Mumbai: Air India Express, the low-fare unit of National Aviation Co. of India Ltd (Nacil), could see a 17% jump in revenue in the year ending 31 March, even as flag carrier Air India continues to be deeply in the red.
The airline, which initially focused on short international flights mostly out of Kerala, is expected to clock sales of Rs2,000 crore from two million passengers, up from Rs1,700 crore in fiscal 2009, which was a 43% rise from the preceding fiscal. The estimates, made internally and reviewed by Mint, are based on higher ticket prices in 2009-10.
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In contrast, Air India is facing a loss of Rs5,400 crore for the current fiscal, civil aviation minister Praful Patel had told Parliament earlier this month.
“It (Air India) had incurred a loss of Rs2,226.16 crore and Rs5,548 crore during the financial years 2007-08 and 2008-09, respectively,” Patel told the Rajya Sabha on 9 March. “The trend of losses is likely to continue for few more years.”
In 2008-09, a year hit by a global slowdown that bled other carriers, Air India Express posted a net profit of Rs88.73 crore, before sharing 25% revenue with its holding firm. The airline declined to disclose profit after passing on a quarter of its revenue to Nacil in lieu of sales and marketing costs.
Air India Express, which completes five years on 29 April, increased its capacity by 28% in fiscal 2009, at a time when other carriers couldn’t shed it fast enough.
The success of Air India Express stems in part from the fact that its sales and marketing are taken care of by the Air India team, thus saving costs. It does, however, pay for ground handling and other services offered by Air India.
“We have a Web-based reservation and agency system, works on zero credit and no commission basis which enables a very low distribution cost,” an executive at Air India Express said on condition of anonymity as he is not authorized to speak with the media.
Kapil Kaul, India chief of Sydney-based aviation consultancy Centre for Asia Pacific Aviation, said Air India Express has the potential to grow into one of the strongest international and regional players.
Although Air India Express cannot be studied separately from Air India, Kaul said the potential exists for it to emerge as an independent business.
“It is possible Air India Express will emerge out as a successful entity from the Air India group,” he said.
Indeed, the airline is already making efforts to make itself more pan-Indian even though it was started—using three Boeing 737s and 26 flights a week—in 2005 to cater to people from Kerala working abroad, especially in West Asia.
Since then, the fleet has grown to 25 such planes—18 owned and seven leased—that are used for 203 flights a week, of which 189 are international.
“It was only in the first year we stuck to Kerala points. Now, it connects 16 Indian cities to 14 international destinations,” another Air India executive said, also on condition of anonymity.
Plans to start domestic low-fare operations in September were shelved because of the economic slowdown.
“We want to meet the travel requirements of the price-sensitive Indian market by offering more flights from Indian cities, especially the tier II ones, which hitherto lacked connectivity to destinations in the Gulf and South-East Asia,” Andy D. Souza, chief operating officer of Air India Express, said in an emailed statement.
Beginning April, the carrier will redeploy an aircraft from Kochi in Kerala to Mangalore in Karnataka to connect more international cities. It is also positioning an aircraft in Dubai to operate point-to-point flights to Jaipur, Lucknow and Amritsar, and will start new flights between Hyderabad and Abu Dhabi.
Air India Express is also pre-empting competitors; it is working on a direct link from Tiruchirappalli to Kuala Lumpur to head off Malaysian low-fare international carrier AirAsia Bhd. It plans to make its Sharjah-Thiruvananthapuram flight daily instead of four flights a week. Sharjah-based rival Air Arabia Llc recently introduced twice-daily operations on that route.
“We are ready to take on the competition posed by international low-fare carriers and domestic carriers that will now fly international routes,” said the Air India Express executive cited first.
SpiceJet Ltd and InterGlobe Aviation Pvt. Ltd that runs IndiGo have plans to start international operations in 2010 and 2011, respectively.
“We have first-mover advantage in almost short-haul international routes,” the second executive said.