Air India may post a small operating profit in FY16

Mumbai: Air India Ltd, the country’s largest airline by fleet size, is expected to post a small operating profit in the year starting 1 April, in a first sign that the ailing national carrier is beginning to turn around.

Most of the national flag airline’s units, including its ground-handling business, regional airline operations and international low-fare services, are also expected to post net profit for the next financial year, according to Air India’s budget estimates for the next financial year.

On 20 March, PTI reported that the Prime Minister’s Office (PMO), concerned over the overall health of the airline, had asked Air India to submit a detailed performance report on its losses, profitability and revival plan.

The PMO had sent a questionnaire to Air India seeking information on, among other things, its mounting financial liability as well as its lack of profits, the PTI report said.

India’s oldest airline, which has a total debt of Rs.40,000 crore, is expected to turn around its finances during 2018-19, according to Air India officials. Also, Air India is in the midst of a bailout programme after the government in April 2012 approved a Rs.30,000 crore package to rescue the money-losing airline.

“For the first time, Air India is expected to wipe out operating losses and post a small operating profit for the next financial year, mainly due to a fall in jet fuel prices and an improvement in the operating performance,” said an Air India executive, who declined to be named.

Air India is expected to post an Ebit, or earnings before interest and tax, of a small amount.

“As per the budget estimates, earnings before interest, tax, depreciation and amortization (Ebitda) is likely to go up by four times to 10% of Air India’s revenue. While pure passenger revenue is expected to touch Rs.17,000 crore, the total revenue is expected to go up by Rs.21,250 crore, registering a 15% increase,” the executive said.

He did not disclose the airline’s projections for net loss for the next financial year.

Air India is expected to post a loss of Rs.3,900 crore for the year ended 31 March 2014, numbers for which have not been disclosed. It posted a loss of Rs.5,100 crore in 2012-13 and a loss of Rs.7,100 crore in the preceding financial year.

“Air India is clearly back and this time, aggressive and armed with a low-fuel-burn fleet, zero tolerance for delays, a better product and service, the Star Alliance muscle and a growing progressive network,” said Mark D. Martin, founder and chief executive officer at Martin Consulting Llc, an airline advisory firm .

A second Air India executive confirmed that Air India is taking three more Boeing Dreamliner planes and four Airbus A320 planes to connect domestic destinations.

“Air India has cut down loss-making routes and 81% of its routes are now covering variable costs of operations,” said the first Air India official.

However, some experts are sceptical.

“Air India has the best airport in the world as its hub. It has one of the youngest fleet of modern wide-body aircraft in the world. It is the national carrier of one of the largest aviation markets in the world. And it has already received over Rs.18,000 crore of taxpayer money as bailouts,” said Devesh Agarwal, who runs aviation analysis website www.bangaloreaviation.com and has analysed Air India’s route profitability.

“It is disheartening to see the lack of real progress at the airline, and that it still resorts to disguising its failures by using arbitrary measurements like variable costs, which are less than half of the real total costs.”

The second Air India official cited earlier said the airline is focusing on on-time performance and profitable services. He said Air India Express, the low-cost unit that flies to international destinations, is expected to report a net profit of Rs.100 crore for the next financial year while the ground-handling unit is expected to post a marginal net profit.

“Airline Allied Services Ltd that runs Alliance Air, which connects tier II and III cities, is leasing five new small ATR aircraft and is expected to post a small net profit for the next financial year,” the second executive said.

According to the airline’s budget estimates, Air India is expected to report a seat occupancy of 77.7% on domestic routes and 73% on international routes in the next financial year.