Home >Companies >News >Air India set to sharply cut losses this year

Mumbai: India’s oldest airline Air India Ltd is expected to post a net loss of 4,270 crore in the current fiscal year, according to an internal estimate, in a turnaround that some experts and airline executives see as a validation of its revival plan.

To be sure, the state-owned airline’s loss estimate is still substantial, and a consultant said its needs to do far more to achieve a real turnaround.

While not comparable with the performances of India’s listed airlines—Jet Airways (India) Ltd, the country’s second largest by passengers carried, and SpiceJet Ltd, the second largest low-fare airline—the loss is sharply lower than the 7,853 crore loss it posted in 2011-12. Air India had posted a loss of 6,865 crore in 2010-11.

Jet Airways’ net loss in the first half of the current fiscal was 74.97 crore and that of SpiceJet 107.37 crore. The grounded Kingfisher Airlines Ltd has posted a half-yearly loss of 1,404.34 crore in the current fiscal.

Mint has reviewed a copy of Air India’s financial estimate submitted to the ministry of civil aviation.

“The airline is expected to register a turnover of 16,600 crore with pure passenger sales of 13,000 crore for the current financial year. The rest will come from cargo, ground handling and other activities. We are expecting a 70.5% load factor against 66% in the last financial year," a senior civil aviation ministry official said, speaking on condition of anonymity.

Air India expects to reduce its loss substantially through a combination of cost-cutting and revenue generation measures that are prerequisites for government support in the form of equity.

“The staff cost was 3,700 crore in the financial year 2011, but this will come down to 2,260 crore," added the official. The airline is achieving this by only hiring pilots and engineers, not filling vacancies created by the retirement of employees, and slashing wages.

In 2011, Air India had at least 35,000 employees on its payroll. The figure has shrunk to 28,500 this year.

Two Air India executives confirmed the estimated loss figures, but declined to disclose the net loss in the first six months of 2012-13 ended September.

According to an estimate by consulting firm Capa, Air India may have suffered a loss of $280-320 million ( 1,526-1,744 crore today) in the second quarter ended September and is expected to incur a loss of $189-226 million in the third quarter ending 31 December.

Air India had debt of 43,777 crore on its books as of 31 December 2011. It has accumulated losses worth 27,000 crore over the past five years.

The government in April approved a 30,000 crore package to bail out the airline. This includes an upfront equity infusion of 6,750 crore and assured equity support of 23,481 crore till 2020-21. Banks have since recast their exposure to the airline, resulting in savings of 1,000 crore a year.

“So far, Air India has improved its performance standards," Ajit Singh, India’s civil aviation minister, told the Lok Sabha on Wednesday. However, he added that Air India does not make a profit on most routes, and that on some it doesn’t even make enough to cover the cost of fuel. Between April and July, of 184 routes, the airline made more than it spent on 16, met the cash expenditure (but not total expenditure) on 69, and made less than it spent on 99.

Despite the likely reduction in losses, Air India cannot sustain its performance and needs a change of culture with an independent management, said Craig Jenks, president of Airline/Aircraft Projects Inc., a New York-based air transport consulting and advisory services firm.

Jenks said the government should stop micro-managing the airline, induct a more commercial-minded management, and introduce some agility in the decision-making process. “It should selectively bring in executives from other industries and, if useful, other countries, including people of Indian origin, who have been very successful in foreign airlines," Jenks added.

Some experts have greater belief in the Air India turnaround story.

Saikat Chaudhuri, assistant professor of management at the Wharton School, University of Pennsylvania, is one.

“Barring external shocks, as long as Air India strictly follows the turnaround plan and the government does not interfere, I believe it is on the initial right path to a long-term recovery," he said. “I believe the turnaround is sustainable, as it comes on the back of structural and operational changes, as opposed to one-off measures."

Chaudhuri, who tracks the Indian aviation industry closely, cited measures such as rationalizing and aligning flights to create a true hub-and-spoke operation out of Delhi; better on-time performance; deployment of fuel-efficient aircraft (especially the Dreamliner); and control of labour costs by removing productivity-linked incentives as well as the hiving off of different entities into individual profit centres.

Air India has started inducting fuel-efficient Boeing Co.’s 787 Dreamliner planes. It has placed orders for 28 such aircraft.

Chaudhuri also attributed Air India’s turnaround partly to the grounding of Kingfisher Airlines. “This has helped Air India on a number of fronts, such as passengers who had moved away trying Air India again, and pilots accepting the salary reduction for the sake of stability. But we should not take away credit from the efforts of Air India itself," he said.

Much in manner of what private airlines are doing, Air India is discontinuing loss-making flights, restructuring flights to optimize revenue, reconfiguring aircraft, selling planes, monetizing real estate assets, spinning off subsidiaries, and connecting more flights to the Delhi airport to make it a hub.

The fact that rival Kingfisher Airlines has been grounded since 1 October has helped Air India as well as other carriers. Kingfisher was flying a little less than 100 flights a day before being grounded compared with 360 daily flights a year ago.

One of the two senior Air India executives cited above said the government’s equity infusion and other measures have helped and the airline will make an operating profit or turn Ebitda-positive in the current year. Ebitda is earnings before interest, tax, depreciation and amortization.

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