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Air India to axe more loss-making routes

By Sharmistha Mukherjee
September 16, 2014 09:27 IST
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An Air India aircraftState-owned Air India aims to substantially cut the number of routes not meeting variable costs, to reduce these to 19 per cent of its overall network by the end of the current financial year.

The carrier, which operates about 480 daily flights in the international and domestic sectors, had brought down the number of routes not meeting variable costs to 38 per cent of its network by the end of 2013-14, from 60 per cent.

A senior official said, “We have completely withdrawn flights not meeting ATF (aviation turbine fuel) costs.

"While there would be flights in which we would not be able to generate operational profits, we are looking at meeting cash costs on 81 per cent of our network by the end of this financial year.”

Chairman and Managing Director Rohit Nandan is daily monitoring the route economics.

The analysis is also being done at the board of directors every week.

AI registers variable cost losses on 19 routes, six of which are international ones.

The domestic ones include Mumbai-Kolkata and Delhi-Bengaluru; the international ones include Delhi-Sydney and Delhi-Milan.

Independent directors on the airline’s board have  started closely monitoring closely the financial performance across routes on a regular basis.

They're looking at ways to make routes profitable by cutting costs, optimising resource utilisation and changing the type of aircraft used.

The airline is now considering discontinuing some domestic services which do not meet variable costs, as suggested by the IDs.

With route rationalisation and cost cutting, AI hopes to report operational earnings of Rs 1,150 crore (Rs 11.5 billion) in the current financial year.

In the first quarter, it reported 12.8 per cent growth in revenue and a surplus of Rs 425 crore (rs 4.25 billion) after meeting cash costs.

The losses had widened to Rs 5,388 crore (Rs 53.88 billion) against the target of Rs 3,989 crore (Rs 39.89 billion) in the financial year ended March 2014,

primarily on account of high operational costs.

It had cut net loss to Rs 5,100 crore (Rs 51 billion) at the end of 2012-13 and reported one of Rs 7,100 crore (Rs 71 billion) in 2011-12.

The second quarter of 2013-14 was the worst for the airline, when it missed its revenue target by Rs 700 crore (Rs 7 billion) because of lower passenger load and a fare war.

The airline, however, hit the revenue target for 2013-14 of Rs 19,300 crore (Rs 193 billion).

The government approved a massive rescue package of Rs 30,000 crore (Rs 300 billion) for the airline in mid-2012 (running till 2020-21) and since then the carrier has been surviving on doled-out equity. 

MAHARAJA’S PERFORM OR PERISH STRATEGY
  • Air India is registering variable losses in 19 routes, six of which are international routes. Of the 19 routes that do not meet variable costs, the domestic loss making routes include Mumbai-Kolkata and Delhi-Bengaluru; the international routes include Delhi-Sydney, Delhi-Milan
     
  • Air India’s losses had widened to around Rs 5388 crore against the target of Rs 3,989 crore (Rs 39.89 billion) in the financial year ended March 31, 2014 primarily on account of high operational costs
     
  • The government had approved a massive bailout package of Rs 30,000 crore (Rs 300 billion) for the airline in mid-2012 (running till 2020-21) and since then the carrier has been surviving on doled out equity
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Sharmistha Mukherjee in New Delhi
Source: source
 

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