Speaking from the ramparts of the Red Fort, Prime Minister Narendra Modi on Independence Day declared that Air India had “operationally” turned around. This claim, backed by Minister of State for Civil Aviation Jayant Sinha’s assertion from July that airline is looking at an upturn and is expected to post a modest operating profit, was based on provisional results for financial year 2015-16.
So has Air India — saddled with crunching debts of more than Rs 51,000 cr— finally turned a corner because of improved operational efficiency, or has its books been helped by tumbling fuel prices?
The Turnaround Plan
The Centre in a bid to save Air India put in place a turnaround plan (TAP) for it in April 2012. The government laid out plans infusing equity of Rs 30,231 crore by 2021 subject to the achievement of certain milestones.
Rs 23,243 crore of this support package has already been pushed out. However, this package has done little to stem the tide of the flow. According to the data released by the government in the Parliament, the airline is still incurring losses even with the thousands of crores pumped into it.
Helped by Tumbling Fuel Prices
The government estimates that Air India’s net loss will narrow to Rs 2,636 crore in financial year 2015-16, but analysts suggest that it is largely due to the decline in fuel costs which shored up operating profits for all airline operators.
Air India’s operational profits, analysts say, could also be the result of falling fuel prices and deferment of expenses in the FY 2015-16.
Deferment of expenses may be key to delivering operating profits. Lower service levels, asset productivity, and customer engagement continue to be a challenge and need to be addressed to ensure structural improvement.Kapil Kaul, Chief Executive Officer -South Asia, Centre for Asia Pacific Aviation
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