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Air India Boeing 777-237LR VT-ALF Jharkand at New Delhi IGI airport. Photo copyright Vedant Agarwal, all rights reserved. Used with permission.
Air India Boeing 777-237LR VT-ALF Jharkand at New Delhi IGI airport. Photo copyright Vedant Agarwal.

Air India loses money on all international flights, but two

National carrier Air India lost money on 57 of its 59 international routes in the last fiscal year which ended March 31, 2014. The airline lost a whopping Rs 4,273.35 crores (approximately $712 million at current exchange rates) operating these international flights. This according to an internal “Route Economics” provisional report for April 1, 2013 to March 31, 2014 which Bangalore Aviation reviewed.

Over half of the 59 international flights, 32 or 55%, did not even earn their direct out-of-pocket cash operating costs. Tantamount to taking tax-payer bailout money and setting it on fire, the airline failed to generate enough revenue from these flights to cover even its basic cash operating expenses by Rs 575 crore ($96 million), forget the payback on the massive Rs 40,000 crore debt the airline is sitting on or the other overheads such as management expenses, ground and station staff expenses, etc.

In a direct contrast to India’s leading private airline Jet Airways, whose international division earns profit which is lost by domestic operations, Air India’s international operations contribute to over 80% of its total annual loses.

We wrote to the airline a week ago with a list of questions. Till date it has not responded.

Break even, cash costs and total costs

As per sources, Air India defines cash costs as out-of-pocket expenses incurred in operating a flight; fuel, crew costs, ground handling, airport charges, en-route navigation, crew hotel, etc. The total costs include the overheads of the airline including cost of aircraft.

As per an analyst at an international aviation consulting firm, who cannot be named since he is not authorised to speak to the media, the norms for break even on international routes is a maximum within two years and to make the route profitable within three. Most airlines pull the route if they do not meet these benchmarks. Low cost carriers like AirAsia are even more aggressive. When we asked about cash costs the analyst said “The concept of cash-cost is unique to Air India. No global airline follows it. All airlines look at total costs.” He went on to suggest Air India is using the benchmarks of “ATF cost” and “cash/variable cost” to deflect from its real under-performance vs. total costs.

Eliminating just three flights will save Rs 1,080 crore

The top three loss making flights are to the United States. Two of these three are from Prime Minister Modi’s home airport of Ahmedabad, though these flights were operating long before he became the Prime Minister.

Air India loss making routes distribution
Air India loss making routes distribution

The Ahmedabad Mumbai Newark return AI144/AI191 route lost a staggering Rs 470 crore ($78.3 million) last year despite having a passenger load factor of 74%, normally considered a break-even load factor. This translates to a loss of about Rs 25,000* 7,297.39 per passenger the airline transported on the route over the year. This one flight alone, accounts for 11% of Air India’s international flight losses.

* We made a calculation error for which we apologise. The new figure is calculated using the revenue passenger kilometres figures from the report and the route length for a very accurate calculation.

The Mumbai New Delhi New York return AI101/AI102 flights lost Rs 370 crores with a load factor of 72%, again considered good. This flight contributes about 8.7% of the airline’s losses.

The Ahmedabad Mumbai London Heathrow return AI131/AI130 route lost Rs 260 crore ($43.3 million) with a load factor of 69%.

Just eliminating these three flights will save Rs 1,080 crore, more than a quarter (25.27%) of Air India’s international flight losses. The top five “loss leaders” flights contribute Rs 1,561 crore or 36.5% of the losses. The top ten contribute Rs 2,299 crore or over half (54%) of the losses.

Analysis

Stay tuned for our detailed analysis of the loss making flights next Wednesday.

Not even meeting fuel costs

Even the much vaunted New Delhi Sydney Melbourne return AI301/AI302 flights operated by the fuel efficient Boeing 787-8 Dreamliner lost about Rs 77 crores in about nine months of operation with half the losses (Rs 34.5 crore) coming in the month of March 2014 alone. Alarmingly, in the month the Australia flights did not even generate enough revenue to pay for the fuel burnt on the trips. Rs 22 crore earned vs. Rs 26 crore spent on fuel.

The two profitable flights?

AI251/AI252 between Varanasi and Kathmandu and AI227/AI228 between Kolkata and Yangon (Rangoon). And in case you are wondering, these two flights have a passenger load factor averaging a lowly 43% which shows yield (amount earned per passenger) is equally a key to profitability as passenger load factor. High yields and high load factors lead to high profits. Readers will observe the government hierarchy always quotes increase in load factors but never focuses on yields. Air India’s formula is simple. Drop prices, fill seats.

Air India’s Top 10 losing flights

The map (generated with GCMap) shows the top 10 loss making routes of Air India, while the table below shows the losses.

Map

Map of Air India's top 10 loss making international routes.
Map of Air India’s top 10 loss making international routes.
Map courtesy GCMap.com.

Table – Air India’s top 10 wall of shame

Sl. No. Flight Pair Route Total Revenue PLF % Profit or Loss (Rs cr.)
On Cash Cost On Total Cost
1 144/191 Ahmedabad Mumbai Newark & vv 710 74.37% -110 -470
2 101/102 Mumbai Delhi New York & vv 895 72.10% 27 -350
3 131/130 Ahmedabad Mumbai London & vv ^ 433 69.49% -47 -260
4 127/126 Hyderabad Delhi Chicago & vv 1,003 78.76% 136 -254
5 111/112 Amritsar Delhi London & vv 460 78.21% -18 -226
Sub-total

-1,561

6 301/302 Delhi Sydney Melbourne Delhi ^ 218 71.58% -77 -183
7 115/116 Amritsar Delhi London & vv ^ 308 72.02% -19 -154
8 142/143 Chennai Delhi Paris & vv ^ 400 72.51% 18 -142
9 342/343 Mumbai Chennai Singapore & vv 165 70.05% -17 -136
10 348/349 Mumbai Delhi Shanghai & vv ^ 180 59.68% -29 -123
Sub-total -738
^ Boeing 787 flights Total -2,299

The EBITDA deflection

Unlike the private airlines who lease their aircraft and show the lease costs as a part of the EBITDA (earnings before interest taxation depreciation and amortisation), Air India has bought bulk of its fleet with a 97% debt component. Therefore the airline pays heavy interest and amortised principal costs of loans along with depreciation of the asset in their books. The airline’s recent presentation of EBITDA figures which does not factor in these three major payments of interest, depreciation and amortisation, does not seem to present an accurate view of the situation and have raised eyebrows.

Share your thoughts

This time, a little more than usual we request your comments on this situation at Air India.

About Devesh Agarwal

A electronics and automotive product management, marketing and branding expert, he was awarded a silver medal at the Lockheed Martin innovation competition 2010. He is ranked 6th on Mashable's list of aviation pros on Twitter and in addition to Bangalore Aviation, he has contributed to leading publications like Aviation Week, Conde Nast Traveller India, The Economic Times, and The Mint (a Wall Street Journal content partner). He remains a frequent flier and shares the good, the bad, and the ugly about the Indian aviation industry without fear or favour.

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