India airlines spread their wings to escape airfare war at home

Indian airlines including IndiGo are in talks to buy or lease widebody aircraft as they firm up international growth plans to boost profitability. (AFP)
Updated 13 June 2018
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India airlines spread their wings to escape airfare war at home

  • India is one of the cheapest domestic airline markets in the world, with an average fare of 13 cents per kilometer flown
  • The Indian government last month failed to attract a single bidder by the deadline for its 76 percent stake sale in the loss-making national carrier Air India

NEW DELHI/SINGAPORE: Indian airlines are turning to the international market in search of better returns as the intensifying fight for a bigger share of the world’s fastest growing domestic market — where price is king — drives down profits.
While global airlines’ profits have been strong since 2015 — though with wide regional variations — Indian carriers are struggling to remain profitable, despite filling nearly 90 percent of their seats and benefiting from a more than doubling of domestic passenger numbers over the last four years.
“It is an incredibly tough domestic market, very price sensitive,” said Stephen Barnes, chief financial officer of Singapore Airlines, which operates an Indian carrier, Vistara, in a joint venture with the Tata Group.
“Commanding a premium for a premium product is hard to do. From our perspective we invested in order to see the business grow internationally. If you look at the results of Indian airlines their performance is better internationally.”
Promotions such as $50 one-way tickets on the two-hour flight from Mumbai to Delhi are easy to find and, with airlines expected to take delivery of more than 500 aircraft over the next five years, pressure on fares and profits is increasing.
India is one of the cheapest domestic airline markets in the world, with an average fare of 13 cents per kilometer flown, according to data from travel firm Rome2Rio, less than half the 27 cents per km average in China and the United States.
Airlines including Vistara, SpiceJet Ltd. and InterGlobe Aviation Ltd’s IndiGo are in talks to buy or lease widebody aircraft as they firm up international growth plans to boost profitability.
There is huge potential for international travel from India, where the domestic aviation market has grown about 20 percent annually in recent years.
Only 0.3 percent of the 1.3 billion population currently travel abroad for a holiday every year, a fraction of the estimated 100 million Indians who could potentially afford to do so, according to an analysis of household income by aviation consultancy, CAPA.
The international market is dominated by foreign carriers but the market share of Indian airlines including Air India and Jet Airways has been climbing, helped by policies that limit access by foreign carriers, and reached about 38 percent in 2017, up from 31 percent a decade earlier.
Foreign airlines such as Emirates and Hong Kong’s Cathay Pacific Airways have reached the limit of flights into India allowed under bilateral agreements and New Delhi has not extended additional rights, creating an opening for domestic carriers to grow, said Binit Somaia, director for South Asia at CAPA.
“Demand is there, income levels are rising and people want to travel internationally,” he said.
Jet Airways is considering launching new flights from Mumbai to Sydney, two sources with knowledge of the matter said, while Vistara is planning to order six Boeing Co. 787 aircraft and will expand its narrowbody fleet of Airbus A320neos as it starts international flights, sources have said.
A Jet Airways spokesman said the airline “continuously reviews its fleet and network plan ... to realize greater synergy with its business strategy.”
In the domestic market, which provides crucial connections for international flights, airlines have been jockeying for position at a time when one-time leader Air India has been losing market share to rivals with far lower costs, such as IndiGo.
The Indian government last month failed to attract a single bidder by the deadline for its 76 percent stake sale in the loss-making national carrier.
Revenue per available seat kilometer, a measure combining airfares and seats filled, has been falling at Indian airlines due to stiff competition at a time when the oil price has risen nearly 50 percent in the last year.
IndiGo last month reported a steep fall in quarterly profit due to higher fuel prices and continued pressure on yields, a proxy for airfares.
IndiGo has lifted the proportion of its capacity dedicated to international flights to 15 percent, from 11 percent, in the last year and is seeking regulatory approvals needed to operate long-haul flights, Rahul Bhatia, the company’s chairman, said during an analyst call.
SpiceJet is the only listed Indian airline to post a profit for the last 13 quarters consecutively.
Analysts say it has achieved this by maximizing its aircraft utilization and also flying less competitive routes where it can have a better control over fares, helping protect yields.
Even so, it plans to expand its international flights as it starts taking delivery of its Boeing 737 MAX aircraft from August. The planes, which have a range of six hours and can reach destinations such as Singapore, Hong Kong and Bangkok, will mainly be deployed on international routes.
Infrastructure constraints at major Indian airports like Mumbai and Delhi, where daytime slots are hard to get, also make going international a better option as airlines can utilize night-time slots, a SpiceJet official said.
“International is the only way out,” the official said.


UK’s Quercus pulls plug on $570 mln Iran solar plant as sanctions bite

Updated 14 August 2018
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UK’s Quercus pulls plug on $570 mln Iran solar plant as sanctions bite

  • Quercus said it will halt the construction of a 500 million euro ($570 million) solar power plant in Iran
  • Iran has been trying to increase the share of renewable-produced electricity in its energy mix

OSLO: A British renewable energy investor Quercus said it will halt the construction of a 500 million euro ($570 million) solar power plant in Iran due to recently imposed US sanctions on Tehran.
The solar plant in Iran would have been the first renewable energy investment outside Europe by Quercus and the world’s sixth largest, with a 600 megawatt (MW) capacity.
Iran has been trying to increase the share of renewable-produced electricity in its energy mix, partly due to air pollution and to meet international commitments, hoping to have about 5 gigawatt in renewables installed by 2022.
In June, before the US-imposed sanctions, more than 250 companies had signed agreements to add and sell power from about 4 gigawatt of new renewables in the country, which has only 602 MW installed, Iranian energy ministry data showed.
Washington reimposed sanctions last week after pulling out of a 2015 international deal aimed at curbing Iran’s nuclear program in return for an easing of economic sanctions.
US president Donald Trump has also threatened to penalize companies that continue to operate in Iran, which led banks and many companies around the world to scale back their dealings with Tehran.
“Following the US sanctions on Iran, we have decided to cease all activities in the country, including our 600 MW project. We will continue to monitor the situation closely,” Quercus chief executive Diego Biasi said in an email on Tuesday.
The firm will continue to monitor the situation closely, said Biasi, who declined to comment further.
Last year Quercus said it would set up a project company and sell shares via a private placement after attracting interest from private and institutional investors, including sovereign wealth funds.
Construction was expected to take three years, with each 100 MW standalone lot becoming operational and connecting to the grid every six months.

SANCTIONS BITE
Independently-owned Quercus has a portfolio of around 28 renewable energy plants and 235 MW of installed capacity.
The firm, founded by Biasi and Simone Borla in 2010, controls five investment funds and has a network of “highly regarded external partners,” it says on its website.
The 600 MW plant it aimed to construct in Iran would be the firm’s largest investment. Quercus declined to comment on the details of its decision to cease the plan and on any financial losses that could result from it.
Fearing the consequences of the US embargo, a string of European companies have recently announced they would scale back their business in Iran.
On Tuesday, German engineering group Bilfinger, said it did not plan to sign any new business in the country, while automotive supplier Duerr on Aug. 11 said it had halted activities in Iran.
Another project, planned by Norway’s Saga Energy, which said last October it aimed to build 2 GW of new solar energy capacity in Iran and to start construction by the end of 2018, has also stalled.
Saga Energy’s chief of operations Rune Haaland told Reuters it was still working on getting the funding, which is more complicated since recent developments, and although it aimed to push on with its plans, construction could be delayed. ($1 = 0.8773 euros)