Air India’s turnaround flight less bumpy in FY14

Rhik Kundu Posted online: Sunday, Jun 08, 2014 at 0000 hrs
Mumbai : Air India’s performance in FY14, across a host of parameters, has been better than that in FY13. This is important in the context of the several goals the national carrier needs to achieve as per the turnaround plan (TAP) that allows the airline to seek cash infusion from the government. The airline’s domestic load factor rose to 75.8% up from 73.7% in FY13 while the international load factor increased to 73% from 71.8%. The airline also managed a high yield per kilometer, and a substantial increase in the number of passengers carried. The flag carrier also registered a yield (per km) of R6.08 on its international routes and R3.60 on domestic routes.

The target On Time Performance (OTP) of the airline stood at about 90% from all metros, which was close to the TAP target of 93% which is to be achieved by 2020.

Air India

In 2012, civil aviation minister Ajit Singh, sanctioned a plan for the debt-ridden airline — whose total debt is over R44,000 crore – that envisaged a massive fund infusion of R30,000 crore in installments by 2020. The funds were sanctioned on the condition that the airline achieve higher operational efficiency and was able to restructure debt during the period.

The financial restructuring plan of Air India by SBI Capital Markets was approved by the government in 2012. According to documents, a which have been seen by FE, the airline was set a target of 75% load factor. While Air India achieved over 75% load factor in the domestic segment during FY 2014, it is yet to achieve this in the international segment where the carrier faces stiff competition from cash-rich West Asian airlines specially on its West-bound routes.

The airline is rationalising several of its international routes and networks in order to achieve a higher load factor.

To achieve this, the airline withdrew from loss-making routes like Delhi-Lucknow-Sharjah, and Delhi-Amritsar-Sharjah during FY14 while it discontinued one of the two daily services on the Delhi-Dubai-Delhi route during the same period. In addition, services on Varanasi-Kathmandu route were also withdrawn during May 2013. Apart from this, the Gaya and Rangoon services, which used to operate round the year, are now being operated only during the peak season of April to October to curtail losses along with the second non-stop flight between Bangalore and Male.

“Some of the routes were replaced with the right kind of aircraft upon the induction of Boeing 787 (Dreamliners) aircraft while the existing Boeing 777-200LR fleet, running on these routes, was phased out. The Boeing 747-400s which was not fuel efficient was also replaced by Boeing 777s,” said an official, adding: “The fuel saving which the airline has been able to achieve from September 2008 to March 2014 is around R1, 400 crore which is approximately 7% more than the saving we had over the benchmark 2008 year, in respect to the TAP.”

The TAP also requires Air India to achieve a total annual revenue of R35,000 crore in 2020 up from R14,627 crore in FY12. According to projections by the SBI Capital Market’s financial restructuring plan, the airline is to post a revenue of R21,521 crore, after a R2,425-crore loss during FY14. A senior Air India official told FE that the airline registered a total revenue of R19,170 crore, compared to a R5,388-crore loss during FY14.

The TAP, which suggested the hiving off of the ground handling and MRO units from the airline, also set a target for the airline to post R2,000 crore annual revenue from its MRO unit, R1,500 crore from its ground handling unit and R3,000 crore from its cargo operations by 2020. While two major units of the airline—ground Handling and MRO—has already been hived off into two separate units, namely Air India Air Transport Services (AIATSL) for ground handling and MRO as Air India Engineering Services (AIESL) from FY14, airline officials expect both units to be profitable in one-two years. “The budgeted revenue of AIATSL stands at R750 crore and AIESL at R650 crore for FY14 which includes third party revenue as well as handling Air India flights. The airline will infuse equity in these companies over a period,” the senior Air India official said.

The permanent staff of the airline, which at the time of the merger stood at 33,000, currently stands at 25,000. The airline expects this to fall to 11,000 by the end of FY15, after the staff of AIESL and AIATSL are completely transferred from Air India to their new companies, respectively.

“Though, both AIATSL and AIESL will come out with their separate financial reports from FY14, we expect the hiving off of the subsidaries, as far as the staff is concrened, to be completed by the end of FY15,” said another senior official of the airline. The TAP also states that the effective fleet size of the airline, ‘for it to maintain a dominant position in the market’ should stand at 108 by March 2015 and 157 by March 2020.

The airline, which would get eight Boeing Dreamliners delivered to it in 2014, expects its fleet size to stand at over 110 by December 2014, subject to the arrival of 14 leased planes.

However, the national carrier is yet to find significant success when it comes to monetising its assets. The airline, which is supposed to generate R5,000 crore over 10 years starting FY13 by selling some of its domestic and international properties, has been finding it increasingly difficult to find buyers, specially for its international properties.

“For our foreign properties we are finding it difficult to find buyers. We are in talks with the Indian embassies, high commissions and public sector banks,” said the airline executive. “We are hoping to find overseas success to monetise our properties in FY15,” he added. The total number of passengers carried by the airline stood at 158 lakh during FY14, across its domestic and international routes, against 141 lakh during FY13. Along with its subsidiary company, Air India Express, the national carrier flew 173 lakh passengers in FY14. The TAP requires the airline to achieve 400 lakh passengers (250 lakh domestic and 150 lakh international) by 2020.