Air India's illusory profits

The CMD thinks the carrier will be back in the black next fiscal; his colleagues can't understand how.

At the Singapore air show on Tuesday, V Thulasidas, chairman and managing director of Air India, made a statement to Bloomberg Television that has quite taken aback his senior colleagues in the airline.

The CMD claims that his company "may" make a profit next year, that is in the year ending on March 31, 2009. The airline's top officials are wondering the basis on which he made that claim, considering that this year (April 2007-March 31, 2008) promises to be a bumper year in terms of losses, far exceeding last year's loss figures of Rs 448 crore.

A top ministry official told Business Standard that he thinks Air India's losses for the first few months of this year will be in the range of Rs 200 crore every month.

A senior airline official confirmed this to Business Standard yesterday. "Yes, the situation is very very grim. We may post one of our largest losses this year," he said.

If one sets apart the window dressing (including profits from sale and lease back, other income and so on), losses just based on the airline's operations could top Rs 1,400 crore for the year, he added.

When contacted for an official reaction, Jitendra Bhargava, the airline's spokesperson, said that he was "not denying that things were grim".

He said exact numbers took time to come in, but losses this year would certainly be higher than last year's, adding that Air India is not alone "" many airlines were finding themselves in the red.

According to senior airline sources, as new aircraft are added, losses will multiply since there is no respite on oil prices, yields are not improving and revenues are steadily falling. Expenses are proving hard to prune. Revenue yields are far lower than competitors as are load factors.

Air India's Mumbai-New York flight "" on which a lot of hopes were pinned around September 2007 "" is doing very badly in terms of load factors and, surprisingly, its economy class that's bearing the brunt, "I don't know if its Air India's past image that's taking such a heavy toll but there is no denying that the non-stop New York service is in the doldrums", said one official.

He said that in fact Air India was actually offering a better product that many of its competitors, yet its loads were way below theirs. So, even if travel demand is increasing "" one of the explanations Thulasidas offered for why he expects a rosier future "" Air India is not benefiting from the increase.

Speaking at a more general level, he added that at present it was difficult to get a seat on most western carriers on most routes, a problem Air India wasn't facing at all.

The second basis given by the CMD is that he expects savings from the merger with Indian Airlines to help return the beleaguered carrier into the black, a claim again many contest.

The merger can at best be described as "drifting", says a senior official, who is part and parcel of the process. A couple of weeks ago "" just before a review of the airline's operations in Mumbai "" Civil Aviation Secretary Ashok Chawla told Business Standard that he too felt that the merger was not going the way it should and that with the date of the present CMD's retirement coming closer, a certain "drift" had crept into the organisation.

He added that the airline had one or two good flights but that was clearly not enough to pull up its overall performance. He said he was certain this year's losses would be "far, far" higher than last year's Rs 448 crore.

Senior airline sources confirmed this saying that the merger was not settling down and that "groupism" at the top was one of the main culprits for it. Airline sources however also felt that Union Civil Aviation minister Praful Patel "" one of the votaries of the merger "" would also be partly to blame for the airline's gargantuan losses.

"If he will be credited with the merger, he will also take the blame for the period of the biggest losses in the carrier's history," said one senior official, who strongly feels that Patel's lack of guidance or cracking the whip is also to blame for the top team of the airline to get away with murder.

"Nobody is sitting down to examine where things are going wrong. If someone is held accountable for the losses or say two or three people are fired for non-performance only then will performance improve," said a top former Indian official.

A lot could depend on Thulasidas's successor "" the process to find one is currently on and some names have been short-listed "" an unenviable position to say the least.