Air India must stop blaming Jet-Etihad for all its problems

Is an equity deal between Jet Airways and Etihad Airways the only reason why Air India’s international traffic growth may be affected in the near future? Well, it has other troubles too, with planned expansion to North America coming under a cloud.

Highly place airline sources have said that it has decided against restarting flights on the Toronto route and cannot anyway launch fresh flights to North America either because of objections raised by Delta Airlines of the US.

These sources said Delta has been pushing the US EXIM Bank to stop concessional financing of Boeing 787 Dreamliners to Air India, to stop the airline from using these highly fuel efficient aircraft on the US routes. “So we cannot use the Dreamliners and the Boeing 777 aircraft are not profitable. This means any further expansion to the US is ruled out for now,” these sources said.

More from Business

Hyundai India’s Rs 27,870 crore IPO oversubscribed by 2.28X, largely driven by institutional investors How Indian fintech startups are driving Malaysia’s UPI-like digital payments revolution

[caption id=“attachment_1220445” align=“alignright” width=“380”]  Trouble for Air India. PTI[/caption]

As of now, Air India operates non-stop daily flights to New York and also connects Chicago. The sources said these flights are barely breaking even, just about meeting their cash costs and it makes little sense to add to these flights unless the Dreamliners can be deployed.

So when expansion to North America is being restricted for reasons other than Jet-Etihad deal and AI is anyway expanding on other international routes with 787 deployment, is it right for AI to cry wolf over Jet-Etihad taking away traffic?

Impact Shorts

More Shorts

Chennai Ranks #1 in Challan Checks: ACKO Insights for Smarter Car and Two Wheeler Insurance Decisions

Tata Harrier EV vs Mahindra XEV 9e: Design and road presence compared

Recently, the Competition Commission of India sought comments from Air India, Jet’s primary full service competitor, on whether the equity deal with Etihad will be anti-competitive. Airline sources had told us earlier that the Jet-Etihad deal will mean that the market share of the combined entity on the India-Abu Dhabi route will increase to about 80%, with only 20% remaing for other carriers including Air India. They said AI will use this to term the deal anti-competitive. CCI is believed to be considering the Jet-Etihad deal in a meeting today.

Let’s next look at Air India’s plans to restart a direct, non-stop Delhi-Toronto flight from December which are now also being put on the backburner. This flight was one of the prime loss makers for AI till last year when it was suspended, accounting for over Rs 150 crore loss in 2011-12. Earlier, three airlines were flying to Toronto from Delhi - Air Canada, Jet Airways and Air India. Air Canada pulled out last year and Jet operates the flight via Brussels. The Ministry of External Affairs was earlier believed to be pressing Air India to relook at this flight. Even till last year, the problem was not load factors (how many seats on the aricraft filled) but yields (revenue per passenger).

The sources quoted earlier said a comprehensive study Air India undertook for this route recently “has not shown postive results. We will wait and watch”.

The opposition to Jet-Etihad, though industry wide and justified on many grounds, cannot be cited by AI any more to go slow on international expansion on key long haul routes. From the winter schedule this year, which came into effect from October 27, AI will begin four-times-a-week Delhi-Hong Kong-Seoul flight on the brand new Boeing 787 Dreamliner aircraft. Also, once permissions are in from Japanese authorities, thrice-a-week flights would be mounted on Delhi-Hong Kong - Osaka route. Then, Air India plans to begin services to Rome and Milan from this winter schedule and to Moscow from summer of 2014.

And that AI’s own backyard is full of problems is well known. Till last fiscal, more than two out of three Air India flights or almost 70% of its capacity was making cash losses. Air India operates 470-480 flights daily so about 330 flights of the airline were making cash losses till March 2012!

Some of these flights were not even covering the cost of jet fuel. But during 2012-13, this situation improved and now, only one in four turn in cash losses for the airline and all flights on its network at least cover fuel cost. A study conducted by the Ministry of Civil Aviation last year found that all destinations in North America, Europe and UK with the exception of New York and Chicago were loss making for Air India in 2011-12. Just 13 overseas routes which AI has been flying for decades accounted for 80% of its total cash the losses in that year.

Its total cash losses in 2011-12 were Rs 1491.25 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 or 11 per cent of the airline’s total cash loss.