Airline’s
planes not only make it one of the world’s youngest fleets, but also cut
maintenance costs by as much as 43%
Mumbai: Air India Ltd might be
the country’s oldest airline but the age of its fleet has reduced to 2.5 years,
which not only makes it one of the world’s youngest fleets but also reduces
maintenance cost by as much as 43%.
This is in sharp contrast to the average fleet age of some 14
years when Indian Airlines and Air India were merged into one entity in 2007.
At the time of the merger, the erstwhile Air India flew
double-decked jumbo planes—Boeing 747-400—bought in 1993, and Indian Airlines
was flying Airbus planes bought in 1989.
Air India has retired most of the older aircraft and kept only a
few for VIP flights that include flying the nation’s President and Prime
Minister, for which the government paid itRs.532 crore in 2011.
The sudden youthfulness is largely because of Air India’s mega
order of 111 planes—68 from Boeing Co. and 43
from Airbus SAS. Air
India received the latest and sixth Boeing 787 Dreamliner on 4 January. The
state-owned firm had ordered 27 Dreamliner aircraft, which were originally
scheduled to start joining its fleet by September 2008. At present, out of 112
planes, 87 are new with an average age of 2.5 years.
Jet Airways (India) Ltd,
the domestic rival airline, operates a fleet of 100 aircraft with an average
age of about 6 years. Singapore Airlines’
fleet has an average age is 6.4 years. Air India’s rival in Dubai, Emirates
Airline, flies a fleet that has an average age of five years and the US’ top
airlines have an average fleet age of 12 years.
The reduced age is helping Air India, which had Rs.47,226 crore in debt as on 31
July, attract passengers and turn some of its loss-making routes into
profitable flights.
It also saves hugely on maintenance cost. The maintenance cost of
Air India’s fleet was around Rs.1,400
crore in 2011-12 but is now estimated to have dropped to Rs.800 crore, a 43% savings,
according to two executives.
“The route profitability analysis of November-December 2012 depicts
far more healthier trend than corresponding period of 2011. Inducting
Dreamliner planes was a game-changing strategy and we are also planning to take
one by end of January and one by 25 February,” said one of the executives. Both
officials requested anonymity.
“Traditionally, the Delhi-Frankfurt route was loss-making. When we
replaced Boeing 777 LR planes with Dreamliners, the route started making a
marginal profit,” the first official said.
The Air India management has been trying hard to turn around the
airline, with accumulated losses ofRs.27,000 crore over the past five
years. Between April and October, 95 flights on its network were meeting cost
of fuel and operations and only 12 services were meeting the total cost.
The biggest benefit of having a young fleet reflects in the firm’s
profit and loss account. Air India registered positive Ebitda for November and
December on a stand-alone basis. Ebitda, or earnings before interest, taxes,
depreciation and amortization, is an indicator of profitability.
“Going by the current trend, January would also post an Ebitda
positive. In November, Air India carried 44,288 passengers against the November
average of 41,434. The seat occupancy of November had also shot up to 78.2%
compared to 73.5% in November 2011,” the second executive said. “Some of the
Dreamliner planes are deployed in Delhi, Chennai, Bangalore and Kolkata. These
routes have also turned cash positive.”
He said the airline carried 46,656 passengers in December against
the average of 41,899 for the month. The airline earned a record revenue of Rs.48 crore on 21 December.
The second official, however, admitted that the profitable
performance would be restricted for three months—November, December and
January.
Air India is expected to post a loss of Rs.4,270 crore for the year to 31
March, Mint reported on 7 December, citing an
internal estimate, compared with a loss of Rs.6,865
crore in 2010-11.
The government approved a Rs.30,000
crore package to bail out the airline in April. This includes an upfront equity
infusion of Rs.6,750
crore and assured equity support of Rs.23,481
crore till 2020-21. Banks have recast their exposure to the airline, resulting
in savings of Rs.1,000
crore a year.
However, the aviation ministry is not complacent. It said on 3 January
that it has constituted a five-member committee headed by Ravindra H. Dholakia of the
Indian Institute of Management, Ahmedabad, to suggest ways of cutting costs and
utilizing resources optimally at Air India.
Although the committee set up by aviation minister Ajit Singh has two
months to submit its report, it has been asked for immediate recommendations
that can be implemented quickly.
Not all are thrilled by Air India’s young fleet.
Nawal Taneja,
professor emeritus in the department of aviation at Ohio State University, who
writes on aviation, said there should other priorities for Air India than
fleet.
“Air India needs to expand, quickly but strategically. That means
deciding first the network and the focus on segments of travellers. Second,
comes alliance partners to serve the network and customer segments selected.
Fleet would be number three,” Taneja said.
He said that even the three United Arab Emirates-based
airlines—Emirates Airlines, Etihad Airways and Qatar Airways—concluded that
they cannot grow by staying independent and last year engaged with partners.
“So not only is getting into an alliance is a high priority, but also at the
level of entry and the status of membership with respect to decision making.
Finally, will come the decision on what kind of brand positioning is feasible
and viable,” Taneja added.
The first Air India executive quoted above said his airline has
renewed negotiations with global grouping of airlines Star Alliance Services GmbH.
In 2011, after two years of preparations, Star Alliance suspended
Air India’s entry, saying that the airline had not met some conditions.
Rival Jet Airways started wooing Star Alliance, which is keen to
have a partner from India to stay ahead of other grouping such as Oneworld and
Skyteam.
“We have (again) started talking to Star Alliance. There is no
additional financial liabilities as we had paid them in the past,” the second
Air India executive said. “We are getting our act right.”
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