Budget airline Air India Express may post first profit – Livemint

From its dark days in 2010 when its aircraft overshot the runway and fell off a hillside in Mangalore, the budget airline has come a long way

New Delhi: Over a decade after it started flying to the Gulf countries to serve Indians working there, budget airline Air India Express is on course to post its first profit, aided by cheaper fuel, more efficient operations and a supportive government.
However, the return of many expats due to a downturn following the oil price collapse in the Middle East—its key market— has also forced the airline to find new destinations.
From its dark days in 2010 when its flight 812 overshot the runway and fell off a hillside in Mangalore killing 152 people on board, the budget airline has come a long way.
That year, its flights were only 69% full, and it was operating 21 aircraft which carried nearly 2.14 million passengers, according to data from the Directorate General of Civil Aviation (DGCA) and the airline. In 2015, it had 17 planes, with 82% flight occupancy and carried 2.58 million passengers. (Some of the aircraft were retired.)
From a loss of 391 crore in 2010-11, the year of the accident, Air India Express will report a profit of 320 crore in 2015-16, its first profit since its founding in 2004, said K. Shyam Sundar, the airline’s CEO who took over in 2014. He expects a revenue of 2,850 crore this year, against 1,779 crore in 2010-11.
“It’s quite a remarkable story in the sense that the circumstances have also helped us,” said Sundar. “I am thinking I am bit of a lucky man.”
Higher flight occupancy helped Air India Express, said Jitender Bhargava, former director at Air India. “The load factor increase is impressive and commendable.”
“All said and done, if they have turned profitable, it’s a very welcome step.”
When Sundar joined, Air India Express was heavily dependent on parent Air India for crew. Pilots did not want to relocate to Kochi in Kerala where the airline is based. This led to under-utilization of aircraft and delayed flights, according to Sundar.
Sundar lobbied with Air India’s then chairman Rohit Nandan for greater freedom and higher salaries and insurance schemes helped Air India Express retain staff. According to Sundar, the same pilots are now being utilized for 75 hours a month. Flying for about 70-80 hours a month is considered optimum flying for pilots.
Meanwhile, network changes pushed up average flight duration from 3 hours in 2014 to 3 hours 45 minutes now. According to Air India Express data, aircraft utilization jumped from 8.5 hours daily to 11.7 hours, another industry benchmark, which considers 12-13 hours as optimum usage of an aircraft.
A Comptroller and Auditor General of India report in 2011 criticized the liberal grant of flight rights to foreign airlines, after which the government froze issue of more rights. This squeezed supply in the market, and led to higher seat occupancies, helping Air India Express, among other airlines.
Sundar said the airline now has a proper structure for functional areas such as operations, flight safety, training and human resources. It has also tied up with firms for aircraft maintenance for better on-time performance. The airline no longer has “pencil rostering”, he said, where schedule of pilots and crew used to be written with a pencil and hence open to manipulation. “It’s all centralised,” he said.
The airline is also talking to State Bank of India (SBI) for a buyer’s credit arrangement of about $150 million to retire high-cost rupee loans. But the airline knows it also needs to reinvent itself.
After a decade of rising crude oil prices that touched $140 a barrel, prices collapsed to less than $30 in the last year, before recovering to $50 in the past few weeks. This has cast a shadow over the oil-dependent economies of the Middle East and threatens more disruption in 2016, says a recent survey done by online recruitment portal GulfTalent.
The recruiting market is cooling and businesses are tightening their spending with average pay rises in 2015 slowing down to 5.7% from 6.7% in the previous year. “This is the lowest average increase for over a decade,” it said.
Remittances from the Gulf nations to India also declined for the first time in six years due to sliding oil prices, according to a Crisil report. The remittances sent by 7 million Indians in the region slumped to $35.9 billion in 2015-16 down from the $36.7 billion in the previous year.
“If the economies cave in, that’s not a good thing—not for me at least,” Sundar said. He said he does not see a calamity as many economies have diversified beyond oil. The slowdown reflects in booking patterns. Earlier, the airline’s flights used to get booked as much as four months in advance. Now people are waiting until a few weeks, even days in advance, hoping they will get cheaper fares.
“They are saying: Let’s see who will blink first,” Sundar added. The airline now plans to fly to South East Asia to connect cities like Bangkok, Singapore and even Hong Kong to cater to a growing number of first time and leisure travelers. It has also started flights from Delhi to Dubai and Abu Dhabi, shifting from its base in South India.
“It’s doing excellent,” Sundar said, “The flight is timed such that the tourist groups reach Dubai by late noon, just in time for hotel check-in—getting their money’s worth. We hope to build on our strengths from here on.”
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