Air India to trim losses by 40% to Rs 2,000 cr in FY17

Air India plans to bring down its losses by 40 per cent to Rs 2,000 crore in FY17 from the projected Rs 3,529 crore in FY16 on the back of revenue growth and cost optimisation. The airline’s board, led by Chairman and Managing Director Ashwani Lohani, has finalised the budget estimates for FY17.

Passenger revenue for FY17 is projected to be around Rs 17,000 crore, up from the estimated Rs 15,500 crore in FY16, due to network expansion and improvement in load factor (capacity use). Air India also plans to add flights to Delhi-Washington and Ahmedabad-London-Newark routes.

The airline is targeting passenger occupancy of 80 per cent and 75 per cent in domestic and international networks, respectively. In the next financial year, it aims to post Rs 3,500 crore as Ebitda (earnings before interest, taxes, depreciation, and amortisation), an airline executive said.

Air India, which has received government funding of Rs 22,000 crore so far, has been promised Rs 1,700 crore infusion in the Union Budget against the demand of Rs 3,900 crore. Funds from equity infusion will be used to retire loans and the airline is hopeful of getting another tranche in the supplementary budget.

“We are rationalising costs and about 95 per cent of our capacity is generating a cash surplus over variable costs,” the executive added.

Variable costs include expenses on fuel, maintenance, ground handling charges, crew allowances, etc, but does not include salaries, interest charges and depreciation, which continue to be high.

Loss for FY16, too, is projected to be 40 per cent lower with gains from fuel-cost savings. In FY16, Air India is expected to post a net loss of Rs 3,529 crore from Rs 5,859 crore in the previous year, aided by reduction in jet fuel costs.

However, the airline is set to miss its revenue growth target in FY16 and has been unable to significantly lower its interest and maintenance expenses, resulting in the high loss figure.

Passenger revenue for FY16 is projected to be flat at Rs 15,500 crore due to decline in fares, lower yields, and a lack of projected capacity addition.

The airline has been able to cut down its fuel bill, which is estimated to be around Rs 6,000 crore - a reduction of around 30 per cent over FY15.

“We will complete sale and lease back of nine of our 21 Boeing 787s by March-end and this will help us retire $900 million debt attached to the aircraft. Also, we are looking to refinance existing term loans of about Rs 10,000 crore with government-guaranteed non-convertible debentures. We have sought approval from the government for the issue of the debentures as this will lower the interest cost on this debt by two per cent to eight per cent,” said an Air India executive.

Also on the agenda is aircraft acquisition both for replacing old planes and addition. Air India has a fleet of 107 planes including a mix of narrow-body A320s and wide-body Boeing 777, 747 and 787.

The airline will lease 14 Airbus A320neo aircraft beginning the first quarter of calendar year 2017 largely to replace nearly two-decade-old A320s. Additionally, the airline is looking up to 10 A320s for expansion. It will also induct six Boeing 787s by 2018.

“We are launching flights between Delhi-Vienna, Ahmedabad-Newark, Delhi-Washington and additional frequencies on domestic routes such as Delhi-Pune and Mumbai-Indore,” said the executive cited above.

Over the past few months, Air India has added flights between Ahmedabad-London and Delhi-San Francisco on international routes and introduced new flights to Kozhikode, Bhubaneswar and Surat on domestic routes.

Air India’s rivals have been adding capacity through aircraft induction and better fleet utilisation, while the carrier’s domestic network fleet of A320 aircraft has remained stagnant. In other metrics such as aircraft availability, load factor and on-time performance, Air India has fared poorly compared to its peers.

The airline executive, however, said performance was improving in all parameters. “Our on-time performance and load factor have improved. Occupancy in business class has risen from 40-42 per cent to 52 per cent.”

Fleet utilisation on both narrow-body Airbus A320s and wide-body Boeing 777s has increased with the introduction of new routes such as Delhi-San Francisco. The overall availability of aircraft for operations, too, has been enhanced and there are fewer grounded planes due to availability of spares.