According to a Centre for Asia Pacific Aviation (CAPA) report, Air India has almost doubled its bailout request from the Indian Government, in the form of an equity injection and a soft loan (30:70 split), to USD 813 million from USD 467 million requested just two months ago. The amount is roughly equivalent to the revised expected losses for the carrier this financial year.
The request puts the Indian Government into a difficult position, as support for the national carrier would distort the competitive environment for India’s troubled private carriers. Jet Airways and Kingfisher have resorted to an operational merger in an attempt to stem losses and both are seeking to raise fresh debt and equity from domestic and offshore sources.
Air India’s losses have been caused by its slow integration with the former Indian Airlines, weak demand and excess industry capacity. The carrier, which was reported to be making losses on 200 of its 207 routes, has recently cut back its network and is seeking to raise cash from the sale-and-lease-back of aircraft.
Interference by virtually all the politicians and bureaucrats, who treat the airline as their personal fiefdom, ties down the hands of the management in finding solutions to address the challenges.
Domestic travel demand has been on a downward spiral since May this year (3.9 million passengers) until September 2008 (2.7 million passengers), as a result of slowdown in demand caused by high fuel prices and a slowing economy. Total passenger numbers fell a significant 13 per cent year-on-year compared to last year’s 3.6 million. The October numbers have shown recovery, but it is too early to say if this is a case of traffic bottoming out, or not.
Indian domestic passenger numbers and passenger numbers growth: January 2007 to October 2008
Air India’s domestic passenger numbers fell 10.6 per cent year-on-year to 565,000 in October 2008, giving it a market share of 18.2 per cent, up from 17.6 per cent in October 2007. The carrier’s load factor was also an anemic 59 per cent in October 2008.