Air India plans to add capacity on domestic routes

Mumbai: Air India Ltd plans to add capacity to its domestic operations by deploying five new fuel-efficient narrow body planes and two additional wide-body planes on local routes as it moves to address a gap that has been pointed out by several analysts and which has been hurting its financials.

“Air India will soon experience capacity shortage in the domestic market. Without long-term fleet commitments in place, Air India’s turnaround plan is irrelevant,” consulting firm Capa’s South Asia chief Kapil Kaul had said in a December interview.

The airline’s capacity addition plans were confirmed by two executives at Air India, who added that some of the planes would have just one class, while the others would have two. The executives spoke on condition of anonymity.

Mint reported on 30 December that the state-owned airline plans to spend at least $1 billion in 2015 buying new aircraft to compete with new entrants as well as existing airlines that are expanding their own fleets. The state-run airline could add at least 20 fuel-efficient planes by leasing, or swapping existing orders with plane makers, that report said.

Loss-making Air India’s decision to enhance its domestic capacity comes at time when its low-fare rival IndiGo, run by InterGlobe Aviation Ltd, is increasing its capacity and new entrant Vistara, promoted by Tata SIA Airlines Ltd, has announced that it is scaling up its operations by March by adding two more destinations.

“At present, Air India deploys only 27% of its total capacity in domestic operations. We will be increasing deployed capacity for local operations to 40% this calendar year. We are designing our domestic capacity in such a way that we will compete with both full service airline Vistara and Jet Airways (India) Ltd and low-fare rival IndiGo,” the first executive said.

The airline will get five Airbus A320ceo aircraft from China Aircraft Leasing Co. (CALC) by December, this person added. “In 2015-16, two (more) Boeing B787 Dreamliner planes have been earmarked for domestic operations.” Currently, Air India uses two Dreamliners on local routes.

In a 5 December report, Mint said Air India would lease 14 Airbus A320neo aircraft to replace its ageing narrow-body fleet.

IndiGo ended 2014 with a market share of 31.8% followed by Jet Airways at 21.7%, Air India 18.4%, SpiceJet Ltd 17.4%, GoAir 9.2%, Air Costa 0.9% and AirAsia 0.5%.

Air India’s capacity enhancement efforts this year will help its market share increase, the first executive said.

Meanwhile, Air India is pushing ahead with its effort to replace the narrow-body aircraft on its fleet, the second executive said. In response to its tender for 14 Airbus A320neos, it has received eight technical bids for both A320neos and A320ceos, he added.

“The financial evaluation is still in progress. The deliveries sought are between 2015 and 2018,” the second executive said.

That would further increase the airline’s capacity, the second executive said.

Domestic air traffic growth accelerated to nearly 10% in 2014 on the back of lower fares and the launch of new airlines. Air passenger traffic grew 9.7% last year compared with 4.43% in 2013, according to the Directorate General of Civil Aviation.

Capa’s Kaul said Indian airlines will likely receive 12 aircraft by 31 March and another 30 in 2015-16.

Air India posted a surprise profit of Rs.14.6 crore in December compared with a loss of Rs.168.7 crore in the year-earlier period, Mint reported on 12 January, citing two unidentified officials. The airline’s operating profit in December jumped to Rs.183 crore from just Rs.2 crore in the year-earlier period because of lower crude oil prices and an increase in passenger revenue, the officials had said.

Air India is in the midst of a bailout programme after the centre approved a Rs.30,000 crore package to rescue the beleaguered airline in April 2012. The firm is expected to post a loss of Rs.3,900 crore for the year ended 31 March 2014, numbers for which are yet to be disclosed. It posted a loss of Rs.5,100 crore in 2012-13 and a loss of Rs.7,100 crore in the preceding financial year. Air India owes Rs.40,000 crore to creditors.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.