BackAir India adapts to market realities to turn profitable
Air India adapts to market realities to turn profitable
PremiumNarrowing losses: Air India had a cash loss of Rs 37 crore in the June quarter, according to airline executives, but this was much smaller than the cash loss of Rs 503 crore it had a year earlier. By
Mumbai: The country’s oldest airline, the state-run Air India Ltd, is increasingly beginning to resemble private carriers as it adapts to market realities.
The flag carrier has grounded some 20 old planes that are fuel guzzlers and reconfigured 14 planes to have only economy class seats.
Air India is slated to take delivery of its first three out of 27 Dreamliners in August. It has a debt of nearly 44,000 crore.
The airline is also looking to sell five widebody Boeing 777 planes it used to fly abroad, having discontinued several loss-making routes while a section of its pilots were on a 58-day strike.
“After a year-and-a-half, we have now achieved stability of schedules and, hence, improved our on-time performance. We would have actually made some cash profit if there was not any strike," said one of the two Air India executives mentioned above. “Despite the pilot strike, our passenger revenues for the June quarter was up at 2,945 crore," against 2,500 crore a year earlier.
The pilots’ protest, which ended on 3 July, resulted in a revenue loss of nearly 600 crore to the carrier.
Air India had a cash loss of 37 crore in the June quarter, according to the executives, but this was much smaller than the cash loss of 503 crore it had a year earlier.
Experts, however, do not see this as sustainable as the airline heads into a typically lean season in the second quarter of a fiscal year and may have to offer concessions to win back passengers.
The executive quoted above said the airline is slated to sign special and long-term travel agreements with 700 Indian companies and is reworking its pricing strategies.
“We would not be dropping prices to woo travellers back on board but certainly we would be incentivizing our travellers with special offers and schemes," he said. “We are re-introducing non-stop flights to the US starting 15 August and will make Mumbai-London a daily flight from three times a week. We are on a revival mode."
The second Air India executive mentioned earlier said cash margins improved after the carrier discontinued some non-profitable routes.
“In June, Air India has made cash margins (passenger revenue minus pure operating cost) of 17 crore on international routes and 75 crore on domestic routes," he said. “We have grounded 20-odd old planes, including Boeing 737, Airbus 310s and Airbus 320s. Also, we have reconfigured 14 of Airbus’ 320 planes into all-economy cabins to accommodate more seats without adding more planes."
An airline consultant, also requesting anonymity, said Air India cannot keep reducing cash losses as it is offering 10-30% cheaper fares on international routes from mid-August. “Though Air India is not dropping prices across the board, it is offering stimulating prices competing with international biggies.... It needs to ruthlessly cut costs and maintain network integrity," he said, while noting that most private airlines reported profits for the June quarter, barring the troubled Kingfisher Airlines Ltd.
Privately run Jet Airways (India) Ltd, the country’s largest airline by passengers carried, has also cancelled several domestic and international routes to cut losses, is reconfiguring its aircraft to add more seats, and has sold and leased back two planes. It has plans to sell and lease back 15 more planes in this fiscal.
Jet Airways posted a 24.7 crore profit in the quarter ended June against a loss of 23.16 crore a year earlier, performing better than expected as Kingfisher Airlines cut flights and fares rose, helping Jet end a run of five loss-making quarters. India’s second largest low-fare carrier, SpiceJet Ltd, posted a profit of 56.15 crore compared with a loss of 71.96 crore a year ago, riding largely on income from the sale and lease-back of its planes.
Cash-strapped Kingfisher Airlines, though, reported a net loss that widened nearly two-and-a-half times to 650.78 crore for the quarter.
Air India is set to make an operational profit this fiscal as per its turnaround plan, the second Air India executive quoted above said. Experts don’t see that happening too soon.
Inder Sethi, a former deputy managing director and commercial director (1957-80) of Air India, pointed out that India no longer operates under bilateral pacts that were based on capacity and helped Air India on foreign routes.
Nations enter into bilateral agreements to allow the carriers of both countries to carry passengers in equal proportion. Earlier, decisions on these agreements were taken based on national flag carrier Air India’s capabilities; now there is no such exclusive provision for Air India.
“In today’s atmosphere, there are many airlines—primary among them are the Gulf carriers—who have frequencies which bear no relation to the traffic between India and their countries," Sethi said.
A 7 August report by consulting firm Centre for Asia Pacific Aviation (Capa) said that while incumbent network carriers Air India and Kingfisher Airlines have cut back their respective international networks, SpiceJet, IndiGo and Jet Airways are planning to expand as a result of being granted additional international seat allocations.
The aviation ministry has granted approval to private carriers to fly on several West Asian and Asian routes after the government earlier this year ended Air India’s right of first refusal with respect to international bilateral entitlements.
“Yes, there is intense competition from international and domestic carriers on the international routes. But we are now in the game," the first Air India executive said. “We are offering best prices and services in brand new planes. Induction of Dreamliners will also change the scenario. We are bringing back the schedule reliability at best prices."
He added that his airline may be owned by the government but it is adapting to the market dynamics like any private airline.
“We carry 42,000 passengers every day and out of that only 10.5% is government employees. Remaining are leisure traffic and corporate travellers. We are also witnessing a 50% increase in our business and first-class traffic. We are adopting everything to fly to profitability," he said.
In April, the government approved a 30,000 crore package to bail out the loss-making state-owned carrier. The package included an upfront equity infusion of 6,750 crore and assured equity support of 23,481 crore till 2020-21.
The government has also approved a restructuring plan of 21,348 crore of short-term loans to help Air India stay afloat. The airline had accumulated losses of 27,000 crore in the past five fiscals.
pr.sanjai@livemint.com
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