Friday, July 20, 2012

Flying low: India’s flag carrier is in big trouble

WELL-TO-DO Indian graduates used to line up to join Air India. The national carrier was founded in 1932 and nicknamed the Maharajah. Singapore and Malaysia sought its advice when setting up their state airlines in the 1970s, as a former director recalls. “This was a temple of modern India,” he sighs. 

 Today the Maharajah is looking shabby. Air India made an estimated loss of $1.45 billion in the 2011-12 fiscal year, according to the Centre for Asia Pacific Aviation (CAPA), a consultancy. That was nearly three-quarters of the losses made by all Indian carriers combined. Air India has not made a net profit for six years. Its losses have ballooned since a disastrous 2007 merger with Indian Airlines, its state-owned counterpart for domestic routes (see chart). The union has sparked spats—the latest pilots’ strike, which ended on July 3rd, cost almost $120m. The government bailed out the merged firm with $5.8 billion in April, after a $3.5 billion debt restructuring last year.

Yet the government is unlikely to give up on the combined carriers, whose share of the domestic flight market has dropped from 42% to 16% over the past decade. It would be hard to attract a buyer. Air India spends over a quarter of its operating revenue on employees’ pay and benefits; Jet Airways, a domestic rival, spends a tenth. The board approved a voluntary-retirement scheme for 5,000 staff this month, but needs the government’s approval. The Maharajah is even thinking of selling its art collection.

Air India keeps ticket prices uneconomically low. When it slashed prices last year, it forced others to follow suit. That, and India’s high taxes on aviation fuel, make it hard for any airline to earn money. Only one of India’s six carriers, Indigo, a budget airline, is expected to post a profit this year. Some blame the rise of Gulf airlines on international routes. “Emirates is now the national airline of India. That’s what people say,” sighs the retired Air India man.

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