Air India can be turned around, says CAPA

The national carrier, Air India, may be down in the dumps, but noted civil aviation consultancy Centre for Asia Pacific Aviation (CAPA) believes that it can make a turnaround based on the marked improvements in its domestic operations.

But the government must revamp the Maharaja’s board and management to achieve the desired objectives.

POSITIVE DIRECTION

“For the first time in several years, Air India’s domestic performance is headed in a positive direction which could become a trigger for an overall turnaround if the situation is capitalised. The national carrier needs to take advantage of the current domestic market conditions to focus on its restructuring by further reducing its cost base, improving productivity and solving its outstanding HR issues,” CAPA said in a report.

It said if Air India had a chance at achieving a successful turnaround, the time was now, but it needed a board and management that could seize the initiative.

“Air India’s domestic gross revenue per passenger increased by 46 per cent in the first quarter (April-June) resulting in top-line growth of $80 million, despite the impact of the pilots’ strike. Based on CAPA estimates, Air India’s average gross passenger revenue was the highest in the industry at Rs. 5,655.

As a result, domestic operations showed significant improvement and may have ended the quarter with a small surplus at the operating level, although CAPA estimates a net loss of Rs. 300-400 crore ($53.6-71.4 million),” CAPA said.

With no significant capacity induction expected in the overall domestic market, CAPA said that Air India should be in a position to maintain its improved yields and load factors.

The government-approved financial restructuring plan should help in significant reduction in interest costs, thereby reducing losses at the net level, the aviation think tank said.

However, Air India may not have the capacity to fully leverage the demand in the market, as it has less than 55 domestic aircraft, which is inadequate for a sustainable turnaround. Similarly, the carrier has only 20-25 aircraft available for international services, of which the B777s have not been appropriately deployed.

“Without an appropriate fleet to support it, Air India’s business plan is almost irrelevant,’’ it says. Subject to a strong performance in 2012-13, CAPA believes that the carrier may need to consider augmenting its capacity..

It said that these recent positive developments should be used as an opportunity to re-motivate employees and the upcoming retirement of 13 Executive Directors should be used as an opportunity to induct experienced industry professionals.

Serious attention must be given to providing Air India with the necessary framework, including an effective board and senior management to maximise the prospects of achieving a successful turnaround.

Based on its April-June quarter performance and subject to sorting out issues with the pilots, a robust result in Q3 and Q4 could see Air India’s projected full-year loss for 2012-13 decline from $1.3 billion to just under $1 billion, CAPA said.

In this report, CAPA said that Kingfisher was heading for a temporary operational shut down as the airline continued to operate with minimal cash flows and its services were subject to occasional disruption due to labour issues.

“Without an investment of about $600 million in the next 30-60 days, and access to a further $400 million over the next 12-18 months to fully-fund its business plan, Kingfisher faces the prospect of an operational shutdown, possibly temporarily, to allow it to restructure and reorganise,” CAPA said.

It said that considering severe setbacks at Kingfisher and Air India, recently Jet Airways had failed to leverage on the weakness at the full service space.