Higher fuel prices, steep increase in insurance costs, additional customs duty and expenses on sky marshals have pushed Indian Airlines into the red in 2002-03, according to a report prepared by the ministry of civil aviation.
This is contrary to the recent Comptroller and Auditor General's report, which attributed the losses to the performance-linked incentives introduced by company.
According to the civil aviation ministry report, the state-owned carrier would have made a profit of around Rs 109.86 crore (Rs 1.10 billion) in 2002-03 in the absence of additional expenses, against a revised loss estimate of Rs 245.50 crore (R 2.45 billion).
As per the estimates, Indian Airlines had incurred an additional expense of Rs 224.34 crore (Rs 2.24 billion) in 2002-03 because of increase in aviation turbine fuel prices.
The total fuel bill of the carrier was Rs 975 crore (Rs 9.75 billion) in 2002-03, against Rs 808.98 crore (Rs 8.09 billion) during the previous year.
The expenses on salaries and performance-linked incentives for the airlines were at Rs 747.34 crore (Rs 7.47 billion) in 2002-03. The performance-linked incentives were introduced by Indian Airlines in 1996-97 to improve the financial health of the company.
The insurance premium of the company went up to Rs 154.50 crore (Rs 1.54 billion) in 2002-03, up from Rs 116.06 crore (Rs 1.16 billion) during the previous year. Indian Airlines paid an insurance premium of Rs 44.32 crore (Rs 443 million) in 2000-01. From January 2002, Indian Airlines has been spending around Rs 12 crore (Rs 120 million) a year on deploying air marshals in its aircraft.
Moreover, the additional impact on Customs duty on leased aircraft, due to exchange rate fluctuations, was Rs 15 crore (Rs 150 million) in 2000-01 and Rs 25 crore (Rs 250 million) in 2001-02.
The carrier increased its fares twice in the past two years to meet the increase in expenses. It is estimated that in 2002, total additional expense was to the tune of Rs 502 crore (Rs 5.02 billion) and total income from the fare hikes was Rs 192 crore (Rs 1.92 billion).
At present, Indian Airlines also undertakes additional activities like aircraft maintenance, tarmac handling, reservation and civil engineering facilities.
It is estimated that the carrier has to employ around 7,050 people at an additional cost of Rs 200 crore (Rs 2 billion) a year.
On the issue of market share erosion, it has been pointed out that Indian Airlines could not increase its capacity as its fleet acquisition plan was not approved by the government. "As a result, the capacity share of Indian Airlines and its market share kept falling," the civil aviation ministry report adds.
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