How Air India plans to cut losses

Air India is planning to reduce its loss-making routes to 15 per cent of its overall network by the end of this financial year.

Last financial year, the government-owned airline, which operated 480 daily flights in the international and the domestic sectors, had cut its loss-making routes from 69 per cent to 25 per cent of the total.

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A senior Air India official said, "A year ago, we were not meeting cash costs for 69 per cent of our network. This has now fallen to 25 per cent. While there would be flights in which we would not be able to generate operational profits, we are looking at meeting cash costs on 85 per cent of our network by the end of this financial year."

He added the losses resulted from a mismatch between the type of aircraft deployed and the demand on the route.

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A case in the point is the Delhi-Japan route: As the route is serviced by a Boeing 777, Air India needs 95 per cent passenger load factor (PLF), or occupancy, to make the route profitable.

"Now, with the Boeing 787s coming into operation, all these problems would vanish. Boeing 787 is crucial to Air India's turnaround plan, as the planes are said to be 20 per cent more fuel-efficient than comparable mid-haul aircraft," the official said.

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Through these initiatives, the airline is expected to reduce cash losses by Rs 1,102 crore (Rs 11.02 billion) this financial year.

Net losses are expected to fall 23 per cent to Rs 3,989 crore (Rs 39.89 billion), compared with Rs 5,198 crore (Rs 51.98 billion) in 2012-13.

The airline expects its earnings before interest, tax, depreciation and amortisation to stand at Rs 1,040 crore (Rs 10.40 billion), against Rs 19.45 crore (Rs 194.5 million) in 2012-13. The carrier's revenues are expected to rise 20.2 per cent to Rs 19,393 crore (Rs 193.93 billion).

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Civil Aviation Minister Ajit Singh said, "Air India's performance has been improving consistently and it is meeting most landmarks laid out in the turnaround plan.

Despite the pilots' strike, Air India's revenues increased 9.6 per cent to Rs 16,130 crore (Rs 161.30 billion) last financial year."

While the airline's PLF rose to 72.7 per cent in 2012-13, on-time performance for the entire Air India network improved to 77.1 per cent.

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Last financial year, the company recorded cost savings of Rs 529 crore (Rs 5.29 billion) through staff cost cuts, savings from interest on loans and working capital and booking agency commissions.

This financial year, monetisation of Air India's assets in Delhi, Mumbai, Chennai and Coimbatore are expected to generate additional funds of Rs 1,000 crore (Rs 10 billion).

And, oil companies would provide concessions of Rs 500 crore (Rs 5 billion) to the airline.

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Singh said the airline was working on evolving a functional model by adopting the best practices of low-cost carriers, while retaining the core services of a full-service carrier.

To follow this 'hybrid model', enhance revenues and cut costs, the airline has started implementing the recommendations of the Dholakia committee on cost cuts.