Just how bad were things for Air India, even before the market collapsed in early 2020? According to the Minister of Civil Aviation the carrier lost money on 319 of the 340 routes it operated globally. Only 6% of the carrier’s network operations proved profitable for the twelve months from April 2019 through March 2020.
Only 9 of 242 domestic routes met all costs, according to the filing. A dozen of the 98 international routes fared similarly. At the other end of the extreme 101 domestic and 10 international routes did not meet even the variable costs of operation, namely fuel, staffing, landing fees and similar.
In a response to Parliament Hardeep Puri details the breakdown of the losses as well as why the carrier chooses to continue operating rather than scale back the services:
Air India analyses the reasons for the losses and based on the strategic importance of such services to its network arrives at a decision whether to continue or withdraw such services. Also some domestic routes show losses but actually these routes feed connections to major routes so those cannot be withdrawn or replaces with smaller aircraft. Non-profitability of any single route is not taken in isolation only on its financial performance.
The network effect matters. Without feed from smaller markets some of the larger, more successful routes would slip from that status, claims Puri.
As for why the routes lose money, well, the list is pretty obvious to anyone that pays attention to the industry:
- Low demand
- Cheaper fares from competitors
- Higher operating costs than competitors
On that last item Puri specifically calls out the operating cost differences between Air India as a full service carrier and “other airlines some of which are low cost carrier.” That does not tell the entire story, of course, as Air India’s costs are also higher that other full service carriers, both within and outside of India.
The intense competition in the Indian aviation market makes Air India’s once well-protected, flag carrier position a most precarious one. Rules continue to relax, particularly around the launch of international services. Vistara just placed its 787-9 Dreamliner into service on the Delhi-London route, with a number of service improvements such as inflight wifi likely to prove attractive to passengers. Other Indian airlines are chipping away on international flow closer to home.
And, while the government continues to provide some regulatory preference and protection to its baby, the tolerance for such is waning. Even the highly profitable Vande Bharat international repatriation flight, initially limited to only Air India, eventually were forced to open up to outside competition.
That the government is now years into its efforts to sell off the struggling carrier with nary a nibble from private businesses shows just how significant these struggles are.
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