Air India loses less money on ground than in air

Shaheen Mansuri
Moneycontrol.com

Air India (AI) may be in the news for making a loss of around Rs 150 crore as around 200 of its pilots have struck work in the past eight days leading to massive flight cancellations. But a top executive at AI tells moneycontrol.com that the carrier is actually saving quite a few crores by curtailing operations.

AI's operating ratio is 135% which means AI is spending around Rs 135 to earn Rs 100.

The airline records around Rs 2 crore operating revenue on each flight (short haul). At 135% operating ratio, spending on each flight works out to be Rs 2.70 crore owing to fixed cost component. Fuel cost, food served on-board, unfilled seats and interest and depreciation cost (immaterial of whether the aircraft flies or not) comprise the fixed-cost component.

"In order to save on costs, the airline needs to have stable operations. This can be a temporary cushioning, but is not sustainable in the long run," said the AI executive while adding that such precarious situation will dent the brand image for the carrier globally too. "To cut down losses, the airline needs to curtail loss-making routes which hardly have 30% occupancy and to break-even, it needs atleast 75% seats filled," he adds.

Meanwhile, on an average, AI has called off around 20 flights (domestic and international, both) each day and will not undertake any bookings for its West-bound flights as it mulls the option of shutting down global operations till a resolution is found to the week-long stir.

AI carries about 8000 passengers each day and operates on around 95 domestic routes and over 65 international destinations with a fleet size of 148 aircraft. The carrier is expected to post around Rs 7853 crore losses in financial year 2012.

shaheen.mansuri@network18online.com