling the Indian aviation industry during this tough time. Over 25% of the airport modernization is being paid for through Airport Development Fee (ADF) levy, more than the amount which DIAL contributed itself!

The fact that the government appears to have just given away $30 billion to benefit a private entity for no apparent reason screams of corruption. Hopefully the mainstream media will pick up on “DIALgate” soon, and bring this scam into public view.

Delhi’s Indira Gandhi International Airport To Become World’s Most Expensive

Indian aviation is facing a very tough time right now with high costs and low yields. This problem is going to get much worse when a massive fee hike at Delhi’s Indira Gandhi International Airport kicks in.

Delhi's State-of-the-art Terminal 3

Indira Gandhi International is operated by Delhi International Airport Limited (DIAL), a consortium of GMR Group, Airports Authority of India, Germany’s Fraport and Malaysia Airports Holdings Bhd. This group has done a great job improving the infrastructure at Indira Gandhi International. A 5-star, world-class terminal has been built for international and full service carriers. A third runway has been built. These improvements allow Air India (and other airlines of India) to truly run an efficient and effective hub in Delhi. In this difficult time for Indian aviation, these infrastructure improvements have been very beneficial to Indian carriers. These benefits will soon turn to burdens when Indira Gandhi International becomes the world’s most expensive airport next month.

Currently, airport charges at Delhi are roughly aligned with other major world airports. Converted to purchasing power parity rate, Delhi’s costs are roughly 50% higher than major hubs in the world. Considering that, one would expect DIAL to work at cutting costs to bring its market rates in line.

Terminal 3

Instead of a rational decision like cost cutting, DIAL proposed a 740% increase in fees that would make it the most expensive airport in the world. The Airport Economic Regulatory Authority (AERA) rejected this proposal, and instead has allowed a 346% increase, with the increase occurring in 2 stages. Even with this 346% increase, Delhi will have the world’s most expensive airport. This will add a $300 million cost to Indian carriers at a time when they are already facing a lot of trouble. Because this increase will force fares up, there is expected to be a demand drop of over 5%, which will damage the viability of many flights and reduce domestic and international connectivity to the airport.

Order 03/2012-13 of the AERA allows the 346% increase in charges and further increases in aeronautical charges, parking, fuel, and more. DIAL, which was looking for a larger increase, put out a statement:

Delhi International Airport (P) Limited (DIAL) welcomes the revision in aeronautical charges promulgated by AERA. However, considering that the charges were stagnant for the last decade (since 2001), the revision of charges is much below our expectations. Tariff calculations show that the approximate increase in ticket pricing on account of passenger fee per pax, for the year 2012-13, works out to INR 290 on an average for domestic and INR 580 on an average for international. Delhi airport will compare favourably to other major global airports where passenger fees range between $ 25(INR 1300) to $ 30 (INR 1560) on an average, thus making a very soft impact on the passengers.

The current aero tariffs levied in Delhi are amongst the lowest in the world. Considering additional investments done as per terms of the concession, including capacity building and new features factored in; the tariff hike effective 15th May 2012 is less than half of requested increase and therefore inadequate.

Fancy Artwork in Terminal 3

This statement is full of inaccuracies. Far from being one of the cheapest airlines in the world, Delhi is the most expensive. When you take into account UDF for departures (up to Rs 1086), UDF for arrivals (up to Rs 881.10), ADF (up to Rs 1300), and Passenger Service Fee (Rs 130), the total cost of Indira Gandhi International to International round-trip passengers is a whopping Rs 3977.10 ($75.69). This is over 10% of the average international roundtrip fare.

Compared to DIAL’s own figure of $25-$30 as a reasonable fee, it can clearly be seen that Delhi’s fees are very high.

It is clear that the continuing rate increases will hurt airlines, passengers, and the local economy. It shows the government’s lack of interest in developing the Indian aviation industry into the real driver of economic activity that it can be.

Boeing Delivers First Passenger 747-8i to Lufthansa

Lufthansa, a Star Alliance member, accepted its first 747-8 Intercontinental aircraft today, the first 747-8 to be used by a passenger airline. Registered D-ABYA, the aircraft is configured with 362 seats, with 262 in economy, 92 in business, and 8 first class. The 92 business class seats are Lufthansa’s new flatbed seats, which Cranky Flier reviewed a few days back.

The 747-8i is the newest variant of the iconic 747 series. It will deliver double-digit improvements in fuel burn and over 30% reduction in noise.

A delivery ceremony will take place on May 1st in Seattle celebrating the delivery of the first passenger 747-8. The aircraft will fly to Frankfurt following the ceremony.

The first 747-8i was delivered to Qatari royalty back in February.

Bhoja Air Grounded In Wake Of Crash

Pakistan’s aviation regulator, the CAA (Civil Aviation Authority), grounded Bhoja Air last night because it found Bhoja’s fleet to be not airworthy.

After the tragic crash of a Bhoja Air 737-200adv which claimed 127 lives last Friday in Islamabad, Pakistani authorities reacted quickly. All private airlines’ fleets were grounded pending airworthiness checks, which state-owned Pakistan International Airlines went through just a few months ago. During these checks, some of Bhoja Air’s aircraft were found to be poorly maintained, with objections raised about some safety systems on the aircraft. The airline will be able to return to operation after its fleet receives airworthiness certificates.

In addition to inspections, an investigation into the crash has began. The commission appointed by the government has become politically controversial, with opposing parties objecting. Allegations were made of the leading coalition trying to obstruct a transparent investigation.

Initial investigations suggest that the crash was probably due to a technical fault, although weather issues cannot be ruled out. Hopefully, more conclusions will be drawn soon, improving aviation safety both in Pakistan and worldwide.

India Aviation Airshow Hyderabad

Last week marked the 3rd India Aviation Airshow. Held biannually at Hyderabad’s Begumpet airport, this airshow is the largest in India. At the airshow, a lot of interesting and exciting things going on. AeroBlogger’s very own The Flying Engineer was there to cover the event.

Here are the posts that he wrote about the airshow:

Live From The Q400! – One of the aircraft on display at the airshow was Spicejet’s Bombardier Q400. The Flying Engineer takes a closer look at this fantastic aircraft.   Related Article: Why The ATR-72 is Selling Better Than The Bombardier Dash-8 Q400

Flying The Dassault Falcon 7X – The Flying Engineer is lucky enough to be able to take a flight in this business jet. This is a trip report.

Sukhoi Superjet – The Flying Engineer takes a look at the Sukhoi Superjet. The hopes of Russia’s commercial aircraft manufacturing industry lies with this modern regional jet.

The Phenomenon: Phenom 100 – The Flying Engineer takes a look at the luxurious Embraer private jet.

In Photos: The Boeing 787 “Lining The Dream” From Back to Front – Photos of Boeing’s newest masterpiece. The interiors of what will soon be Air India’s 787 are revealed.

The coverage is very good. Check it out!

Turkish Airlines Introduces New Special Livery

Turkish Airlines has introduced a new special livery. And I have to say, it looks really cool.

The jet prominently displays Turkish Airlines’ slogan “Globally Yours” across the fuselage. But what makes it really special is that paint scheme of the the entire aircraft is tiled pictures of airline staff.

It took 4 months to assemble the 18,000 pictures that are on this 737-800. But those 4 months were completely worth it. This plane gives Turkish Airlines’ staff a sense of unity and belonging. It will go a long way to improving morale. And for customers, it just looks cool.

Pakistan International Airlines Recieves Warning From EU

The aviation market here in India is a bit of a mess. 5 out of 6 carriers are losing money. Every day seems to be yet another day of “staff payments delayed” or “tax department freezes bank accounts.” So in order to keep spirits up, it’s always fun to go and look at the airlines that our neighbors have. After reading about them, we can think “Maybe we aren’t so bad after all…”

Bangladesh and Pakistan both have aviation sectors that are in much worse shape than India. Bangladesh is pretty much the domain of Biman Bangladesh Airlines, an airline which is in pretty horrible shape. Pakistan isn’t in much better shape. Pakistan International Airlines is also in shambles. Like the airlines of India, it has also been harshly affected by the Gulf Carrier’s rise. And like the airlines of India, it has also suffered from serious mismanagement. Except for the fact that the mismanagement is to a much worse degree.

The big news of yesterday was that the EU decertified the maintenance certification of Pakistan International Airlines. It also issued a notice to their regulator, the Civil Aviation Authority warning them that if maintenance standards are not improved soon, the country will be blacklisted. That would mean that PIA would have to stop all operations in EU countries. That would be a significant hit to PIA, which is already in poor shape.

This is nothing new. Back in 2007, PIA’s ancient A310s and B747s were banned from EU airspace, citing safety concerns. That left only PIA’s relatively new fleet of 777s to operate to Europe.

What I found most interesting is the comments that a PIA spokesman gave:

When contacted, a PIA spokesman Tahir Khalique rejected the reports of decertification, saying the airline had not received any letter on the subject, as only a verbal warning was issued to the CAA.
The EU warning was motivated the PIA’s plan to purchase B-777 from the Boeing Company, while the EU-based Airbus wanted to pressurise the airline through EU to consider its aircraft as well, he added.
He said negotiations were also underway to purchase five Airbuses, which would end the pressure game automatically, he concluded.

This is absolutely hilarious. Here we have an airline with a maintenance problem, and instead of using their limited funds to fix the problem, they are considering buying Airbii. Stupidity to a point which I wouldn’t even expect from the government of India!

It will be interesting to see what happens in the future. It certainly would be interesting, to say the least, if PIA got banned from the EU. It would be yet another reflection of what a mess Pakistan is. And it also is a reflection of the fact that we Indians didn’t do so bad after all…

Pacific Royale Airways: Indonesia’s Next Full Service Carrier

Garuda Indonesia will soon have some new competition in the form of Pacific Royale Airways when the new carrier begins service next month. The airline will begin with a fleet of 2 Airbus A320s and 2 Fokker 50s, with Airbus A330s to be introduced later on. The airline will be competing with Garuda for marketshare in the full service carrier segment of the market. Indonesia, which has very low (<10%) domestic low cost carrier penetration, has reasonably high yields. Geographically, the country is on an archipelago, meaning that air travel is necessary to carry people around the country. This means that Indonesia is a massive market, which is willing to pay extra for a good product. That is the market that Pacific Royale plans to serve.

Pacific Royale will be partnering with Lumexis to bring top class FITS in-flight entertainment technology to its passengers on its A320 aircraft. This lightweight fiber-optic technology is of the most modern technologies out there. It will keep costs low while providing passengers top-quality entertainment.

The carrier plans to grow rapidly to over 20 A320s within the next few years, connecting major Indonesian cities using multiple focus cities. The carrier will also base their Fokker 50 turboprop aircraft at these focus cities, using feed from smaller markets to feed jet services. The carrier also plans to serve regional international destinations soon using A320s, and later on A330s. The carrier is also considering using A330s for longer international routes.

Pacific Royale plans to grow their Fokker 50 fleet to 5 within the first year. This is because Indonesian regulations require that all airlines operate 10 aircraft and own at least 5 within the first year of operations. Fokker 50s, which are relatively cheap to obtain, will allow Pacific Royale to meet this requirement.

Asked why Pacific Royale will be successful, Chairman Tarun Trikha said, “[Pacific Royale will be] a modern airline which brings together a full service experience combined with friendly technology and advanced entertainment. And at a pricing that’s affordable; giving right value for money to customers.”

If Pacific Royale is able to turn this vision into reality, it has the potential to be an incredibly successful airline. Indonesia has a market which is growing very quickly. Additionally, the market has very low LCC penetration, with only the Lion Air Group having a major presence in Indonesia. That means that passengers expect and are willing to pay for a full service carrier, even on shorthaul services.

While Indonesia is a major growth market, Pacific Royale won’t have it easy. The airline will face significant competition from Garuda Indonesia, the airline which currently occupies the top end of the market. While the airline does not have the best reputation, it has been improving a lot in recent years. The flag carrier is investing in a major fleet renewal plan, and it has been upgrading its inflight product as well. The airline will be joining SkyTeam early next year, which will also give it an advantage.

In addition to competition from Garuda at the top end of the market, Pacific Royale will be facing Lion Air, another major competitor. Lion Air made major waves in aviation industry circles recently when it ordered 230 Boeing aircraft. It is clear that Lion Air is committed to expansion in the Indonesian market.

Between Lion Air and Garuda, Pacific Royale has some formidable competitors. However, if the airline manages to identify profitable niches and stay away from competition, it has the potential to do very very well.

Why The ATR-72 Is Outselling The Bombardier Q400

An ATR 72-600; Source: ATR

A couple weeks ago, ATR announced its sales total for 2011. It’s order backlog outstrips that of its competitor, Bombardier, by a very very large margin. This post will shed some light on why ATR turboprops have been so successful, while Bombardier has been struggling.

To any passenger, the Bombardier Dash-8 Q400 appears sleeker, faster, and generally better. Bombardier boasts off an amazing plane that can perform much like a jet, flying faster and higher than the ATR 72-500 or -600, while carrying more passengers. What Bombardier doesn’t acknowledge is that the fuel consumption of the Q400 is around 30% higher than the ATR72’s, for the same flight. Despite the fact that the Q400 can pack in 6 passengers more than its competition at a comfortable 30″ seat pitch, and theoretically fly an extra 300Nm flight in a day, the economics still work in favor of the ATR72. In addition, the ATR72-600 has a much smaller price tag than the Q400, by at least US$7Million. In the airline business, it all comes down to the dollar.

The only real market that has embraced the Q400 is North America. Longer routes that the Q400 replaces with jets makes sense. But in the rest of the world, regional routes are truly regional, and the job is well done by the ATR72, be it the -500 or the -600. This has led to a larger number of ATR72 aircraft in operation, which has an important effect: a higher resale value. A used ATR72 can fetch much more than a similarly used Q400, all because the demand-supply economics work in its favor.

ATR is stretching its production limits on the ATR72, while Bombardier is going the other way with the Q400. The problem with Bombardier is more with the manufacturer than the aircraft itself. Bombardier’s focus is divided amongst its various aircraft, some competing with each other. For example, Bombardier’s turbofan CRJ700 is in the same league as the Q400, except for the engines. And the Q400 is marketed as a jet replacement, effectively killing the CRJ700. This internal product conflict can be very detrimental to sales and marketing efforts.

A Bombardier Dash-8 Q400 in Spicejet Colors; Source: Bombardier

To a passenger, a turboprop is simply a prop. The noise levels in the ATR72 aren’t any much higher than the Q400 with its ANVS system. A short hop on a noisy plane is more bearable than a longer, so deploying a turboprop on a sector longer than 500NM is plain torture. For a typical regional sector flying distance of about 300NM, the ATR72 picks up a maximum of 13 minutes over the Q400, which hardly makes a difference. To the well informed passenger, the Q400’s safety comes under question, after the spate of landing gear incidents that the aircraft suffered.

To an airline, 5 ATR72s can be bought in the price of 4 Q400s, and still a good amount can be saved. This gives 360 seats for the ATR operator as compared to 312 seats for the Q400 operator. On top of this, the ATR72 consumes much lesser fuel, which can translate to savings. Typical operations on the 300NM sector reveal the ATR having only a 7 minute disadvantage in exchange for about 300kgs of fuel savings. Three ATR72s will save 900kgs of fuel over three Q400 flights, sufficient to fuel another ATR72 over 300NM. The ATR72 breaks even at around 35% load factor, while for the Q400 it is a much higher 60%. The ATR72 makes absolute and undisputed economic sense.

To a manufacturer, the ability to focus on one single product makes all the difference in winning a customer. You can’t expect to sell a jet and then introduce a product that kills the very jet you sold.

ATR’s focus on its turboprop-only product line, its offering of the most economical 70-80 seat airplane, its large geographical footprint, and its proven safety record have all contributed to the success of the now world’s best selling regional turboprop.

Finnair Crew Dance For Republic Day

Happy Republic Day to all the Indians out there!

To celebrate, a group of Finnair cabin crew danced to “Om Shanti Om” aboard Finnair’s flight to Delhi before the flight took off.

Ms. Helena Kaartinen, the crew-member of Finnair who coordinated this event, explained how it happened on the Finnair Blog.

This is great marketing, which will likely give Finnair free advertising airtime in India, and endear itself to its Indian customers.