Flying into the Red

DISINVESTMENT Minister Arun Shourie8217;s pulling his hair out with Indian Airlines delivering a third straight year of losses Rs 250 crore for 2001-02, but India8217;s flying public have voted with their feet. Within just nine years of operations, according to figures released by the Director General of Civil Aviation, a little under 49 per cent of domestic flyers have shifted to Naresh Goyal8217;s Jet Airways, which offers newer aeroplanes and, very important for passengers, cloth napkins for even cattle class. Indian Airlines8217; market share has fallen consistently, from 41.4 per cent as late as January, to 40.5 the next month, and finally, to 39.9 in March 8212; by the way, this is the first time Jet has ever overtaken IA.

With such losses, and the airline business still not fully recovered from the September 11 shock, even Shourie8217;s given up hopes of being able to get a good price for Indian Airlines in the near future. And it doesn8217;t help that the man who bid for the airline last year, has this to say today 8212; 8216;8216;I am lucky that I could not buy the airline,8217;8217; says Videocon Chairman Venugopal Dhoot whose lone bid for the airline was rejected since the stock market regulator had passed strictures against the company. 8216;8216;The airline would have taken our group alongwith it,8217;8217; he says with the benefit of hindsight.

To add insult to injury, even the relatively pygmy Air Sahara increased its market by almost two percentage points to 6.4 per cent, thanks to its marketing innovations of selling tickets at massive discounts of almost 50 per cent through its website. 8216;8216;We are adding capacity and launching new routes with the sole aim of capturing Indian aviation market,8217;8217; says U.K. Bose, the CEO of Air Sahara which has recorded a revenue of around Rs 350 crore for the last fiscal.

Indian Airlines, for the record, does not accept the market share numbers as being correct. 8216;8216;The market share figures, being tomtommed in the industry, are not correct. They do not include the market share of Alliance Air, IA8217;s subsidiary,8217;8217; defends a senior official. Besides, they add, the losses are really beyond their control. 8216;8216;Our losses would stand between Rs 220 to 250 crore, and the reasons are largely beyond control. Rising costs of Aviation Turbine Fuel ATF, increase in landing and navigational charges and also increase in rate of exchange and levy of customs duty on import of leased aircraft,8217;8217; says IA deputy managing director Vinoo Kashyap.

And that8217;s where Indian Airlines8217; biggest problem comes in 8212; its ageing fleet ensures that the cost of ATF hits it the most. 8216;8216;The cost of ATF has gone up by 48 per cent, resulting in an additional outgo of Rs 231 crore. But with the kind of old aircraft we operate, the fuel per seat cost of IA is about 30 to 50 per cent more than other airlines. A one per cent fuel hike costs IA Rs 9 crore,8217;8217; explains Kashyap.

The solution, according to him, is in expanding the fleet like the IA competitors, Jet and Sahara, are doing. Jet has added modern Boeings to its fleet which now comprises 38 aircraft 8212; 30 Boeing and eight Turbo ATRs. Sahara too has recently more than doubled its fleet by adding five Boeing 737s to take the number of aircraft to eight. 8216;8216;More capacity means a better fuel per seat ratio. We have not added capacity after 1993,8217;8217; the deputy MD says.

All hopes of IA, for the time being, hinge on the government8217;s decision on their proposal for fleet expansion. The airline has submitted a proposal for buying 43 Airbus aircraft at a cost of Rs 10,089 crore over a period of five years. 8216;8216;The real recovery of IA will begin only after fleet expansion,8217;8217; he adds. IA adds that its punctuality rate has been going up steadily, and was over 80 per cent in 2001-2002, an all-time high 8212; it was 67 per cent the year before.

Air Sahara flies to only 13 destinations, and recently added three more planes taking its fleet strength to nine Boeing 737s. Jet Airways has 38 aircraft and operates 245 flights daily to 44 domestic destinations. Indian Airlines 8212; with a huge fleet size of 56 aircraft 8212; flies just 210 flights daily to 68 domestic and 17 overseas destinations.

What really takes the cake, of course, is the fact that the government is still sitting on the proposal to buy new aircraft. 8216;8216;The need for the hour is immediate privatisation8230; and then let the new owners decide about expansion,8217;8217; says a Department of Disinvestment official. 8216;8216;We will try again to sell the airline this year but we are going slow as the political opposition to the sell-off was very intense last time,8217;8217; he adds.

What8217;s going to make IA8217;s future a lot bleaker is the government toying with the idea of allowing private sector airlines to fly international sector, and this would certainly eat away Indian Airlines8217; dollar routes and increase its losses. As part of its open air policy, the government cannot keep the highly lucrative Gulf routes for Indian Airlines and Air-India alone, it has to allow Indian private operators either tomorrow or day-after tomorrow. Indian Airlines has to thus gear up for competition in these routes also.