Air India blames everyone but itself for losses

The reasons for its losses according to the airline are lack of freedom in deciding aircraft deployment; foreign carriers getting multiple points of access within India and carrying away traffic

Sindhu Bhattacharya August 16, 2012 13:43:40 IST
Air India blames everyone but itself for losses

New Delhi: It's like new wine in an old bottle. Air India has blamed everyone for its losses but itself.

The civil aviation ministry recently conducted a detailed study on international and domestic routes which are non-profitable for the airline. Interestingly, the reasons for the poor performance, as given by the airline, are lack of freedom in deciding aircraft deployment; foreign carriers getting multiple points of access within India and carrying away traffic; and Indian private airlines concentrating on Delhi International Airport as an international hub.

Historically, AI had a monopoly over all routes until liberalisation kicked in and it is the influx of competition in the form of foreign and domestic private carriers which AI has been unable to handle. The study found that Air India is making significant operational losses due to a "huge" mismatch between the aircraft it flies and the sectors it operates in.

This means AI has been deploying larger aircraft on sectors where traffic potential is lower and smaller aircraft with less capacity should have been used instead. So more seats remain unsold on these larger planes and operational costs are also higher because more of expensive jet fuel is needed to fly such large machines.

Air India blames everyone but itself for losses

But for the airline to actually return to the black, it needs to be ruthless in cutting out routes where flights do not even meet cost of jet fuel. Reuters

A ministry official cited the example of the Kochi-Dammam flight, where a large aircraft like B777 is used and load factors (occupied seats as a percentage of total available seats) are just about 47 percent- not even half the aircraft is occupied.

"Had the airline used an A320 on this route, load factors may have risen to the 80% level," this official said. AI plans to correct this anomaly to some extent by deploying the Dreamliners-three of which are scheduled for delivery early next month - on medium haul routes instead of the B777 fuel guzzlers and has already withdrawn services to some of the top loss-making routes during the 58-day pilot strike which ended recently.

But for the airline to actually return to the black, it needs to be ruthless in cutting out routes where flights do not even meet cost of jet fuel. The ministry's study found that since AI is the national carrier, its social obligations constrict its ability to stop services on many loss-making routes and this has also led to some losses.

All destinations in North America, Europe and the UK with the exception of New York and Chicago were loss making for the airline last fiscal, the ministry's study found. In fact, just 13 overseas routes which AI has been flying for decades accounted for 80 percent of its total cash the losses in 2011-12. Its total cash losses last fiscal were Rs 1,491.25 crore, of which these 13 routes accounted for Rs 1121.07 crore.

The biggest loss-making international flight was the Amritsar-Delhi-Toronto service which brought in Rs 164.25 crore in cash loss last fiscal or 11 percent of the airline's total cash loss. Ahmedabad-Mumbai-London followed close on its heels with Rs 145.40 crore and Amritsar-Delhi-London was next with cash losses of Rs 113.28 crore.

The study found that in the A320 family aircraft used on domestic routes were also bringing in losses. Eight such flights did not even meet fuel costs, 68 others just met fuel costs but not the overall cash cost and 46 others were meeting cash costs but not total costs. For the same aircraft family being used on international routes, 17 such flights were only meeting ATF costs but not cash costs.

So should AI not have the freedom to choose which aircraft to use on which routes and lease out larger ones? "But AI being a PSU has its own restrictions in taking such decisions quickly. It faces many disadvantages when compared to private carriers," the study has noted.

It has also pointed out that since foreign carriers have been given access to multiple cities within the country, many routes which were originally developed by AI have turned loss making due to severe competition from foreign airlines which have access to cheaper jet fuel.

"Rights given to foreign airlines to come deep into Indian areas and pick up traffic from different parts of the country may be relooked (at)", the study suggests. Then, AI has an axe to grind not only with foreign carriers but also with private domestic airlines. The study says that Indian carriers who were allowed to fly overseas "also tagged on to the profitable routes from Delhi and Mumbai operated by AI.

The result was reduction in load factors and fares due to overcapacity and competition......Indian carriers should be asked to develop their own international hubs rather than focusing on Delhi airport". Since the government has promised a Rs 30,000 crore support package for the airline in the next decade, it certainly needs to ruthlessly cut unprofitable routes to survive the future.

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