AI makes one more attempt to soar

Last Updated: Wed, Dec 26, 2012 05:28 hrs

Air India has put behind its labour crisis by increasing its market share to over 20 per cent and revenue by 4.5 per cent between April and November, despite reduction in capacity. The airline, which carried a record 50,000 passengers last Saturday, has also lowered its operating losses by Rs 550 crore in the first half of the current financial year (FY13).

However, Air India's plan to generate positive Ebitda (earnings before interest, taxes, depreciation and amortisation) at the end of the current year will depend on whether it is successful in monetisation of assets and lowering its fuel and wage bill.

With an annual loss of Rs 7,853 crore last year, it had secured a Rs 30,000 crore government bailout that included equity infusion, cash support and debt restructuring.

Short-term loans worth Rs 10,000 crore have been converted to long-term loans and a working capital loan of Rs 7,400 crore has been converted into convertible debentures, lowering the interest burden by Rs 70 crore a month.

The airline is now looking at a five per cent reduction in its Rs 8,400-crore annual fuel bill, curtailing cost on computerised reservation systems and enhancing revenue through route rationalisation and improved marketing efforts. Following implementation of the Dharmadhikari committee report, the carrier plans to reduce its annual wage bill by about Rs 1,000 crore from the current Rs 3,500 crore, and hiving off of engineering and ground handling departments.

"The main reason for deficit is high fuel costs. Fuel prices continue to remain high and nearly 65 per cent of our revenue goes in fuel. We are negotiating with oil companies for better terms," said an Air India executive.

The airline, which has dues of Rs 4,000 crore to oil companies, has sought discounts in fuel purchase as offered to other airlines. "We should be placed at par with other airlines," said the executive.

Operationally, the airline is better off. Customer focus is back and the airline has been on an advertising spree, targeting both budget travellers and corporates. "We are back in the reckoning," said a senior Air India executive, adding the airline signed ticketing agreements with 600 companies this year.

Route rationalisation is also on the agenda and suspending the Toronto flight alone will save it Rs 180 crore a year.

"We carried more than 50,000 passengers last Saturday and earned a revenue of Rs 48 crore that day, a record after merger," said another official.

Occupancy in the business class has improved from 35 per cent to 60 per cent in both domestic and international sectors.

While the airline's international operations continue to lose money, introduction of Boeing 787 Dreamliner has led to fuel savings and the airline breaking even on routes such as Frankfurt. The airline has inducted four B-787s and hopes to use these on the London and Paris routes.

However, these measures alone are not enough for revival. In a review meeting last week, the Civil Aviation Minister Ajit Singh expressed concern over the airline's losses and said the airline management needs to think out of the box and prune costs.

Singh has asked the airline to examine the necessity of deputing staff abroad to assist Indian embassies for ticketing, etc., since these days such facilities are available online. Also under review are special baggage allowances that Indian diplomats get from the airline.

Critics also point out that Air India's operational success is largely due to Kingfisher Airlines going out of business. "It is purely because of Kingfisher. Also, the airline has been able to increase its volume because of low fares. Its revenue growth is less than rivals. Air India's performance needs to be compared with its peer. Its on-time performance is the lowest amongst domestic airlines," an expert remarked.

According to Air India executives, the pilot strike has led to slow revenue growth.

More from Sify: