Air India was not crippled by strike, say executives

Mumbai: The 58-day strike by Air India pilots has not crippled the airline financially, two top executives said.

Air India’s revenue, in fact, rose 17.8% in the April-June quarter, they said, requesting anonymity. In June, the airline posted a 1.2% growth in passenger revenue, they added.

Daily passenger revenue dropped to Rs 32 crore from Rs 40 crore prior to the strike though seat occupancy increased to 75% from 70%, the executives said.

During the strike, which ended on 3 July, the airline had said it was losing Rs 8-10 crore a day in potential revenues.

The two Air India executives also said the airline has arranged to raise nearly $1 billion for initial funding of its purchase of Boeing 787 planes despite the strike.

Air India has tied up $220 million from Standard Chartered Bank, shortlisted the TTG-Goldman Sachs combine to raise $470 million, and is floating a public tender for another $122 million to buy the planes, they said.

An Air India spokesperson declined to comment.

“The capacity for June declined by 24% against June 2011. But the seat occupancy was 75.2% and overall yield was up by 28.3%,” one of the Air India executives said. “Technically, we have achieved most of the parameters set by the government to qualify for bailout package barring aircraft utilization benchmark.”

In April, the government approved a package of around Rs 30,000 crore to bail out the cash-strapped Air India but it had to meet certain parameters, including seat occupancy, revenue and aircraft utilization rates, to qualify for the scheme.

The executive said the carrier had to cancel loss-making routes such as Toronto-Delhi, Delhi-Frankfurt and Delhi-Paris, and combine some routes such as Delhi-Frankfurt-Chicago and Delhi-Frankfurt-JFK because of the pilots’ strike. “We had to cancel profitable flights as well like Delhi-Tokyo flights,” he added.

The executive added that Air India is in talks with oil marketing companies to import jet fuel directly to cut costs and that it will be closely monitoring fuel prices to be able to hedge correctly.

“Indeed, the strike had impacted our turnaround plan but finances have not deteriorated to the extent that was projected considering the savings in the navigation, landing, catering and jet fuel charges. But we could not meet aircraft utilization benchmark due to the strike,” the executive said.

Air India could only clock nine hours of aircraft utilization in the June quarter against the benchmark set by the government of 14 hours for Boeing 777 planes.

“The strike has made no difference to Air India as it has lesser exposure to international market. So it was a blessings in disguise for Air India to save cost. More you fly, more you make losses,” said a top executive with a listed travel firm, also requesting anonymity.

“The real implication was that the strike has helped other carriers increase their seat occupancy while ticket prices shot up by 15%. All carriers such as Emirates Airline, Jet Airways, Etihad Airways, Lufthansa and others had better seat factors,” he added.

Indian Pilots’ Guild (IPG) members, who fly wide-bodied planes to international destinations, had gone on strike demanding that training on the Boeing 787 Dreamliner jets that the carrier intends to buy be restricted to pilots from the erstwhile Air India, which merged in 2007 with state-run Indian Airlines to form a new entity called the National Aviation Co. of India Ltd, which was later renamed Air India Ltd.

“Whether Air India needed fewer pilots or this situation provided management an opportunity to reduce the headcount or whether pilots had a reasonable rationale for restricting as to who should be able to fly the 787s, or whether some of the pilots should be reinstated, are short-term issues and of minor consequence,” said Nawal Taneja, professor emeritus in the department of aviation at Ohio State University.

The more important challenges are how to position Air India to become a viable competitor within the global airline marketplace, and how to make the government work with the Indian aviation industry to facilitate its profitable growth that, in turn, can stimulate the growth of the Indian economy, Taneja said.

The second Air India executive mentioned earlier in the story said the airline is working towards long-term goals to increase profitability by rationalizing its network in the context of the pilot strike.

Meanwhile, despite the intervention of the Delhi high court—that advised both the parties to opt for an out-of-court settlement—the issue of reinstating the 101 sacked pilots of Air India continues.

The carrier on Wednesday informed the high court that a high-powered committee was looking at the issue on a case-by-case basis.

IPG officials said a final order by the high court is reserved for Monday.

pr.sanjai@livemint.com