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BW Businessworld

Air India Seeks To Find Profit Route

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The skies have not been an easy place for Indian airlines. Apart from IndiGo, almost every carrier has run into turbulence, and piled up debt on its books.  Which is why when Rohit Nandan, the CMD of Air India, talked about turning cash positive in 2018 during the recent Star Alliance Chief Executive Board Meeting press conference, the statement was met with incredulous silence.
Air India's optimism comes from a combination of factors – the entry into Star Alliance which improves its reach, new code share arrangements, but above all the fall in oil prices. According to an Air India official, it expects a good 15 per cent savings in its annual fuel bills of about Rs 9,100 crore. Global oil prices have slumped from a high of $115 a barrel to under $60 a barrel in six months.
Oil Prices
However, riding on oil prices, which could fluctuate, alone cannot restore Air India's  balance sheet. It needs to improve passenger loads. According to S. Venkat, Air India's Executive Director of Finance, passenger load on international routes has risen to 74 per cent and on domestic to 78 per cent, helped no doubt by the sudden disruption in Spicejet services (though Nandan shrugs that factor off saying "we are not vultures").
According to Venkat, Air India has been earning Rs 50 crore per day on passenger revenues in December and expects the momentum to continue. However, he admits that for the airline to turn profitable, more cargo revenue needs to be generated.
Currently Air India earns Rs 16,500 crore annually in passenger revenues with only Rs 1300 crore coming from cargo. "We need to push it up to 10 per cent of total revenues," admits Venkat, saying it can be done by optimum use of Dreamliners.
The national carrier acquired 18 Dreamliners and will be getting three more in 2015 pushing the total fleet to 21. Though it will be getting Boeing 787–900 series rather than the 800 series.
The other strategy could be to increase the capacity on its low-cost carrier Air India Express by increasing its fleet.
Air India Express
At present Air India Express operates 185 flights to Middle Eastern destinations, and has 17 aircraft. Air India is now thinking of acquiring five more Boeing 737 (800 series) on lease in 2015.
Improving ancillary revenues is another strategy that the airline is toying with. Most other airlines are now earning high revenue through baggage taxes. "Delta earns $2 billion per year just through baggage tax," points Venkat, whereas Air India gets barely one per cent of its revenues from baggage taxes.
Some recent government statements might also help Air India (as well as other airlines). After Spicejet's troubles, the government has indicated that it could grant the aviation industry infrastructure status, which could mean some relief in terms of bank interest rates and perhaps even aviation turbine fuel taxes.
But those are external factors – for a turnaround, the key lies in better operations. Air India might claim an improved On Time Performance currently, but given its inconsistent record, a turnaround story will take some believing.