By Bjorn Fehrm
May 16, 2018, ©. Leeham Co: Air India was started by the famous Entrepreneur and Pilot, JDR Tata, in 1932 as Tata Airlines. After WW2, it was renamed Air India and was made the flag carrier for India. In 1953 it was nationalized and a domestic carrier, Indian Airlines, was spun off.
Air India and Indian Airlines were both profitable before re-merging in 2007. Since the merger, the combined airline has been unprofitable as deregulation has increased the competitive pressure both Internationally and Domestically.
The Indian state bought the majority in Air India from Tata in 1953 and split off the domestic operation to the state-owned Indian Airlines.
The then-renowned state carrier, known as the “Maharajah,” was the first Asian airline to fly jets in 1960 with a Boeing 707-420, serving among other destinations New York. In 1962, it became the World’s first all-jet airline, and it was one of the launch customers for Boeing’s 747, entering into service in 1971.
The airline was the leading airline in Asia and the go-to adviser when Singapore created its Singapore Airlines in 1972. But the climate changed when the Indian market was deregulated from 2003. Both the domestic airline, Indian Airline, and Air India got tougher competition.
Indian Airlines saw competition from upstarting LCCs such as SpiceJet, IndiGo, GoAir and Kingfisher Airlines and the International Air India couldn’t keep up with dynamic Gulf carriers or an expanding Singapore Airlines or Cathay Pacific.
The state saw the solution as merging the airlines in August 2007. Both had shown black figures for Fy2006 but since the merger, the ink has been consistently red. Gradually the losses went from $400m for Fy2008 to $1,100m for Fy2009 rising to $1,400m for Fy2012, then dipping below $1bn since 2015.
Restructuring cuts were answered with Pilot strikes and the-once glorious “Maharajah” fell into disrepute. The airlines started topping the wrong rankings. Air India was third on the list for most delayed international departures in 2015 with 40% chance of not closing the doors on time.
Passengers elected to fly with more reliable airlines like Emirates for international and Indigo for domestic trips. The Indian state as owner of the airline tried to pedal back on International access to the Indian market from 2008 but it didn’t help. The rut had set in.
When competing airlines were shopping hundreds of new airplanes in recent years, Air India was forced to freeze its domestic fleet at 80 Airbus A320 series aircraft and gradually wind this down to 64 aircraft after 2012, Figure 1.
The joining airlines had ordered 111 new airliners before the merger. The Boeing order of 68 aircraft comprised 27 B787, 15 B777-300ERs, eight B777-200 LRs and 18 B-737-800s (for the International budget subsidiary Air India Express). The Airbus order of 43 was for 19 A319s, four A320s and 20 A321s. As the losses set in, the large aircraft orders were made the reason for the losses and all further fleet investments were frozen.
Introducing 14 A320neo with CFM LEAP engines has improved the situation for the domestic market, where market shares are now down at 12% from 25% in 2006.
Air India has Fy2017 flown 20m passengers to 93 destinations, of which 54 domestic with 2,330 departures per week and 39 international destinations with 766 departures per week, Figure 3.
This gives the airline a 12.6% domestic and 17% Indian international traffic market share. Average load factor for Fy2017 was 76.4%. The airline made a loss of around 25% of revenue over the last three fiscal years, or around $800m loss on $3bn revenue.
After investing nearly $10bn in Air India after the merger, and with the losses brought down below $1bn per year, the Indian government has decided this is the correct time to sell the majority of the airline.
On March 28, India’s civil aviation ministry invited for “expressions of interest” from potential buyers for a 76% stake in the airline. The buyer would get attractive slots and real estate together with 105 aircraft and around 19,000 employees.
The buyer would also take over $5bn of Air India’s $8bn debt and would guarantee to stay involved with the airline for three years after the buy. There have been no takers so far.
No surprise, Emirates is the king when it comes to international flights to and from India.
And Indigo for domestic…
“The airline made a loss of around 25% of revenue over the last three fiscal years, or around $800m loss on $3bn revenue. ”
nuff said, that’s beyond hope.
Shut it down.
Agreed. Read the 4/25/18 Business Insider Newark to Delhi AI flight review. It’s apparently like flying Spirit. It’ll get you there, but you won’t enjoy it! LOL
Best flight air india
Let AIR INDIA GO UNDER. Air India is never going to make profit. Just imagine, How many poor people you can feed with 8 billion dollars in India.
Let air India go under.
Why did Star Alliance admit this basket case when there were far better choices available? Varig redux.