Now that it is no longer being dressed up for a
potential suitor, Air India (AI) has no option but return to grunt work for survival.
So what happens now? Remember, the ostensible reason the government gave for looking to shed a majority stake in AI was its reluctance to pump in more taxpayers’ funds under a previously approved turnaround plan.
But now that the sale is off, not only is the government getting a rude reminder of its commitment to continue pumping money into the loss-laden airline, it has no choice but to begin nudging AI to bring in far more cost efficiencies to survive. It is an exercise at which AI has not been particularly successful.
The finances too offer no hope. Actually, the numbers have severely worsened.
A senior airline official told CNBC-TV18 that the net loss for 2017-18 is expected to be about Rs 3,900 crore, which is “an improvement over the previous fiscal” but added that these were unaudited numbers. He said the topline would be close to Rs 24,000 crore.
It's better to take the AI numbers with a pinch of salt, especially after the carrier reported unaudited net loss of Rs 3,643 crore in 2016-17 with the audited losses much higher at Rs 5,675.16 crore.
Even if we take the unaudited net loss number, the airline lost over Rs 10 crore on an average each day of 2017-18 despite benign fuel prices in the last fiscal.
AI's fuel bill rose 19 percent to Rs 7,500 crore in 2017-18 and is expected to breach Rs 10,000 crore in the current fiscal due to rising global prices, said the official, who did not wish to be identified.
Based on the above data, it's an easy guess that AI faces many headwinds at the moment:1) Higher global crude prices would escalate costs and worsen profitability.
2) The airline needs Rs 2,100 crore equity infusion in this fiscal. This is the amount which was promised under the turnaround plan but was withheld due to the disinvestment process.
3) The company needs to raise Rs 1,000 crore for its daily working capital needs from UCO Bank.
Meanwhile, the AI top brass has girded up its loins to save every penny that can possibly be saved. From asking crew members to share rooms to doling out autorickshaw fare instead of cab fare, the company wants to cut costs wherever it can.
But the topmost priority remains improving aircraft utilization – which means using AI’s fleet of planes for more number of hours each day. This, the official said, could generate as much as Rs 500 crore more of revenue in 2018-19 and add anywhere up to Rs 400 crore to the bottom line.
“Our aim is to reduce turnaround time (time needed to prepare an aircraft for another journey after landing from a previous one) by about half an hour for each type of aircraft. We will also need to tweak schedules so that less number of aircraft are on the ground due to maintenance. Currently, out of 70 A320 family aircraft, 9 are undergoing maintenance – this is two more than planned. And of the 45 wide bodies, 7 are in the hangar, again two more than planned. We expect to add Rs 500 crore to the airline’s topline by reducing turnaround time and getting more aircraft out of maintenance,” the AI official said on the condition of anonymity as the matter is sensitive.
The official added that the measures announced by AI to cut costs have achieved their objective. “We had asked crew to share rooms, but they came back saying instead of sharing the room, they were okay with single rooms in 3-star hotels. This is good, this is a climb down from their earlier demand of rooms in 5-stars. It helps us save some costs and gets a clear cost cutting message across.”
Another area where AI wants to make money is its ancillary revenues, which comes from non-ticket sources, such as baggage fees and on-board food and services.
The airline is earning an incremental Rs 20 lakh a day revenue following the airline's move to levy a ‘seat-selection’ charge on most of its bookings, said the official.
Another important step is rationalizing food. “We haven’t taken a call yet on how to cut meal costs. Should we perhaps remove the pot of jam we serve during afternoon flights? Should the bun, which is provided along with rotis, be dispensed with? These are some of the things we are looking into. But remember, meal costs are not substantial and these measures will result in only Rs 10-20 crore saving in a year,” the official said.
With regards to the baggage allowance, the company doesn’t want to tinker with the 25 kg check-in bag limit versus just 15 kg on other airlines. There has been a nominal hike in excess baggage charges and some more measures are being worked out to generate additional revenue for AI.While all these cost cutting measures are steps taken in the right direction, they may just not be enough for the bleeding airline with a massive debt burden on its wings. The government needs to find a long term plan for the national carrier before it’s too late.