IndiGo’s bottomline hit, other airlines will also suffer; why airfares should rise
ndia is one of the world’s fastest growing aviation markets, where passengers are enticed to fly with ridiculously low fares even as airlines’ costs remain among the highest due to high taxation of jet fuel. Frequent and bruising fare wars have scraped away about 7 percent from the net profit growth of market leader IndiGo for the June quarter. The airline now says competitive intensity on fares is hurting its bottomline and it will continue to participate in such fares wars. The truth is air fares in India are among the lowest (a Bloomberg story says base fares are as low as 2 cents) and India generates volume of air traffic on the back of affordability. To make matters worse for airlines, there was a further 11 percent decline in year-on-year average domestic air fares during the June quarter this year. The average price at which IndiGo sold a seat was Rs 4,032 in Q1 this fiscal against Rs 4,525 in the same quarter last year. This is the reason for a decline in profitability for India’s largest airline by passenger numbers. This story shows how the fare gimmicks have continued well into the second quarter. It says the cheapest fare for Delhi-Mumbai travel during the two-month period between August and September this year across three airlines hovered between Rs 2,681 to Rs 2,688. Fares for the same route booked a week in advance in 2015 was charged anywhere between Rs 5,000 to Rs 6,000. Indigo said it would open fares from as cheap as Rs 1,005 starting 27 July to 29 July. For IndiGo, net profit fell to Rs 592 crore (Rs 639 crore) while total income from operations rose 8.7 percent to Rs 4,579 crore. The airline reported that average yield (measure of average fare paid per mile, per passenger) fell 8 percent during the June quarter because of fall in average ticket prices.”We have posted yet another profitable quarter. However, profitability was lower than last year primarily because of competitive fare pressures,” said InterGlobe president Aditya Ghosh. So will India’s airlines think of raising fares to improve profitability? Not just IndiGo, every other airline will likely post a decline in profitability for the June quarter due to the same fare wars. They already operate on thin margins due to warped cost dynamics, despite historic low jet fuel prices, with IndiGo the strongest bet. K.J. Wright Authentic Jersey
InterGlobe to lag unless load factor rises: Expert
Most airline stocks have rallied purely due to linear correlation with aviation turbine fuel prices without giving due consideration to other variables like utilisation levels, infrastructure costs etc., which also eat into margins, says market expert Prakash Diwan commenting on the weak show of InterGlobe Aviation in the first quarter. It is highly competitive environment and the results clearly indicate pricing power is not yet back, he says. He points that 18-20 percent of the new routes launched are sub-optimal with less than 55 percent occupancy. Unless occupancy rates and load factors improve, investors will not prefer to enter a high-risk business at such valuations. During the first quarter InterGlobe’s load factor declined to 83.3 percent from 87.9 percent year-on-year. Mack Hollins Womens Jersey
Aviation regulator wants airlines to give weekly reports relating to new passenger-friendly rules
With new norms notified by the Directorate General of Civil Aviation (DGCA) becoming effective on Monday, fliers may now get prompt refunds on cancellations of their air tickets. In addition, the cancellation charges must not exceed the basic fare and fuel surcharge charged by carriers on a particular route. Till today, charges varied from Rs.1,500 to 100% fare of the ticket, depending upon the class, price level and the time before departure. India’s civil aviation regulator on 13 July notified significant amendments to civil aviation rules relating to refunds, cancellation charges and facilities to be provided to persons with reduced mobility. To ensure more transparency, airlines are now required to indicate the refund amount in case of cancellations. The move would come as a relief to passengers as many carriers recently increased cancellation charges. Around 680,000 passengers fly daily on 5,470 daily domestic and international commercial flights from 75 Indian airports. A senior DGCA official requesting anonymity said airlines would soon be asked to give a weekly report on how they are adhering to new rules. Womens Jersey
Next DGCA director may be from the Indian Air Force
The National Democratic Alliance (NDA) government may appoint a senior Indian Air Force (IAF) officer with the rank of an Air Marshal to head India’s civil aviation regulatory body, Directorate General of Civil Aviation (DGCA). The rationale stems from the fact that a person heading the post should have sound technical knowledge of air operations and the Indian skies. IAF officers in the past have been unsuccessfully applying for the DGCA’s top post. The post of DGCA head fell vacant as M. Sathiavathy, a 1982-batch AGMUT (Arunachal Pradesh-Goa-Mizoram and Union Territory) cadre Indian Administrative Service (IAS) officer, was on 28 July moved from the regulatory body to the ministry of labour as the secretary. A senior civil aviation ministry official requesting anonymity said that the government has already indicated to get an IAF officer, someone who is involved in air operations and air traffic control. This comes in the backdrop of the regulatory body making amendments to the civil aviation regulations besides chalking out new rules on penalties, fast refund and compensations to air passengers. Additionally, DGCA is actively involved in streamlining the strategy for the NDA government’s regional connectivity scheme that aims to develop unserved and underserved airports across the country. St. Louis Blues Womens Jersey
Oil consumption growth likely to spike this fiscal year
Oil consumption growth in the current fiscal year will likely exceed 10.9% of the previous year, if the current consumption trend continues, an oil ministry arm has said. A 7.8% jump in the consumption of petroleum products in the country in April-June, compared to 5.2% in the year-ago period, has prompted this prediction from the Petroleum Planning and Analysis Cell (PPAC). “Typically, April-June is sluggish in performance than the rest of the year. Going by the trend, it’s likely petroleum products consumption growth for 2016-17 could be better than that of last year,” the PPAC said in its monthly review. A higher fuel consumption signifies faster clip of economic growth for the country, currently growing at 7.6% annually. In April-June, the biggest consumption growth was recorded in petrol (10%), liquefied petroleum gas (7.8%), fuel oil (22.9%), bitumen (13.9%) and aviation turbine fuel (12.1%). For diesel, the most consumed petrol product in India, it rose 4.7%. Kerosene dived 7.7% following a general shift towards cooking gas and increased power availability. In June, diesel consumption grew 1.5%, the slowest month-on-month pace since July 2015, mainly because people anticipated favourable prices in May and July and shifted some offtake away from June, according to PPAC. Domestic prices follow international trends and are revised fortnightly, prompting dealers to temper order sizes on price change anticipation. Higher power availability and good monsoon, that affects road transport and lowers diesel consumption for farm pumps too contributed to lower diesel figures, the PPAC said. In June, petrol sales rose 4.4%, much lower than quarterly growth of 10%, primarily due to shifting of offtake as buyers anticipated lower prices in May and July, PPAC said. Growth in consumption of petrol was higher than diesel mainly due to increasing consumer preference for petrol-driven vehicles as the price differential has waned and policy thrust on scrapping older diesel vehicles gotten louder, PPAC said. Noah Hanifin Authentic Jersey
India Seeking Merger Model for Possible State Oil Champion
India is open to discussing a merger of some of its state-run oil producers and refiners to create a larger, stronger national firm, according to the country’s oil minister. The government is seeking the appropriate model for combining India’s state-run oil companies and hasn’t decided on any plan, Dharmendra Pradhan said in New Delhi on Monday. The combined market capitalization of India’s top eight state-owned oil and gas companies is about $80 billion, ranking a combined entity ninth among global oil firms, according to data compiled by Bloomberg. “I am open to a discussion on merging oil companies,” Pradhan said. “There are two schools of thought. Whether we have a single entity or we have entities like we have today. We should find out a way of what should be the future model.” India is set to emerge as the world’s third-largest oil consumer by the end of this year and will be the center of global growth through 2040, according to the International Energy Agency. Its upstream production is dominated by Oil and Natural Gas Corp., which operates independently of its biggest refiner, Indian Oil Corp. Shares of Indian Oil rose as much as 1.5 percent and traded up 1.3 percent to 549 rupees, the highest on record, in Mumbai as of 9:43 a.m. The benchmark S&P BSE Sensex rose 0.5 percent. The Press Trust of India reported Sunday that the government is deliberating on the issue of merging the companies, citing Pradhan. India had considered a similar proposal about a decade ago, but didn’t pursue any consolidation, R.S. Sharma, a former chairman of ONGC, said Monday. Menelik Watson Womens Jersey
BP Aims to Increase Gas From India’s KG-D6 Fourfold by 2022
BP Plc is working with its partner Reliance Industries Ltd. to increase natural gas production from the deepwater D6 block in the Krishna Godavari basin as much as fourfold by 2022, according to the chief of the British company’s India unit. The companies aim to produce 30 million to 35 million metric standard cubic meters a day of gas from the block on India’s east coast after they develop three new fields, Sashi Mukundan, head of BP’s India unit, said Monday in New Delhi. Gas production from KG-D6 averaged about 8.7 million cubic meters a day in the April to June quarter, said in a July 15 presentation. The companies are preparing to restart work in four offshore oil and gas blocks as they seek to revive development activity stalled for seven years by disputes with the government. Reliance and BP intend to withdraw from multiple arbitration proceedings against the government related to KG-D6 people with knowledge of the plan said in May. Reliance spokesman Tushar Pania declined to comment Monday on the production target. The effort to resolve disputes with the government “has created confidence for us to move forward,” Mukundan said. BP and Reliance are looking to develop three discoveries in three different fields and invest “several billion dollars,” he said. Production from the KG-D6 block, discovered in 2002, has tumbled since hitting a peak in 2010 of around 62 million cubic meters a day. The companies continued with offshore exploration activities there, while pausing development drilling because of disputes with the government over gas prices and cost recovery. Patrick Robinson Jersey
LNG buyers encouraged to rework deals amid global glut
India’s liquefied natural gas buyers are being encouraged to renegotiate long-term contracts after spot prices tumbled amid a global glut. “We have asked the companies to renegotiate the LNG deals wherever there is a possibility,” oil minister Dharmendra Pradhan said in an interview Monday in New Delhi. “I am hopeful our companies will successfully steer the negotiations.” India wants to turn an oversupply of LNG to its favour as it seeks greater use of natural gas in its energy mix and seeks to reduce the dependence on crude oil imports. India is among the first countries in Asia to renegotiate a long-term deal after the glut pushed down prices. Petronet LNG Ltd in December reworked a 25-year contract with Qatar’s RasGas Co., resulting in prices dropping by almost half. Elsewhere in the region, Japan is probing resale restrictions in most of its LNG contracts that may lead to the renegotiation of more than $600 billion worth of deals that run until almost the middle of the century. The chairman of China National Petroleum Corp., the country’s biggest energy company, said in March that it’s looking for opportunities to rework the pricing method on its LNG supply contract with Qatar. Energy basket The price of spot LNG to Asia has fallen by more than 25% during the past year. India’s LNG imports surged 59% to 8.13 million metric tons in the first five months of the year, while domestic output slipped 8%, according to data compiled by Bloomberg Intelligence. Aligning LNG contracts to current market rates can make natural gas more affordable to Indian customers as the government plans to increase regasification capacity to 55 million tons within five years, from about 21 million now, Pradhan said. “We want to increase the gas component in our energy basket,” Pradhan said. “We are building a gas grid around the country to increase the use of gas.” Pradhan on Monday also highlighted the country’s supply deals from Russia, the US, Australia and Canada. Global supply GAIL India Ltd is seeking to defer a 20-year contract to buy liquefied natural gas from Gazprom PJSC until the Russian company’s Shtokman project begins production, according to officials at the South Asian country’s biggest gas transporter, who asked not to be identified citing company policy. Petronet signed an agreement with Exxon Mobil Corp. in August 2009 to buy 1.5 million metric tons annually for 20 years from Australia’s Gorgon project, with supplies expected to begin by the end of this year. GAIL also has an agreement to buy 3.5 million tons a year for two decades from Cheniere Energy Inc.’s Sabine Pass terminal, with the supplies expected to start in March 2018. It has also booked 2.3 million tons a year from the Cove Point LNG liquefaction terminal in Maryland, which is set to commence deliveries in December 2017. Indian Oil Corp. Ltd bought a 10% stake in Petroliam Nasional Bhd’s Canadian natural gas fields and a planned export project, which will give the Indian state oil refiner the right to 1.2 million metric tons of LNG per year for two decades. India is becoming more reliant on imported oil and gas as domestic production lags demand growth. The country will be about 90% reliant on imports by 2040, up from 70% in 2014, the International Energy Agency said in its most-recent annual World Energy Outlook. The cost of those oil and gas shipments will reach nearly $480 billion by 2040, up from $110 billion today, it said. Richard Sherman Womens Jersey
CAG red-flags $1.6 billion excess cost recovery by RIL
Government auditor CAG has red- flagged $1.6 billion of excess cost recovered by Reliance Industries in the KG-D6 gas block and took note of state-owned ONGC’s gas flowing into the eastern offshore fields of the Mukesh Ambani-led firm. The Comptroller and Auditor General of India(CAG), in a report tabled in Parliament, said 831.88 sq km of KG-D6 area needs to be taken away from RIL as per the contract and cost of discoveries it had relinquished should not be allowed to be recovered from sale of oil and gas from the block. Also, cost recovery for doing discovery conformity test should be looked into, it said. CAG said November 2015 report of independent expert DeGolyer & MacNaughton (D&M) submitted on reservoir continuity between the KG-D6 and contiguous ONGC operated blocks has pointed out that gas has migrated from the blocks owned by state-owned firm to the private company operated fields. “The report indicates that as on March 31, 2015, of the gas initially in place, 44.32 per cent in Godavari PML and 34.71 per cent in KG-DWN-98/2 (both of ONGC) had migrated” to KG-D6, it said. “The report projected a higher proportion of gas migration and its production through RIL operated KG-DWN- 98/3 (KG-D6) block by end of 2019.” The government has appointed one member committee under Justice AP Shah to consider the report and recommend future action. “In case if the Ministry of Petroleum and Natural Gas accepts D&M report conclusion that RIL did draw gas from ONGC’s contiguous fields, and directs RIL to compensate ONGC for the same, it may affect the financials of KG-DWN-98/3 including cost petroleum, profit petroleum, royalty and taxes over its entire period of operation (since April 2009 when production of gas commenced from the block),” CAG said. It said many of the issue it had pointed out in the previous audits (2006-12) of the block still persist. “The total financial impact of excess cost recovery during 2012-14 on account of the earlier identified audit findings was $1.547 billion (Rs 93.0722 billion). “For the period 2012-14, additional issues of excess cost recovery claimed by the operator (RIL) were noticed, financial effect of which was USD 46.35 million,” it said. CAG had in its previous reports slammed Oil Ministry and its technical arm DGH for not exercising enough control and vigil over KG-D6 block, leading to instance of excess cost recovery. As per the Production Sharing Contract (PSC), an operator is allowed to recover all his cost before sharing profit with the government, a provision which CAG says encourages companies to inflate cost to delay profit sharing. CAG in its report tabled in Parliament today said RIL refused to connect to production system four wells it had drilled on the D1 and D3 gas field in KG-D6 block on the pretext that they would not produce adequate incremental volume to justify the additional capex spend. “Though these wells have not contributed to production from the D1-D3 field, the Operator has recovered $102.94 million up to the FY2013-14 towards their cost,” CAG said. Also, the ministry had ordered RIL to relinquish 6,198.88 sq km out of total KG-D6 area of 7645 sq km as per the contract that allowed retaining only area were discoveries are made. “However, contrary to Ministry’s directives, the Operator relinquished only an area of 5,367 sq km retaining an excess area of 831.88 sq km. The Operator also paid Petroleum Exploration License (PEL) fees of Rs 3.32 million relating to the excess retained area,” CAG said, adding that the relinquishment of the additional area retained needs to be ensured by the ministry. CAG said $63.78 million RIL got through marketing margin should be included in price of gas for calculation of royalty payable to government and profit sharing. Also, Aker of Norway, which supplies a floating oil production vessel (FPSO), was paid additional benefit of $10.13 million. DeForest Buckner Authentic Jersey