Air India – the national carrier of India has been in the news for multiple reasons in the past. The airline has been on the block for an outright sale for the second time in last few years. Being a public entity funded by tax payers money, the airline is open for scruitny and data related to the airline has to be shared in the Indian parliament when honorable members have questions about the airline.
With parliament in session, there always is interesting information which pops out every now and then about airlines or airports, apart from policy. On a question asked by Dibyendu Adhikari from West Bengal, the Hon. Minister of Civil Aviation laid out a statement today which listed out the count of routes of Air India and its financial status.
Only 09 domestic routes and 12 international routes meet total cost for the last financual year while 101 domestic and 10 international routes are not even meeting variable cost. This means the basic costs like fuel, landing, parking and route navigation for a particular flight was also not recovered.
The airline operates to 56 domestic and 44 international destinations. While there will be a demand to cull all these 100+ routes, this cannot be a solution for the airline. A comparison of such routes for private airlines it not available in public domain.
For any network carrier, the overall profitability matters the most since a lot of routes which are recording negative cash flow help fill up other routes and garner revenue and in turn push profitability on other routes. However, in case of Air India the numbers look disproportionately higher!
To understand this in detail, it is important to understand what each means.
Variable cost includes fuel, oil, maintenance and crew costs in proportion. A lot of these numbers would change depending on how the allocation is done. While there is no standard practice because allowances and costs vary a lot, it could be done by ASK, number of flight, duration of flight and so on. With a network carrier like Air India – the complexity increases with the multi fleet type as well.
EBITDAR stands for Earnings before Interest, Taxes, Depreciation, Amortization and Restructuring while EBIT stands for Earnings before Interest and Taxes. Total cost refers to every cost which is accounted for.
Air India has a debt which goes into thousands of crores of rupees and that adds up to EBITDAR and EBIT numbers making the operations unviable. A deeper dive into the numbers shows that 141 routes make money at operating level on the domestic segment while 101 do not! International is much better placed with 88 routes making money at operating level and only 10 not being able to recover the operating costs. The numbers, minus the debt would be looking attractive for a bidder who is interested to expand on international routes on the back of Air India’s current presence. Of the 10 routes not meeting variable cost, could be five routes which Air India is discontinuing. The domestic market remains difficult for a full service carrier!
While this has come in the public domain, a lot more would have been available for the bidders who are evaluating the airline and at the same time this data could be tied up with the statements from Hon. Minister where he has said there are only two options for Air India – either a sale or closing it down!
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