Turning around Air India: No Ashwani Lohani, it's not only about debt pile

New Delhi: The strongest quarter for airline earnings in India has typically been the December quarter, where festival rush ensures airline cash registers keep ringing. So is it a wonder that loss laden Air India also got a reason to smile, thanks to the busiest quarter of the year? As per a senior Air India official, the airline’s operating loss was Rs 161 crore in the first nine months of this fiscal. This means the daily operating loss came down to about Rs 58 lakh in the April-December 2016 period against almost Rs 4 crore each day for the first six months of the same year. This is a huge improvement, even if due to seasonality in air traffic in one quarter, and Air India needs to be commended for such a remarkable show.

But here’s the spoiler: once again, it is clear that meeting the annual target Air India had set itself, of achieving Rs 1,086 crore in operating profit by March 2017, is next to impossible now. Because achieving this number would require the airline to make almost Rs 11 crore operating profit each day of the current quarter. So when Air India’s Chairman and MD Ashwani Lohani says in an interview that Air India’s only problem is its huge debt pile and that the airline can beat competition hollow if relieved of its debt, it is over simplification of what ails the national carrier. The airline needs far more operational efficiency than it has shown till now to even remain profitable at the operational level. Beating competition is way off the mark in the present state. Lohani must bear this in mind since Air India is scheduled to make a detailed presentation to the PMO sometime today on the airline’s state of affairs.

Representational imgae

Representational imgae

Anyway, operating metrics available in the public domain show why Air India has a long way to go to beat competition. Take on-time performance (OTP): sources tell us it fell to the lowest in recent memory to just 46 percent on January 3 for the entire Air India network. This means more than half the flights on the network were delayed that day. For domestic operations, the figure was even lower at 42 percent.

On December 29 too, Air India's network wide OTP was just 46 percent, with international operations at just 43 percent. As per DGCA data, Air India’s combined OTP at four metro airports has been the worst among all major domestic airlines in each month of calendar 2016 except in October when GoAir was worse.

In November, the OTP of Air India across these airports was 67.7 percent which means every third flight from these airports was delayed.

Passenger load factor or bums on seats – another metric – also does not favour Air India.. This denotes the number of passengers as a percentage of total number of seats on an aircraft. In five of the 11 months of 2016, Air India was the second lowest (Vistara had the least PLF among national airlines). In the remaining six months, AI was ahead of Vistara and the Jet group by a small margin.

This means competition was able to entice flyers far more than AI in most instances. This, despite AI having a hub and spoke model which ensures better domestic connectivity than other airlines which follow a point-to-point connectivity model and also the fact that on most occasions, AI was matching fares with competition. The only consolation in the 11 months of 2016 under review is that the load factor for AI did not fall below 70 percent, which means it was flying at least 7 in 10 seats full at any given time. Even in market share, the airline has had a mixed year. DGCA data show its share of the domestic market fell from 16 percent in January to 12.9 percent in November.

The fiscal year started out with a warning for Air India. It had reported a modest Rs 100 crore operational profit in 2015-16, for the first time since the two erstwhile airlines were merged to form the present entity. But in the first quarter immediately after this euphoric 12-month period, AI slipped back, reporting an operating loss of Rs 264.14 crore or close to Rs 3 crore a day. And after the close of the second quarter, operational losses mounted to about Rs 700 crore or Rs 4 crore every day by end of September.

A source close to developments pointed out that discipline issues, non-availability of enough narrow body aircraft for domestic operations and rising fuel prices remain a challenge. Increasing competition on the domestic front is also making things tough, especially since yields (which signify revenue per passenger) have been falling as airlines race among themselves to lower ticket prices despite rising fuel costs.

As for the debt pile on Air India’s books, the government is already trying novel ways, like nudging state insurer LIC to take some of the burden and some more may be shouldered by state run banks. Besides, Air India needs fresh loans since it still has to take deliveries of six Dreamliners (Boeing 787s) and three Boeing 777 aircraft till 2017-18, orders for which were placed during the earlier mega aircraft order of 68 Boeing and 33 Airbus aircraft.

The airline is also mulling over a scheme where PSU banks could be asked to take equity in lieu of their exposure. The total interest outgo of Rs 4,000 crore each year could be reduced by a fourth if this ambitious proposal works. Of the total debt of Rs 46,570 crore, about Rs 20,000 crore is sought to be restructured through the Sustainable Structuring of Stressed Assets (S4A) scheme announced by the government recently, where banks are being asked to look at equity on return for debt repayment. The entire loan restructuring process could take up to six months. But will PSU banks play ball?

Published Date: Jan 06, 2017 15:22 PM | Updated Date: Jan 06, 2017 15:24 PM

Also See