Home' Asian Aviation : AAV July August 2010 Contents Indian Airlines
percent in 2007-2008 to 6.1 percent in 2008-2009,
CAPA points out that this is not a bad result under the
e Indian economy is now recovering faster than
expected and will probably return to 8 percent annual
growth in the period 2011 to 2014, according to World
Tr a c, too, is starting to grow once again. A er 12
straight months of year-on-year declines, the gure
returned to positive territory in July last year and has
stayed positive since then, although yields remain low.
"The operating environment is improving , with
airports and airspace gradually being upgraded and
ground access being developed, which will not only
enhance the passenger experience, but should allow
airlines to achieve faster turnarounds and higher aircra
utilisation," CAPA says.
India's airline industry has completely transformed since
2003, when there were just four airlines in the country
-- Air India, Indian Airlines, Air Sahara and Jet Air ways
-- all of which were operating on full-service business
models. At that time, private carriers were also restricted
to operating only domestic ser vices.
Today, there are basically seven airlines with 11
di erent brands: Air India and Indian Express; Jet
Air ways, with JetKonnect and JetLite ; Kig sher Airlines
and King sher Red; IndiGo ; SpiceJet; Go Air and
Paramount Airways. e three largest airline groups
-- Air India, Jet and King sher -- now hold about 67
percent of the country's domestic air travel market.
According to the CAPA report, Indian airlines
accumulated about 260 billion rupees (US$5.62 billion)
of losses in the four years ended March 2010. e three
largest airline groups -- Air India, Jet and King sher --
accounted for almost 230 billion rupees of that total.
CAPA estimates that the current nancial year will see
a further loss for the sector of the order of 65-70 billion
" e most signi cant recent strategic development
in the Indian domestic market is that it is rapidly
turning low-cost," the report says. "An operating model
which did not exist in the Indian market until six years
ago could account for almost 70 percent of domestic
capacity within the next two to three quarters."
is is largely thanks to moves by King sher and
Jet to recon gure most of their domestic aircra for
all-economy, no -frills services. Air India also plans to
" ere has been a clear recognition that there is
a limited market for full-ser vice travel, particularly
business class, beyond the key metro routes," CAPA
says. "Full ser vice may in future be restricted to just a
handful of ser vices, or may even disappear entirely. It is
driven by a decisive change in the demographic pro le
of the Indian domestic traveller. Whereas ve years ago,
approximately 80 percent of air travel in India was for
business, today that gure is less than half."
e shi to low-cost operations should allow the
big three carriers to develop a more competitive cost
structure. is will be much needed as Jet Air ways and
King sher have both been facing a cash crunch and have
been trying to raise capital.
According to CAPA, the three biggest Indian airline
groups have combined debt of about US$10 billion.
ey will need to raise about US$10-12 billion over
the next two to three years to fund aircra deliveries.
" ere is a clear recognition at all levels that Air India
is in need of desperate restructuring and much is in fact
under way in this regard," CAPA says. " e restructuring
plan is in the process of being implemented and nine
committees have been established to execute this
But the restructuring will be a challenging exercise.
Over the next two to three years, Air India is set to
accumulate additional debt of 310 billion rupees -- 160
billion for working capital and 150 billion for eet
acquisitions. About a third of the total will be raised
this year, with the rest over the following year or two.
As a result, the airline will have to pay about 90 billion
rupees in interest over the next three years -- a tall order
in today's low-yield environment.
e carrier plans to cut its annual loss from 50
billion rupees to 13-18 billion over the next 12-
18 months, through a 20 billion rupee increase in
revenue and cost cutting. e carrier will be helped
by a strengthening of the market in the scal third
quarter and continued global economic recovery.
"Air India will continue to have cash de cits for the
next 5--7 years which could cumulatively amount to
US$4--5 billion," CAPA says. Air India was to receive
an infusion of 20 billion rupees from the government
early this year, with a further 20 billion coming in the
next nancial year and 10 billion rupees more a er that.
e funding is conditional on the carrier meeting certain
"However, the latter will be di cult to achieve,
especially in the category of labour, where union
resistance has already been encountered. In order to
generate momentum, the carrier needs to achieve a
few quick wins, and one area in which there has been
a marked improvement is on-time performance," the
On-board and ground ser vices, too, have improved, but
the situation remains precarious. Massive restructuring
is needed to meet the carrier's nancial targets, since its
current operating margins of -20 percent are far below
industry benchmarks -- even in the current environment.
Plans for the suspension of unpro table routes will
probably lead to the release of about a quarter of the
eet, leaving Air India focused mostly on domestic and
regional routes. e carrier is to defer the delivery of ve
Airbus A320s and six Boeing 777-300ERs, returning as
many as 48 leased aircra .
Six Boeing 747s are to be sold to the government,
while 19 other aircra -- including 11 A320s -- are
to be auctioned on the open market. "However, in
the current environment, receipts are likely to be
depressed," CAPA says.
For its eet, the carrier still lacks a suitable aircra for
medium-haul ights to Singapore, Hong Kong or even
Europe. "Operating Boeing 777s on such routes could
be extremely challenging to make viable, especially due
to the fact that Air India has su ered from having weak
commercial capabilities," the CAPA report says.
Air India may need to have another look at strategic
eet planning for the period a er 2011. Up to 30
percent of the carrier's capacity is being put under the
low-cost Air India Express brand, which will also take
on some Gulf routes.
Air India and Indian are also still behind schedule on
achieving operations under a single carrier code, which
is a pre-requisite to joining the Star Alliance.
" e continuing delays to [Air India's] accession to the
global alliance mean that it is possible that Jet Air ways
may be considered for Star Alliance membership,"
CAPA says it believes the Air India restructuring
programme should consider "all ownership options,
which include continuing under government control
as at present, privatisation or even closure". Whichever
option is pursued, it should only be done a er careful
planning and review, with the support of all stakeholders,
the consultancy says.
Jet Airways and JetLite have a combined 47 aircraft
on order and have deferred delivery on some.
AsianAviation | JULY--AUGUST 2010 39
Links Archive AAV June 2010 AAV Sept 2010 Navigation Previous Page Next Page