Playing all sides

 

How some domestic Airlines have used their dominant presence at an important Gateway Airport to align across the board. And why must it make sense

An incredible number of International Airlines (more than a dozen), all over the world, chose to join one of the 3 large alliance groups (Star, One world and Skyteam) over the last 2-3 years. Analysts differ in exactly what has precipitated this sudden change, in a kind of second wave (the first wave was when mega carriers formed alliances) of relatively smaller carriers rushing to join a global alliance- some may have used the opportunity available due to the loosening of the anti-trust laws but most were motivated by the imminent threat from the Middle East and the desire to protect their businesses in the face of this onslaught.

However, there is also another distinct pattern emerging, either as a reaction to increased grouping of carriers or just driven by individual business model of the carrier in question. More than one carrier now uses it or a variation of it as a calculated response, an anti-strategy, to further their business interests.

Let us start with the Americas. Take Jetblue. Based out of JFK, it made a conscious decision to depart from the establish stand alone 'LCC with a good product model' to code share with International carriers. Towards this end, it underwent, what some would regard as considerable risk of changing its existing Navitaire passenger reservation system to Sabre that allowed greater flexibility in code-sharing.  Let's look at the list of International carriers that it code shares with: Lufthansa, Emirates, South African Airways, El AL, TAM & LAN. I understand they are also pretty close to signing a code share deal with Jet Airways, India. So there is no selection of carriers from any particular global Alliance. Why would it make sense for Jetblue to do so? The answer perhaps lies in Jetblue's location: It has the largest presence at the JFK Airport. JFK still is the largest gateway Airport for many non-US Airlines irrespective of the Alliance they may be part of and serves a very important catchment area that cannot be effectively served from Newark. So despite, Continental's dominant presence in Newark and it being a member of Star Alliance, a presence is required at JFK.  While Jetblue's bread and butter is in US domestic operations, it does not hurt to get International feed onto the domestic network, if it comes as a by-product of being in the dominant carrier position in the most important gateway Airport of the country. Therefore it makes perfect sense to accept feed from whichever International source it comes from, without having to chose one alliance over the other and restrict your options.

West Jet, the second largest carrier in Canada after Air Canada, does the same- using its presence at Toronto, it code shares with the likes of Emirates, KLM, Cathay and American, as it prepares to enter even more code shares.  

Take GOL, the Brazilian carrier based out of Sao Paulo. Exactly the same story with the only difference being, TAM, is the dominant carrier. But it is part of Star Alliance. Sao Paulo is the most important gateway Airport for International traffic into South America. GOL realizes that in absence of any other alternate carrier, which forms part of the other alliances such as Sky team or one –world, it can use its sizable although not dominant presence, at the Sao Paulo Airport to collect/distribute International feed. GOL therefore code shares with Delta, KLM and a number of other European carriers.

Elsewhere in the world, there are more examples- Virgin Australia, primarily an Australian domestic carrier based out of Melbourne, has recently announced its code share and partnership with Singapore Airline, a Star Alliance member to serve Asia, while in a code share agreement with Delta, a Sky team member to serve the US market.  Its chief competitor Qantas is of course a one-world member.

So the jist of the matter is this: If a carriers' primary business is domestic in a vast country like US, Canada, Brazil, Australia etc., but it happens to have a large presence at an important gateway Airport city that has a lot of international traffic, it does no harm to accept high yield code share traffic from International carriers. Additionally, at least 2 of the carriers mentioned above already had a hybrid model, with a better in flight product, & fewer seats than a typical LCC has. This helps in aligning passengers traveling on the full service international leg with the domestic product.  

So, the question is, which carrier/s in India or China, other than those that are already part of a major alliance or planning to become one soon, could take this route and use it as a strategy? I know one carrier, but I am not going to name it.   

Good Reads- 2011

 

 Just a short synopsis of what comprised my reading this year. When I compare my list of intended reading to what was in fact read just as the year is coming to a close, it is no doubt full of surprises.  So, while the intended list was meant to comprise more and more on Africa and its history, the actual list ended up looking like this:

1.     59 Seconds- Psychology is a popular subject now- more and more books are being written on consumer psychology and other related areas. 59 Seconds was gifted to me by a friend while we were still holidaying at Clarens, a lovely little hill town in Drakensberg. An old lady runs a smallish bookshop with an above average collection at this town of may be 5000 people. The book overturns some conventionally held psychological beliefs such as  "..Imagining being thin.." and talks about some effective measures one could take, based on real research, to improve one's life. I got through it, but can't say how much I am convinced with its conclusions.

2.     Jetlag -SAA in Andrews Era – Written by Dennis Beckett, A South African Journalist, this just came my way in the local Bedford view community library. For someone working at SAA, this can and did elaborate on a very important period in SAA's history giving insights into what has happened in the past and how it affects the future.

3.     Cry the beloved Country- This needs no introduction. I saw a glimpse of the movie based on the book on TV one night and instantly decided that I wanted to read the book- it has to be the first novel I ever read (Ok, second. The first one was Memoirs of a Geisha). One could almost imagine how life must have been during the apartheid era.

4.     India Yatra- Sometimes a book just mysteriously comes your way. India Yatra is a collection of short essays of local issues that fare in an election in India. If you think you know India, or can ever know or understand it fully, read the book and the illusion will wear off.

5.     Deciding who leads- What was I thinking? Corporate bull. I forgive myself, everyone makes mistakes.

6.     Diagnosis- Tanvi was born. Our world would never be the same. Diagnosis is a good peep into the medical world. How we expect that doctors will be perfect, they will never make any mistakes. The book tells the reader how doctors are still human beings and how diagnosis of a disease is still the most difficult part.

7.     Dubai- This book, which I picked up from the local book shop explained a great deal about Dubai's history- that helps explains its rise. Dubai= no rules.

8.     The case of exploding mangoes- This is a book about Pakistan's ex-dictator's assassination by CIA. While the book is written as fiction, but its plot seems so real.

9.     The Seychelles Affair- Picked from the local library, this is a story of a coup attempt by a South Africa based mercenary soldier on the communist leaning Seychelles government in 1978. If you think about the events today, with a recent invitation to China to set-up a Naval base in this Indian Ocean Island, the story is not just relevant, it seems it could be just as easily written today. Nothing has changed in geo-politics except the state actors. Yesterday it was USSR, today it is China.

10.            Better-   Atul Gawande is a great writer. This book, like diagnosis, is a peep into the medical world, explaining how hospitals and doctors work.

11.            Chile- Death in the South- Every country has had to go through a dark chapter. Chile had its own under General Pinochet. The book describes how people were brutally tortured and murdered during his reign and why it happened. It gives one an insight into Chile's political past.

12.            Fly by Wire- Finally, a book on Aviation. And a great read on the US Airways incident of landing into the Hudson River due to a bird hit.  Great insights into what goes in the cockpit. Can't wait for the Qantas A380 engine failure event to be written into a book.

13.            Following Fish - This book submerged me, gently into slow nostalgia. It is a travelogue along India's coast, starting from West Bengal and ending in Gujarat. Almost written like RK Narayan would have written it.  Simple, elegant, touching on day to day rhythm of life in great detail. I felt I am reading RK Narayan's own travelogue called The Emerald Route.  

14.            Super Freakonomics-  A sequel to the first best seller by Steven Levitt, it started with great promise into examining economics behind every day behaviors of people and patterns but then fizzled out towards the end. I had to make an effort to complete it.

15.            Inflight Science- Finally, the last book of the year too was on Aviation. Great for explaining concepts of physics to a school going child. 

Kingfisher Airlines- A clean sheet approach

 

 

Much has been said and written about Kingfisher Airlines in the recent press articles. No doubt that Kingfisher squandered, in fact spectacularly squandered a perfect opportunity to become India's premier airline, it is not the intention of this article to add to the already ubiquitous post-mortems of the company. Instead the approach is to see if Kingfisher were to play a second innings, a sort of re-birth, a resurrection with a clean sheet, what would be the opportunities. In a sense, this article starts off, where the previous article on Bangalore Airport ended.

Let us go back to mid-2005, when Kingfisher launched its operations. The original intention of the company was to base its operations at Bangalore, the Holding company- UB groups' Headquarters. This could not be accomplished as HAL was absolutely full with no parking bays to spare and little incentive to entertain more requests for civil operations. The new Bangalore Airport mired in controversy and with its scheduled opening then 3 years away in April 2008, Kingfisher decided to move its Airline head office to Mumbai. However, it continued to nourish ambitions of flying International routes out of Bangalore, including its bizarre, flashy plan to connect India's silicon valley to America's which meant starting a 19 plus hour flight between Bangalore to San Francisco route. A model replica of the aircraft was even erected at the entrance to the Bangalore's new Airport in 2008. There was just one small problem- A340-500 bought for the job, 5 of them infact, could not have accomplished this without payload restrictions, multiple flight deck crews, filing special DGCA exemption for the ULR status of the flight and several other problematic issues. Technically, the aircraft has an endurance that extends well beyond 20 hours, but any commercially oriented airline inherently knows that flying that long most definitely is beyond the profitable range of a commercial flight, as far too many cheaper options are available. Kingfisher only had to look at the experience of Singapore Airline and Emirates with the A340-500 (publicly available information) but the decision was made.

But I digress from the main point. Let us assume if Kingfisher was start again today, with a clean sheet, no wide body aircraft on order other than the A330-200's already in possession. Would starting off at Bangalore be a good idea? Statistics seem to suggest so. Kingfisher continued to be the largest domestic carrier out of Bangalore (beating Jet & Jetlite combined), just before the major downsizing of last 2 months. More Kingfisher ATR's were deployed at Bangalore than at any other station in the country, until Bangalore Airport failed to provide more capacity and parking bays forcing Kingfisher to deploy aircraft elsewhere. Bangalore provided and continues to provide a perfect opportunity to build an ATR based hub with opportunities to tap into the major North-South traffic flows and secondary South to West and South to East flows. With an ATR's effective range of about 300 nm, almost all South Indian cities in the states of Tamil Nadu, Kerala Karnataka and parts of Andhra Pradesh are within the payload-range an ATR had to offer. What is more, many of these routes were dense enough to be self sufficient by themselves and even allowed use of larger aircraft. This however, proved to be counter-productive, as the airline planners never felt the need to build a hub structure, or were discouraged by the availability of capacity and slots. In addition, many Airline planners tend to get too taken by utilization statistics of the aircraft, instead of looking at profitable utilization. Whatever the constraints may have been, the fact is that lack of effort in building a structured hub bank flight schedule led to a situation where slowly as lower cost competition emerged willing to aggressively flood the market with capacity (such as Indigo), stand alone routes were no more profitable. Kingfisher could have concentrated on building a hub structure at Bangalore instead of being over-ambitious in trying to conquer all markets, including the international ones. It failed to realize that there are ATR markets that are naturally protected as their Airports could not take the code C aircraft LCC's like Indigo were operating.

I believe this can still be done (ignoring of course the mess that is the accumulated debts and fleet on order etc. As I said, following a clean sheet approach). Kingfisher has to bring clarity to its thought process- a better product it has enjoyed right from the beginning. If it could rebuild its network, offering an advantage over its competitors through a true Hub network structure and its alliance membership, it can sustain itself profitably. It also has to learn to pick & chose opportunities and let others be sacrificed to compete selectively rather than be everywhere. Just like Spice jet has used the Q400's out of Hyderabad (with typically twice the range of ATR's) to connect major South and Central Indian cities, Kingfisher could replicate it with its own ATR hub out of Bangalore with 2-3 distinct advantages- denser routes ,better fuel efficiency and shorter distances.    

On the international side too, as the market grows, Kingfisher could use its A332 to operate flights to London (& Hong Kong) as it did before. (More so now, with BA's feed available. BA too, could use a second bank evening departure out of Bangalore). You may notice that multiple European carriers including the smaller ones like KL, Swiss, Austrian and Finnair (other than the 3 large ones- LH, BA and AF-KL) fly to Mumbai and Delhi. However, carriers such as Finnair (and even JL) could easily consider Bangalore in future if there was a large enough feed available from a local partner such as Kingfisher collecting and disseminating traffic from all over South India. Currently, Kingfisher does provide this feed to Finnair out of Delhi. As an example, Nokia runs the largest cell phone manufacturing plant at Chennai that generates demand for travel and cargo. Similarly, Toyota's plant at Bangalore has continued to grow. Similarly, many seasoned travelers would seek to avoid the mega hubs of Frankfurt or Paris, preferring to transfer through quieter, more efficient Europeans transfer hubs such as Finnair's Helsinki hub.    

There are other big advantages for Kingfisher in operating out of Bangalore- Young MBA analysts are taught to do PEST Analysis and from that point of view, there is no other place than the state of Karnataka, where Dr. Mallya has greater political clout. Infact, he is an independent Member of Parliament from Karnataka. Therefore, politically for UB, no city even comes close to Bangalore. Economically, no market has beaten Bangalore for the last 5-8 years with over 40% growth in traffic recorded in multiple years. That Bangalore is UB's headquarter means complete synchronization between the administrative functioning of UB and its fully owned subsidiary Kingfisher (which is mostly amiss) and  convenience and coordination of office space (Kingfisher is currently talking of selling its high cost Mumbai office real estate).

Too late now – A good opportunity is lost. Forever. 

Bangalore- Gateway to South India?

Bangalore International Airport (BIA) has, in many of its promotional campaigns and adverts claimed it is the "Gateway to South India".  Let us verify that claim. An Airport can truly claim to be a gateway to South India, if it provides connectivity to more South Indian cities than its immediate competitors- In Bangalore's case, these are Hyderabad and Chennai and Kochi to a lesser extent. Bangalore's claim rings hollow, as it only connects 13 destinations (counting Chennai & Hyderabad) and in these terms is no better than Hyderabad and Chennai who connect 13 and 12 destinations each, respectively. 3 of the 13 destinations are infact 1-stop flights either via Hyderabad or via Kochi. The only 2 unique destinations (over HYD and MAA) from Bangalore are Agatti (which is a one-stop destination via Kochi and in danger of being withdrawn as it is operated by Kingfisher which is in financial doldrums) and Calicut.

Hyderabad has continued to focus on domestic connections and develop itself into a domestic hub with capacity to spare as an Airport that can effectively connect East to West traffic flows, South to North flows, South to West traffic flows to cities like Baroda, Ahmadabad and Aurangabad, as well as South to Central India traffic flows by taking advantage of capacity constraints of current Mumbai Airport.

Bangalore, on the other hand failed to do so, because it has lagged behind in developing capacity. A key to developing air services is to have developed Airport capacity in advanced, allowing time for Airline planners to plan induction of new aircraft and the resources that go into launching new routes.

On the International side, historically, bilateral agreements have left out Bangalore (and Hyderabad) as these were never planned as International Airports whereas Chennai was included in most of them, as the Southern Gateway city as part of the 4 gateway cities to India, the others being Delhi, Mumbai and Kolkata. Given the slow pace of change in anything related to the government, this is a clear disadvantage in developing air services to either of these new Airports. Meanwhile, the situation is likely to get worse, as the development of the new Airport in Chennai and the second Airport at Navi Mumbai would take away reasons for Airlines to consider Bangalore as a 'gateway' city.

Bangalore has a large established market to North America with relatively higher yields (compare to Chennai and Hyderabad which have a higher percentage of VFR market pulling yields down). Hyderabad could not sustain many newly launched International services such as KLM, BA and Lufthansa. Despite this, unfortunately, for Bangalore, it lies just outside the operational range of the B 777-200LR/A340-500 Aircraft that is the only aircraft that can be considered for non-stops flight to US Gateway cities. At 17 plus hours, New York- Mumbai is already at the very edge of the available range that the aircraft offers with standard payloads and even when it is operationally feasible to operate this non-stop service, profitable operations is a far-fetched goal. Non-stop operations require a premium on fares being charged (fewer seats being flown longer, no cargo). Generally said, India is a low fare, high volume market. Even on regular mid-haul, via large hub flights, it is difficult to break even, leave alone breaking even on non-stops. What is more is that the customer does not find value in paying a premium for a non-stop, where a dozen other cheaper options are available without much sacrifice on elapsed time. Notwithstanding Kingfisher's immature, laughable belief in 2008 that it can use an A340-500 to connect Bangalore to San Francisco, realistically US market from Bangalore can only be addressed through a one-stop service either through Europe, or via Middle East or Far East.  This explains why European (and now Middle Eastern carriers) thrive at Bangalore (BA and Lufthansa both come in with a 744) and no US or Indian carrier has ever succeeded flying to/from Bangalore. The remaining traffic is carried to the US West coast via the Pacific and on Asian carriers like Singapore Airlines and Thai.

Some believe Bangalore's geography can be used to participate in the vast Australia-Europe market. This would have been an opportunity 40 years back. Today, with at least 7 major hubs and their respective airlines competing for that traffic, Bangalore's chances (with or without a hub carrier) are non-existent and delusional.    

All of the above factors, limits options for an Indian carrier to develop Bangalore as an International Hub. Not just this, the self sufficiency European & some Asian carriers to use Bangalore as a destination on their network, without needing any supporting feed/defeed from a local carrier, hinders the development of a domestic feeder carrier. So what really are the options Bangalore has?