Air India will increasingly focus on operating on the international and regional (tier 2 and tier 3) routes to increase its revenues since yields in the metro and tier 1 routes have fallen substantially due to competitive ticket pricing and increased competition, Ashwani Lohani, chairman and managing director of Air India, told FE.
Currently more than 60% of the standalone revenues of Air India come from international operations and the airline will look to fly to two more routes in United states, three to four in Western Europe. Air India through it’s subsidiary, Alliance Air will fly more to tier 2 and tier 3 cities since most of the private carriers barring SpiceJet do not operate on those routes due to lack of smaller aircraft.
According to Lohani, Air India’s strength is its international operations where expansion will continue and so will be the case with regional routes on the back of its ATR aircrafts.
“Air India added four new international destinations since I took over. At the end of 2017 we expect to add 15 new ATR aircraft which will help us to cater to the growing demand in the regional routes. This segment has less competition now, so we plan to focus more there,” Lohani said.
Last year Air India started direct flights to San Francisco, Vienna and Madrid and the passenger load factor (PLF) is about 80% in most of the routes.
Most of the domestic airlines registered 5-6% decline in yields as a result of which the top line also remained flat. Air India also saw yields fall by 7% but the revenues in FY16 stayed flat at R20,265 crore. According Jayant Sinha, MoS, the full service carrier is expected to increase its revenue by 9% at the end of the current financial year to R22,521 crore.
“One has to realise that yields fell by 7% and Air India has not inducted new planes when other competitors have. Ideally the revenues should have fallen by 7% but it has grown by 3% due to better utilization and improved ASKs. We have flown more number of people with the same number of aircraft,” added Lohani.
The old aircraft though consumes more fuel and maintaining the on time performance with them is also a challenge compared to the new ones.
Almost R4,500 crore of interest burden, merger related issues and aged staff due not recruiting for the past twelve years – including pilots and cabin crews- are the three principle reasons according to Lohani that are pulling down the performance of the state owned carrier.
“This is a highly competitive business and to sustain we have to recruit a lot of people besides pilots and cabin crews. We haven’t been able to do it successfully. For us to make a profit of R4,000 crore to meet the interest burden that seems far fetched and no airline can do it. We have to run it like a corporate entity and that has happened partly,” he said.
In a bid a to reduce its debt burden, Air India wanted to refinance its long terms loans of R8,000 crore under the S4A scheme of RBI which has been rejected by the bankers. “We are talking to the bankers about that but nothing concrete has come out of it. We will continue talk to them,” said Lohani.