Air India losing Rs 70 lakh daily on Delhi-Sydney route

Though Air India has gained market share on the India-Australia route since launching Dreamliner services in August-end last year, the state-run carrier is incurring losses of Rs 70 lakh a day in operating its Delhi-Sydney-Melbourne flight.  

Sources told Business Standard the airline’s cumulative losses on the route since the launch of 787s services stand at Rs 80 crore (Rs 800 million).  

“Usually, on international routes average occupancy levels for any airline stand at around 70 per cent. Air India assumed passenger load factor (PLF) of 80 per cent, while preparing business plans on the route. This impacted financials,” a source said.

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The losses are particularly worrying as Air India will be facing more vigorous competition with the launch of A380 flights from India.  

Singapore Airlines (which has the lion’s share of about 40 per cent in the India-Australia market compared to Air India’s 18-20 per cent) would operate A380s daily to Mumbai and Delhi from May 30, taking over from two daily flights that currently serve each city using smaller Boeing 777s.  

A third daily flight from Delhi would continue to be operated using Boeing 777 (to be replaced with A330 from July 1).

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With the rejig in aircraft type deployed, SIA’s capacity out of Delhi would increase by 13-15 per cent.  

Competition for Air India also comes from Malaysia Airlines, Thai Airways, China Southern Airlines, Cathay Pacific and Emirates also carry passengers between Delhi and Australia. Air traffic between India and Australia has been growing at about 10 per cent annually for the last three years.

Last year, 875,000 passengers flew between these two countries and 360,000 people travelled between Delhi and Australia, according to an airline source.

Singapore Airlines flies three daily flights to Delhi and Mumbai with a 280-300 seater Boeing 777 and now plans to introduce Airbus A380 on the route.

Singapore’s  Airbus A380 can seat 409 or 471 passengers and the airline will be able to offer A380 connection all the way to Australia, as it operates the aircraft to Sydney.

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To ensure sustainable operations, independent directors on the airline’s board have now started monitoring closely the financial performance of the national carrier across routes on a regular basis.

A senior executive in Air India said, “The independent directors have asked for specifics of profit and loss figures, load factors across routes to determine the cause of the losses.”

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The independent directors are now looking at ways to make routes profitable by cutting costs and optimising resource use.

The 13-member Air India board has six independent directors, including Prem Vrat (founder-director, IIT-Roorkee), R H Dholakia (professor, IIM-Ahmedabad), Gurcharan Das (former managing director, Procter & Gamble India) and Renuka Ramnath (former chief executive, ICICI Venture).

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Earlier, in a board meeting held on February 28 this year, the independent directors had asked Air India to reduce the number of routes making variable losses.

The airline makes variable losses in 19 routes. Of the 19 routes that do not meet variable costs, the domestic loss making routes include Mumbai-Kolkata and Delhi-Bangalore; the international route includes Delhi-Sydney.

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The airline has stopped flying on routes on which it was not meeting jet fuel costs in the last financial year by cutting costs, cancelling flights and changing the type of aircraft deployed. 

Air India deployed a Boeing 787 Dreamliner on the Delhi-Tokyo route after which the airline started making money on flight.  

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

Daily losses of the airline narrowed to Rs 11 crore (Rs 110 million) last financial year from Rs 20 crore ( Rs 200 million) in the previous year.