Flight "arbitrage" - Is it really cheaper to buy flight tickets from another country?

Prashant-prabhakar

28 Jan 2022

Ever since the Covid pandemic lockdown was initiated, travel and travel planning have taken a toss. With the emergence of new viral variants now and then, uncertainties loom profoundly now more than ever.

The Economic Times

It's a beautiful sunny day and let's say Mr. Kim is surfing the internet to book a flight to fly from point A to point B. Much to his surprise, Mr Kim finds out that the fares which were earlier priced at 130,000, had dropped to, let's say-30,000 now- a massive decrease of about 75-77%.

Super elated by the drop in prices, Mr Kim goes on to purchase another 5 round-trips starting later on, to Point C. He paid 95$ a piece for flights which would otherwise have cost him upwards of 160$. Additionally, he also booked a safari vacation for about $700 round trip to Point D-probably about half of what he might have paid for the trip to the same destination years back.

Wondering what's going on?! As it turns out, Mr Kim is engaging in, what can be termed as "flight arbitrage".

Airfare arbitrage

In economics and finance, arbitrage is the practice of taking advantage of a difference in prices in two or more markets, the profit being the difference between the market prices at which the unit is traded.

Over the last 20 years, customers have been made to bear a huge risk of airlines-which is why refundable tickets were thrice as expensive as non-refundable tickets. However, with a barrage of Inexpensive airfare deals now available online, coupled with newly relaxed airline change and cancellation policies, travellers are now optimistic that things will have improved enough to travel, and if they won't, they can roll their money forward into an even later trip.

Differential pricing of seats | Representative | ABC News- Walt Disney

There’s an arbitrage opportunity that has never really existed in modern air travel. Not only are fares super low, but to be able to cancel if you decide not to take the trip is rare. And there are absolutely people taking advantage of it — not in a pejorative sense, but literally by booking flights for when hopefully, fingers crossed, things are safer.Scott Keyes, founder of Scott's Cheap Flights-an online alert service with more than two million members

TripSavvy

Sometimes, it is possible to call an agent in another country and pay for your ticket in a foreign currency. Although the savings could be substantial, perhaps £500 to £1,000 in premium economy or business class, they far outweigh any credit card’s foreign exchange fees- much like arbitrage in finance.

The comparison of real prices today versus reference prices that consumers have in their memories — ones they may even be unaware that they hold — is leading to this kind of purchase behaviorPriya Raghubir - a New York University Stern School of Business professor who studies consumer psychology and spending

Basically, it all boils down to taking advantage of favourable exchange rates and getting cheaper fares than you would with traditional search engines. That begs the question- where would you save the most?

It’s not so much which destinations will save you the most money, but which airlines. For instance, Norwegian Air is almost always significantly cheaper if you pay in Norwegian kroner. The key is to pay in the national currency of wherever that airline is based. For example, a round-trip ticket from New York to Barcelona on Norwegian Air from March 23-30 is $891 if you pay in dollars, and $809 if you pay in kroner.

That said, flying to the airline's country of origin will produce even bigger savings.

Do you really need to fly to those countries to earn the savings?

Here's the kicker- Although it works for some countries, nations with a currency pegged to the dollar probably won’t save you anything. Additionally, most countries that operate on the euro won't either.

Nevertheless, that really shouldn't deter one from at least trying to grab a deal on their next vacation flight.

Point of sale Vs Point of origin

When an airline offers a seat under traditional revenue management, the optimisation system decides which price to charge based on how likely a seat is to sell at each fare. Oftentimes, a choice between point-of-sale and point-of-origin logic can lead to a dilemma in product pricing.

Advantages of Point of Sale

Passengers who are not as tech-savvy, might not grab their phones and make a call to make an overseas booking, although they could save a lot of money this way. Airlines in this case make more money from the high-demand market.Offering seats cheaply in markets where demand is low might help the airline pick up one or two sales that would otherwise go to competitors.

Advantages of Point of origin

Everyone pays the same price – no “arbitrage” opportunities.Easy to manage – one flight is one price, whether outbound, return or connecting.

That said, when it comes to dynamic pricing of travel packages,  IATA’s New Distribution Capability (NDC), speaks about offering a specific price to a specific customer.

IATA'S new NDC | Thomalex

Selling cheaper tickets for future travel is a good way for airlines to generate sales activity and also start restoring consumer confidence for future travel, which gets shaken badly in events like thisKhalid Usman, senior vice president at Oliver Wyman- a management consulting firm.

According to IATA, having customers on the books, even if they eventually cancel, is a strategic move- especially when airlines are poised to burn through a major of their cash reserves during these uncertain times.

SOURCE(s)

COVER: The Times of India

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Government got rid of ill-conceived 21 Dreamliner lease deeds before handover

Ridz

28 Jan 2022

The government has terminated expensive sale and leaseback agreements of 21 Boeing Dreamliner 787 planes of Air India, paying the entire outstanding lease payments plus penalties for premature termination.

The aircraft will now be owned, instead of being leased, by Air India, as the Tata Group takes over the airline. Under a sale and leaseback (SLB) agreement, an airline sells its plane to a lessor for a premium and leases it back.

Air India has 27 Dreamliners in its fleet. Six of them were already owned by the airline. The Tatas plan to refurbish revenue management of Air India, focus on ancillary revenue and cargo, rework engineering and fuel supply contracts, and even those with travel agents.

However, there has been no decision on adding to the airline's fleet. The Tatas are getting Air India on a clean slate with dues to almost all vendors and suppliers that have been paid. The latest of payments was the clearing of INR 1,300 crores worth of arrears to employees.

Air India's debt was INR 61,562 crore on August 31, primarily raised on sovereign guarantees to fund its losses. The airline's accumulated losses at the end of March stood at INR 83,916 crore.

The Tatas will also need to get 20 grounded planes flying and spend an average of USD 3 million each on several aircraft to refurbish them. The impact of the pandemic will make sure the airline isn't profitable for at least another five years, but other airlines heads have special advice for Air India.

Air India take-over

On August 31, 2021, Air India had a total debt of INR 61,562 crores. Of this, INR 46,262 crore is being transferred to a special purpose vehicle or SPV. The balance debt has been cleared by Tata.

Tata's winning bid for Air India was INR 18,000 crores, higher by INR 2,900 crores from the bid made by a consortium led by SpiceJet chief Ajay Singh. Tata has paid INR 2,700 crores in cash and taken over a debt of INR 15,300 crores.

The Tata Group, which placed the highest bid of INR 18,000 crore in the Air India disinvestment, took over the airline from the government on Thursday, January 27.

Air India's new journey to return to its lost glory under the Tata Group will be fraught with issues such as older aircraft, interior cabin products, and human resources issues, but experts and its global competitors do see the airline becoming a challenger in the international space.

"The sale of Air India to Tata group was an "extremely difficult and challenging transaction. This has been a landmark transaction under which all the debt has been taken care of and is a truly win-win transaction where everyone is a winner. It was an extremely difficult and challenging transaction from an accountancy point of view. A number of legal processes also cropped up and all those had to be met under a certain deadline, so that was a big challenge, but we managed to do it all. I thank all the officials on both sides who worked so hard in the process and ensured that this transaction is closed successfully. The credit goes to them."Jyotiraditya Scindia, Union Minister for Civil Aviation

Currently, Air India is the largest among Indian carriers in the international skies. However, foreign airlines have a larger market share and carried more passengers than Air India till regular international flights were allowed before Covid-19.

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Day 1 of Tata’s Air India - What do we know so far?

Radhika Bansal

28 Jan 2022

After 69 years of being run as a government entity, Air India finally goes back to the Tata Group on Thursday.

The group also acknowledged Prime Minister Narendra Modi's commitment to reforms and faith in India's entrepreneurship spirit, which made the "historic transition" possible.

The group also said it philosophically agrees with "the Prime Minister's vision for the aviation sector, of making it affordable and ensuring it contributes to boosting 'Ease of Living' for citizens".

“We are delighted that the disbursement is completed. We are happy that Air India is back with Tata Group. We look forward to working with everyone in creating a world-class airline.We are excited to have Air India back in the Tata Group and are committed to making this a world-class airline. I warmly welcome all the employees of Air India to our Group, and look forward to working together."N Chandrashekaran, Chairman, Tata Sons

“Formalities have been completed. Shares have been transferred…Payment has been received. As we speak, they (Tatas) are the new owners,” DIPAM secretary Tuhin Kanta Pandey told reporters.

In 1953, the Indian government purchased a majority stake in the carrier from Tata Sons though its founder JRD Tata continued as chairman till 1977. The company was renamed Air India International Limited and the domestic services were transferred to Indian Airlines as a part of a restructuring.

As part of the revival plan, the Tata Group has blueprinted a 100-day plan for Air India to improve the operational and service standards of the airline that includes its on-time performance, as well as issues related to passenger complaints and call centres.

Reportedly the airline, under Tatas, has firmed up plans to address passengers as guests and also play recorded messages by Ratan Tata. The cabin crew members of the airline have also been asked to keep a check on their body mass index or BMI and look smart.

ALSO READ - Pre-flight BMI measurements of cabin crew ordered by Air India

The immediate focus is on two key areas - vastly improved meal service and airline interface with crew and ground staff. Experts predict that the major challenge will be to change the culture at Air India.

Tata Group chief N Chandrasekaran reached out to employees of Air India asking them to work together to build the airline that the country needs while asserting that the "golden age" of the carrier lies ahead.

N. Chandrasekaran, Chairman, Tata Sons

In a welcome letter to the employees of Air India, after the Tata Group took over the management and control of the airline, Chandrasekaran, Chairman of Tata Sons, reflected on the airline's "brilliant past" but said the entire nation is now waiting to see what "we will achieve together".

"From the day of the announcement (of Tatas winning the bid), one word has been on everyone's lips: Homecoming. We are proud to welcome Air India back into the Tata family, after all these years," he wrote.

The Tata Group had won a bid to buy a 100% stake in Air India along with AI Express and a 50% stake in ground handling company AISATS. Talace Private Limited, a subsidiary of the Tata Group's holding company, paid INR 18,000 crore – about INR 2,700 crore will be paid to the government and the rest will be Air India loans that the new entity will take.

Tata Group is likely to operate three airlines - Air India, Air India Express and Vistara

Post the handover, the Tata Group is likely to operate three airlines - Air India, Air India Express and Vistara – after the government transfers the airline to the group and upon the merger of AirAsia India and AI Express.

The Group, for the time being, plans to continue with Vistara as a separate entity, as SIA is not on board for the AI deal. Vistara is a 51:49 joint venture between the Tata Group and SIA.

SIA, however, had agreed to be part of the plan to acquire Air India but did not want to continue after COVID impacted their business and funds dried up. The Tata Group has not spoken up on the issue yet.

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Boeing incurs third annual loss in a row as 787 Dreamliner deliveries delay

Radhika Bansal

27 Jan 2022

Boeing Co said on Wednesday, January 26, it incurred USD 4.5 billion charges in the fourth quarter on its sidelined 787 programs, obscuring the U.S. planemaker's long-awaited return to positive cash flow fueled by rebounding 737 MAX deliveries.

The planemaker sank to a loss after two-quarters of profits because of the charges. Shares in Boeing fell 3.6% as the array of charges and uncertainty over the 787 programs dwarfed a surprise return to positive free cash flow and plans to increase production on the 737 and 777.

The quarterly results underscore the challenges Boeing faces as it seeks to rebound from the coronavirus pandemic and 737 MAX safety crises while navigating industrial and regulatory currents on its bigger 787 and 777X flagship.

Boeing 787 Dreamliner

Its ability to resume deliveries to airlines depends on approvals from the U.S. Federal Aviation Administration.

Reuters reported that deliveries of the 787 are expected to remain frozen for months as U.S. regulators review repairs and inspections over structural flaws in the jets, while designs for the larger 777X face further regulatory pushback from Europe.

"We'll have to complete the rework on a large fleet of airplanes," Calhoun told analysts on a conference call. "There's no way to shortcut it ... I wish it could go faster, and I can't accelerate it."

Asked whether deliveries would resume in April, as some people in the industry expect, Calhoun said the timing would be set by the FAA.

The program remains at a low production rate, with an expected gradual return to five per month over time, Boeing said. Calhoun and Chief Financial Officer Brian West later told investors on a call 737 MAX deliveries and service would resume in China's crucial aviation market in the first quarter.

Boeing unveiled USD 3.5 billion pre-tax non-cash charges related to 787 delivery delays and customer concessions, and another USD 1 billion in abnormal production costs.

Boeing had previously forecast low production rates and rework for the 787 due to manufacturing flaws and required inspections and repairs to result in about USD 1 billion of abnormal costs - putting the overall price tag at some USD 5.5 billion.

Boeing 777X at Dubai Airshow 2021

"Here we go again," Vertical Research Partners analyst Rob Stallard said. "Just as we saw with the 737 MAX, Boeing is now racking up massive charges on the 787 with no firm end in sight, and its fate in the hands of the FAA."

HAIR-THIN GAPS

At its U.S. factories, Boeing is combing through parked 787s with ultrasound devices and tools to measure gaps barely visible to the naked eye. The gaps - left in the process for making carbon-composite structures that make the jet lighter and cheaper to fly - are the width of a human hair but violate Boeing's specifications.

The company reported a core operating loss of USD 4.54 billion in the fourth quarter ended December 31, compared with a loss of USD 8.38 billion a year earlier in 2020, when the company recorded a USD 6.5 billion charge due to delays in its 777X jet program.

Still, Boeing generated positive cash flow in the fourth quarter, representing its first positive cash quarter since early 2019, fueled by 737 MAX deliveries as air travel rebounds from the pandemic. 2023 cash flow would be "materially" higher than 2022, West said.

Boeing said its 737 programs was producing at a rate of 26 per month, up from 19 jets in the earlier quarter. It said it was on track to reach production targets of 31 per month in early 2022, though it faces supply-chain risks like labour and parts shortages.

Boeing currently has 335 737 MAX airplanes in inventory.

Boeing currently has 335 737 MAX airplanes in inventory, and anticipates delivering most of those jets by end-2023, it said.

Boeing also said it aims to increase its 777/777X production to 3 aircraft per month in 2022 from 2 previously, fueled by orders for 777 freighters amid booming air cargo demand. It reiterated plans to deliver the first 777X in late 2023.

Higher revenue and operating margins in its Global Services Division were hurt by an asset-impairment write-down of USD 220 million due to fluctuating demand and pricing, Boeing said.

Boeing also took a USD 402 million pre-tax charge on its KC-46 tanker program, due to changing customer requirements to the plane's remote vision system and supply chain disruptions.

Debt fell to USD 58.1 billion from USD 62.4 billion at the beginning of the quarter, Boeing said.

(With Inputs from Reuters)

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UAE airlines in hiring spree as flight networks get busy

Radhika Bansal

27 Jan 2022

UAE airlines are back to hiring, with Air Arabia and Wizz Air Abu Dhabi joining Emirates and Etihad Airways in wanting more personnel as more services to returning to the skies. For Air Arabia, the recruitments come as it prepares to launch a national airline in Armenia – Fly Arna – by late May.

Not just pilots and cabin crew, the new positions being hired include those for back-office positions. Analysts said the UAE airlines are making ‘replacement hires’ to keep their organizations running smoothly and that it would take a while for new jobs to be created.

Emirates and Etihad have already gone through the process in recent months, with the Dubai airline taking in pilots and cabin crew as well as support staff. Abu Dhabi’s Etihad last October went on a major cabin crew recruitment drive as its network started getting busy.

Abu Dhabi’s Etihad is looking to hire up to 1,000 new staffers to join as cabin crew. The recruitment days will take place in 10 countries, including Egypt, Lebanon, Russia, Spain, Italy and the Netherlands, apart from the UAE.

Etihad Airways is hiring Cabin Crew

Applicants interested in attending the recruitment days should register in advance by visiting Etihad’s website. Employees laid off due to the pandemic can apply through the airline’s alumni programme, which is currently advertising the positions available.

Air Arabia

Sharjah’s low-cost carrier has posted several job roles on the social media platform Linkedin. The only Middle East airline to report a profit in 2020 is launching in Armenia through a joint venture. During a media briefing earlier this month, Air Arabia CEO Adel Al Ali said that more than 100 employees would be needed with the deployment of each new airplane.

“The more airplanes you bring, the more places you will fly to and more people will need to recruit – it’s a moving number that will continue to grow very fast.”

For now, the airline has posted vacancies for a customer relations manager, a codeshare and alliance support executive, a paralegal, a rotatable controller, a manager – propulsion and a ‘key account’ executive.

Wizz Air Abu Dhabi

UAE’s newest national airline – also flying in the budget space - is slowly but steadily expanding its routes and regional operations. With that comes the need to take in fresh hires to fuel this growth. The latest positions being advertised are for a post holder crew training manager, cabin crew training manager and an office assistant.

Abu Dhabi Aviation

The largest commercial helicopter operator in the Middle East is on the lookout for a licensed aircraft maintenance engineer as well as an aircraft maintenance assistant.

Airbus too

Not just local carriers and aviation companies, the European aircraft maker Airbus is also into workforce expansion as the industry gears up for a full return to recovery from the pandemic and its multiple variants.

Last week, the European plane-maker announced its plan to recruit around 6,000 new employees across the entire group as the company looks to decarbonize where possible. “Airbus has demonstrated resilience throughout the Covid crisis, and has laid the foundations for a bold future for sustainable aviation,” said Thierry Baril, Airbus Chief Human Resources & Workplace Officer, in a statement.

Ticket rates to Dubai from Indian cities drop

Fares from high-traffic Indian cities to Dubai are recording sharp drops as UAE comes out of its peak tourist season. Seats on the New Delhi to Dubai route can be booked for less than Dh700 compared to the Dh,1000-Dh1,500 a month ago, while a ticket from Mumbai is averaging up to Dh1,000.

Mumbai, which relies heavily on traffic from Dubai, dropped a seven-day quarantine requirement it had imposed on passengers flying in from the UAE. State-wide COVID-19 restrictions were brought back in response to a spike in the highly-transmissible Omicron variant.

Go First is now connecting Srinagar and Sharjah with four weekly flights.

During the pandemic, airlines launched flights to new destinations to tap into the ever-increasing demand for travel. Budget carrier Air Arabia Abu Dhabi has begun operating direct flights to Kochi, Kozhikode and Thiruvananthapuram. Indian low-cost airline Go First is now connecting Srinagar and Sharjah with four weekly flights.

(With Inputs from Gulf News)

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SBI-led consortium agree to give loan to Tatas for Air India

Radhika Bansal

27 Jan 2022

A consortium of lenders led by the State Bank of India (SBI) has agreed to provide loans to Tata Group for the smooth operations of loss-making Air India.

Tata Group, which won the bid to acquire the national carrier along with Air India Express and a 50% stake in AISATS in October 2021, is expected to formally take over the airline on Thursday, January 27.

Sources said the SBI-led consortium has agreed to grant both term loans and working capital loans depending on the airline's requirements.

All large lenders, including Punjab National Bank, Bank of Baroda, and Union Bank of India, are part of the consortium, they added. Talace Private Limited -- a subsidiary of the Tata Group's holding company Tata Sons -- on October 8, 2021, won the bid to acquire debt-ridden Air India.

A unit of the holding company of the salt-to-software conglomerate had offered INR 18,000 crore as part of its winning bid -- INR 15,300 crore for Air India's existing debt and INR 2,700 crore to be paid as cash to the government.

On October 11, 2021, a Letter of Intent (LoI) was issued to the Tata Group confirming the government's willingness to sell its 100% stake in the airline. On October 25, the Centre signed the share purchase agreement for the deal.

The term loans to Talace will help in retiring the high-cost borrowings of Air India, the sources said.

The deal with the government does not include land and buildings. As per the agreement, Tata Group will retain all the employees of Air India at least for a year.

With the acquisition, Tata Group will have access to a fleet of 117 wide-body and narrow-body aircraft, and 24 narrow-body aircraft of Air India Express. Besides, it will get control of 4,400 domestic and 1,800 international landing, and parking slots at domestic airports.

Tata Group had surpassed the INR 15,100 crore offer by a consortium led by SpiceJet promoter Ajay Singh and the reserve price of INR 12,906 crore set by the government for the sale of its 100% stake in the loss-making carrier.

While this will be the Centre's first privatisation since 2003-04, Air India will be the third airline brand in the Tatas' stable as it holds a majority interest in AirAsia India and Vistara, a joint venture with Singapore Airlines Ltd.

As of August 31, 2021, Air India had a total debt of INR 61,562 crore. Around 75% of this debt or INR 46,262 crore will be transferred to a special purpose vehicle AIAHL before handing over the loss-making airline to Tata Group.

Air India started suffering losses every year since its merger with Indian Airlines in 2007-08.

A Turnaround Plan (TAP) and a Financial Restructuring Plan (FRP) were approved for Air India by the previous UPA regime in 2012. However, the TAP did not work out as expected and Air India continued to reel under losses.

Over the last decade, more than INR 1.10 lakh crore has been infused by way of cash support and loan guarantees into Air India to keep it afloat.

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