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dtw2hyd wrote:One cannot run a 4% at best margin business by borrowing at 15%.
CaliguyNYC wrote:
UGH I think Indian aviation people are the only ones that don’t I understand why strong hubs are important.
Snip
Why fly P2P flights outside of their hubs and focus cities if they lose money? Makes no sense.
vadodara wrote:hohd wrote:One of the prime culprits for Jet's woes is Indigo. Indigo's rapid expansion (and many times capacity dumping) in domestic Indian sector and also to nearby countries caused Jet to take losses.
Hmm, yes but no. Jet's hub-n-spoke model to funnel pax thru BOM/DEL worked so long as AI was the only competitor. Indigo's success certainly proves that pax wanted a more direct connection, i.e. point-2-point as opposed to 'premium service'. Team Goyal as been a bit slow to get that.
Even worse, operationally, Jet seems rather incapable to mount effective competition.
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CaliguyNYC wrote:How can Delta buy more than 49% as a foreigner?
unrave wrote:Manisha Singhal reports in the Financial Express that Delta has expressed interest in acquiring both Goyal's 51% and Etihad's 24% stakes
https://www.financialexpress.com/indust ... 9/1366047/
I doubt if this is possible. Indian FDI regulations permit a maximum of 49% shareholding by foreign carriers. Given that Etihad already owns 24%, the maximum room left for acquisition in 25%. But there is catch - once 25% of a company is acquired the takeover code kicks in, which means the acquirer has to extend an open offer to other shareholders as well, contravening the FDI limit. What all this means is that Delta could at best acquire 24% of Jet and NG would continue to be the largest shareholder. Not happening.
Update: She has replied on twitter that the deal could be structured to meet the regulatory requirements.
dtw2hyd wrote:There are only two ways to run a 4%(General consensus) margin business borrowing at 15% (Indian PSB rate on working capital). 11% is the difference.
Accumulate 11% compounded losses (or) have a source who is ready to take 11% cut as laundry surcharge on their investments.
India has two airlines in the first category namely AI and 9W.
VTORD wrote:Do you think Manisha Singhal is a good aviation journalist? I know A.net is split over the bloggers "doing hatchet jobs" and desi journos have stellar reputation on this forum but haven't really followed her that much so just curious.
CaliguyNYC wrote:vadodara wrote:klakzky123 wrote:
I think the KL/DL partnership is probably the reason why 9W is even half-alive at this point. Domestic ops are a huge cash sink at this point and European flights seem to be the only thing working. The Brussels hub was a money loser so at least they seem to be doing ok on European ops now. To your point, if this partnership had been launched earlier, the airline might be on better footing.
But the current relationship seems very one sided. DL, AF, KL and VS are getting the primary benefit. Yes 9W can sell some segments in Europe and the US but I'm honestly not sure how many of those they are even selling while DL/AF/KL/VS are gaining a competitive network in India which they've been lacking relative to UA/LH and AA/BA.
Well for 9W to make it 'more even', it needs to imitate what DL is doing. DL initially added flights from DL hubs to AMS. It now has added flights from other 'non-hub' large cities. 9W was rather busy building 'BOM' hub. It should have instead added AMS or CDG or LHR flights from likes of MAA/BLR/HYD/AMD and so forth to gain incremental traffic plus some local point to point traffic.
9W, after all is a bit player c.w. Delta. These days, it is even a bit player c.w. Indigo. One needs to be a little smarter as how to pick your battles.
UGH I think Indian aviation people are the only ones that don’t I understand why strong hubs are important. I think 9W should not focus on those other cities. Let Spice, Air Asia, Indigo have it. Focus on BOM and then DEL/BLR and make money. Offer the flights that business travelers want. The reason you don’t see Spice/Indigo rushing to launch MAA-HKG/LHR/etc is there is very little premium demand. Look I hope INdigo launches AMD, ATQ, NAA, HYD long haul flights. If they even launch long haul, it looks like BOM/DEL/BLR is where they will focus.
I agree that DL/KL/AF are getting a better deal than 9W. It just seems that DL have limited ways of helping Jet because they can’t give them cheap loans. WRT domestic flying, if flights are losing money cut them. Why fly P2P flights outside of their hubs and focus cities if they lose money? Makes no sense.
unrave wrote:dtw2hyd wrote:There are only two ways to run a 4%(General consensus) margin business borrowing at 15% (Indian PSB rate on working capital). 11% is the difference.
Accumulate 11% compounded losses (or) have a source who is ready to take 11% cut as laundry surcharge on their investments.
India has two airlines in the first category namely AI and 9W.
This entire comment is again baseless. The difference between the operating margin and cost of working capital has no bearing on the profitability.
MIflyer12 wrote:unrave wrote:dtw2hyd wrote:There are only two ways to run a 4%(General consensus) margin business borrowing at 15% (Indian PSB rate on working capital). 11% is the difference.
Accumulate 11% compounded losses (or) have a source who is ready to take 11% cut as laundry surcharge on their investments.
India has two airlines in the first category namely AI and 9W.
This entire comment is again baseless. The difference between the operating margin and cost of working capital has no bearing on the profitability.
Businesses, long term, need to earn their cost of capital. Exceptions are with a pool of investors with unlimited enthusiasm (say, Tesla), or firms that get subsidy after subsidy - wasting somebody else's money.
dtw2hyd wrote:As long as AF's don't work hard, don't let KLM work hard and DL union's no JVs with low-cost labor airlines policies are in place, Delta management's hands are tied, they cannot have a JV with 9W.
Not easy to kick AF out or rewrite Delta union contracts. CDG is a high yield O&D hub and DL employee productivity is very good. Why would management ruffle feathers by trying to form a JV with 9W?
Delta who has the best revenue and network management skills in the world is virtually running 9W, still not able to come out the hole. It is not a management issue, problem is somewhere else.
lightsaber wrote:CaliguyNYC wrote:
UGH I think Indian aviation people are the only ones that don’t I understand why strong hubs are important.
Snip
Why fly P2P flights outside of their hubs and focus cities if they lose money? Makes no sense.
I never understand the Indian adversion to mega hubs. I think it is because every proposed hub isn't in the home city of too many (crab potting).
To seed new routes requires good low cost connections. But 30% fuel taxes are a handicap. I hope HYD's low fuel taxes allow the formation of a mega hub.
DXB thrived due to the lack of a major regional international to international hub. I do not get why Indian airlines do not focus on connections (requires GoI policy changes such as more runways and gates to fly people when they want to fly).
Lightsaber
Antarius wrote:It also takes the right policies to nurture, which India does not have. DEL should have been DXB. India did this to themselves.A mega hub doesn't just happen.. it takes planning and investment from more parties than just an airline. DEL and BOM are not megahub quality airports (although the terminals are much nicer now than they were a decade + ago)
YouGeeElWhy wrote:Antarius wrote:It also takes the right policies to nurture, which India does not have. DEL should have been DXB. India did this to themselves.A mega hub doesn't just happen.. it takes planning and investment from more parties than just an airline. DEL and BOM are not megahub quality airports (although the terminals are much nicer now than they were a decade + ago)
India will have very large airports due to domestic demand, but they will not connect the world just like China. That and the lack of a sophisticated railway system guarantees that P2P flying will rule India.
tonyban wrote:Kikko19 wrote:Any Indian airline making money?
Indigo ? Vistara ?
unrave wrote:MIflyer12 wrote:unrave wrote:This entire comment is again baseless. The difference between the operating margin and cost of working capital has no bearing on the profitability.
Businesses, long term, need to earn their cost of capital. Exceptions are with a pool of investors with unlimited enthusiasm (say, Tesla), or firms that get subsidy after subsidy - wasting somebody else's money.
Operating margin has no bearing on the cost of WC. You can very profitably run a 1% operating margin business borrowing WC at 20%.
CaliguyNYC wrote:India could have connected the world was my supposition. They had the supreme geography advantage. Best India can do on the International scene now is try to replicate the long haul LCCs in other Asia countries. Hopefully, 9E will get that chance someday to scale up to flying bigger planes. The premium INTL-INTL connection market has sailed and passed India.YouGeeElWhy wrote:Antarius wrote:It also takes the right policies to nurture, which India does not have. DEL should have been DXB. India did this to themselves.A mega hub doesn't just happen.. it takes planning and investment from more parties than just an airline. DEL and BOM are not megahub quality airports (although the terminals are much nicer now than they were a decade + ago)
India will have very large airports due to domestic demand, but they will not connect the world just like China. That and the lack of a sophisticated railway system guarantees that P2P flying will rule India.
Indian doesn't need to connect the world just like China doesn't. India's hub will be based on connecting domestic traffic to global cities with some international to international. That is what China has accomplished and look at the city pairs they are connecting (take EU-China). Pretty amazing. Int to Int will come with JVs/alliances/relationships. If AF/KL/VS/DL ever get a real JV or investment into Jet, I can totally see them pushing traffic through BOM on to SYD/MEL. BOM already is close to supporting flights to OZ. Add some premium feed coming in through AF etc and those flights would be great for everyone. I hope the DL deal with 9W works out. Indian airlines won't be able to do it not he own like Chinese airlines did. China's govt protected and helped their airlines the govt of India works against their airlines
unrave wrote:CaliguyNYC wrote:How can Delta buy more than 49% as a foreigner?
They can't. They will have to make an offer as part of a consortium and ensure that ultimately Delta do not own more than 49% of Jet. Who will Delta work with?
CaliguyNYC wrote:YouGeeElWhy wrote:Antarius wrote:It also takes the right policies to nurture, which India does not have. DEL should have been DXB. India did this to themselves.A mega hub doesn't just happen.. it takes planning and investment from more parties than just an airline. DEL and BOM are not megahub quality airports (although the terminals are much nicer now than they were a decade + ago)
India will have very large airports due to domestic demand, but they will not connect the world just like China. That and the lack of a sophisticated railway system guarantees that P2P flying will rule India.
Indian doesn't need to connect the world just like China doesn't. India's hub will be based on connecting domestic traffic to global cities with some international to international. That is what China has accomplished and look at the city pairs they are connecting (take EU-China). Pretty amazing. Int to Int will come with JVs/alliances/relationships. If AF/KL/VS/DL ever get a real JV or investment into Jet, I can totally see them pushing traffic through BOM on to SYD/MEL. BOM already is close to supporting flights to OZ. Add some premium feed coming in through AF etc and those flights would be great for everyone. I hope the DL deal with 9W works out. Indian airlines won't be able to do it not he own like Chinese airlines did. China's govt protected and helped their airlines the govt of India works against their airlines
vadodara wrote:Things might actually get worse for the airlines.
The railways have decided to become innovative; Train 18 may be able to shave about 30-40% of travel time for Shatabdis. That means for train journeys up to 3 hrs will take away business away.
unrave wrote:vadodara wrote:Things might actually get worse for the airlines.
The railways have decided to become innovative; Train 18 may be able to shave about 30-40% of travel time for Shatabdis. That means for train journeys up to 3 hrs will take away business away.
Rolling stock alone will not do much to improve travel times. Railway modernisation is much more complicated than that and I don't see the babus of Indian Railways doing anything meaningful on that front.
dtw2hyd wrote:Equity is never a problem in India. Working capital, to be clear regulations/limitations on working capital sources is the #1 issue, so many airlines failed.
If DL is serious, my suggestion to them is to work a deal with Indian government (Officially with the Central Bank (RBI) but actually it will be with Prime Ministers Office) which will allow say $500 Million/year for next five years from global sources (Indian term, External Commercial Borrowing). AI has an exemption up to $1 Billion, but that is not enough. Just make sure you present the entire deal is to benefit the State of Gujarat, it will sail through.
Without a clear and unhindered working capital source at competitive rates, it will be a failure. One cannot run a 4% at best margin business by borrowing at 15%.
vadodara wrote:Things might actually get worse for the airlines.
The railways have decided to become innovative; Train 18 may be able to shave about 30-40% of travel time for Shatabdis. That means for train journeys up to 3 hrs will take away business away.
unrave wrote:GVK lounge at Mumbai airport stops accepting passengers flying on Jet Airways
avier wrote:
Hope their owner is working something out.
lutfi wrote:Corporate finance 101 - working capital, as it is capital required to run the business, is best funded by equity, or at least long term debt (>10 years) not short term debt. You don't want to be reliant on a bank deciding if to extend a line of credit or not to be able to buy fuel.
Debt is best used for asset based funding. I.e. a 12 year lease on an aircraft. The bank can't pull the funding for 12 years - no risk to the business unless you can't pay the leases
If Indian airlines are reliant on 3rd party funding for working capital, well, no wonder they are in trouble.
When comparing cost of finance, you should be looking at return on invested capital not operating margin. Many airlines worldwide are making ROIC > 15%
I note that 3 senior VPs have left 9W last week - CIO, head of revenue management and head of cargo
dtw2hyd wrote:No commercial airline can raise equity to cover working capital.
fiestyemus wrote:vadodara wrote:Things might actually get worse for the airlines.
The railways have decided to become innovative; Train 18 may be able to shave about 30-40% of travel time for Shatabdis. That means for train journeys up to 3 hrs will take away business away.
30-40% ! I would like to see any source for that and wager that this is patently untrue. At best (from the figures I have seen) Train 18 results in about a 15% time saving, and that is with the right infrastructure. Highly unlikely that Train 18 affects Indian airlines. Infrastructure upgrades on the network could cause some pain to airlines, but given the Indian bureaucracy that is highly unlikely.
vadodara wrote:fiestyemus wrote:vadodara wrote:Things might actually get worse for the airlines.
The railways have decided to become innovative; Train 18 may be able to shave about 30-40% of travel time for Shatabdis. That means for train journeys up to 3 hrs will take away business away.
30-40% ! I would like to see any source for that and wager that this is patently untrue. At best (from the figures I have seen) Train 18 results in about a 15% time saving, and that is with the right infrastructure. Highly unlikely that Train 18 affects Indian airlines. Infrastructure upgrades on the network could cause some pain to airlines, but given the Indian bureaucracy that is highly unlikely.
Fair, let's wait for the data to come in. I was going by notional increase in speed (100 kmh -> 160 kmh) and improvement in acceleration/deceleration.
vadodara wrote:I brought up Train 18 as a specific threat to short-haul flights. Yes, Train is even a bigger threat when one considers the demand from intermediate stops.
If one looks at the Delhi-Bhopal route, be it Train 18 or 20, at 3-4 hrs journey time it will take away market share.
AI wrote:Apologies for my ignorance, what is Train 18?
AI wrote:Apologies for my ignorance, what is Train 18?