Active Stocks
Mon Mar 18 2024 15:55:53
  1. Tata Steel share price
  2. 149.60 5.69%
  1. Tata Motors share price
  2. 972.20 2.75%
  1. ITC share price
  2. 417.40 -0.51%
  1. State Bank Of India share price
  2. 730.70 -0.18%
  1. ICICI Bank share price
  2. 1,082.00 0.32%
Business News/ Companies / News/  Air India to show Rs100 crore operating profit for FY16
BackBack

Air India to show Rs100 crore operating profit for FY16

Fall in fuel prices, higher capacity addition, increased aircraft utilization and fewer delays helped Air India better the projected Rs8 crore

Photo: Abhijit Bhatlekar/MintPremium
Photo: Abhijit Bhatlekar/Mint

Air India’s freshly prepared unaudited results for fiscal 2015-16 will show operating profits of at least 100 crore compared to an earlier projected 8 crore, according to two people familiar with the numbers.

The 8 crore projection was made based on certain assumptions about fuel prices, seat occupancy levels and aircraft utilization. The airline submits this projection to the government to secure instalments of its 30,000-crore bailout package.

According to the people cited above, both of whom spoke on condition of anonymity, a fall in fuel prices, higher capacity addition, increased aircraft utilization and fewer delays helped the airline reach a larger operating profit.

A meaningful turnaround for Air India is critical as the airline is still funded by taxpayers. In 2012, the airline secured a 30,000 crore equity infusion from the government, spread over 10 years.

The two people cited earlier said operational performance improved significantly. For instance, three in four Air India flights landed on time during 2015-16, compared to 69% a year ago. This increased further to almost 80% during April-June 2016, the first person said. Air India is trying to reach an on-time performance target of 85% in the current fiscal year.

The person also said Air India was able to fill almost three-fourths of its flights compared to 72.8% in the last fiscal. Seat occupancy on domestic flights increased to 79.7%, one percentage point better than a year ago.

This has further improved to 82.2% during April-June, this person said, largely owing to new schemes such as the Super Saver fares, which are equivalent to train fares on the Rajdhani Express.

An Air India spokesperson declined to comment.

That “Air India is trying to improve operational metrics is truly appreciable. Yet, 75% on time still means one in four flights is delayed, and shows how low the airline’s benchmarks are. The improved performance is entirely due to the reduction in international crude prices," said Devesh Agarwal, who runs bangaloreaviation.com and has analysed Air India’s route profitability.

During 2016, jet fuel prices in Mumbai fell 17.64% to 41,769 a kilolitre, helping boost the profits of rivals such as IndiGo (InterGlobe Aviation Ltd) and Jet Airways (India) Pvt. Ltd.

“In reality, Air India’s non-fuel costs have increased. While private carriers have recorded operational efficiency increases near 20%, Air India languishes at 11%," Agarwal said, basing the numbers on his proprietary models and calculations.

However, according to one of the two people cited earlier, the impact of crude oil prices on profitability is minimal as the airline had passed on the benefit to passengers through lower fares.

The second person said that better utilization of aircraft has also contributed to the better performance in 2015-16, with Air India’s long-range Boeing 787 fleet logging an average flying time of 14.53 hours a day.

Although it has debt of 50,000 crore, Air India has plans to induct nearly 115 planes over the next four years, the second person said.

Last month, civil aviation minister Ashok Gajapathi Raju had held a meeting to review the functioning of Air India and reviewed its strategy to increase its market share as well as financial performance improvement measures.

“Air India has plans of inducting nearly 115 aircraft comprising 48 Airbus family aircraft for narrow-body and 14 aircraft for wide-body including five on lease. Apart from this, substantial growth was being planned in the subsidiary company to improve regional connectivity with the addition of nine (small) ATR planes during 2016-17, 14 during 2017-18, five during 2018-19 and seven in 2019-20," said the second person cited earlier.

Air India Express, its international low-fare subsidiary, has plans to add 18 aircraft during the same period to its existing 17 planes. All aircraft would be acquired via sale and leaseback method to avoid stress on its balance sheet. That is a net addition of 115 after the phasing out five aircraft, the person added.

He also pointed out that Air India’s aircraft maintenance, repair and overhaul (MRO) facility at Nagpur has started securing orders from third parties and it is likely to operationalize an engine test facility for GE90 (General Electric) engines from 1 October.

A full-fledged engine MRO is likely to be operational in June 2018 to complement the aircraft MRO in Nagpur.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Corporate news and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
More Less
Published: 02 Aug 2016, 12:48 AM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App

Chat with MintGenie