AI Express expects to break-even by FY13
"We are already in cash-profit and expect to achieve break-even by the turn of the 2013 fiscal. We are hopeful of this, as we expect to reap the full benefit of the soon-to-be commissioned hangar at Thiruvananthapuram by then," one of the senior-most officials of Air India Express (AIE), who requested anonymity, said.
The AIE moved its headquarters to Kochi in December 2010 from Mumbai for better operational efficiency and coordination and the airline got a new headquarter building in February this year.
The official also pointed out that the airline could already have been in profit, had it not been for the 25 percent revenue sharing agreement with the parent Air India. "If we discount this 25 percent payout to AI, we are already profitable," he said.
The airline, which began operations on April 29, 2005 a revenue of Rs 1,741 crore in FY09, its best-ever numbers, when it was flying 25 aircrafts as it returned three planes on lease. But since then, the number of planes came down to 22 in 2010 and after the Mangalore crash, further down to 21. In FY11, the airline had a revenue of Rs 1,726 crore, the official said.
He said that there is likely to be improvement on the revenue front in the current fiscal as expansion plans are hit shortage of aircrafts as well as pilots, preventing them from operating more services with the current fleet strength.
"The commissioning of the Thiruvananthapuram hangar was delayed due to the monsoon," he said, adding that it would take place as soon as the monsoon is over. "The civil work is already over and we are hiring technical hands to run the shop-floor. Currently, our biggest handicap is the shortage of technical hands," he added.
Work on the Thiruvananthapuram hangar, third after Delhi and Mumbai, started in March 2008 and was supposed to be completed in 18 months. The company is spending Rs 60 crore on land/building and another Rs 20 crore on equipment.
The official also informed that once the hangar is commissioned, it will be converted into a full-fledged MRO (maintenance, repair and overhaul) centre. "But that would take time as there is a severe shortage of technical hands. But before that we will start servicing other airlines too, to earn more revenues."
He further said opening of the Thiruvananthapuram hangar will enable the airline to move in all its 21 aircraft to Kerala, which is the key market for the airline with as much as 55 percent of the revenue comes in from the three airports in the state along with the Mangalore airport.
"The biggest take-away from Thiruvananthapuram hangar will be our ability to service all our airplanes at this facility," he said. Currently, AIE services its planes at the Mumbai hangar, "which is time-consuming and leads to poor utilisation of the aircraft."
On the criticism of poor aircraft utilisation, he said, "Since we moved our headquarters to Kochi on December 30, 2010, there has been a major improvement in this aircraft utilisation front. The current usage is 10.4 hrs per aircraft, which is on par with international carriers."
Moving the facility to Thiruvananthapuram will also help the airline save on fuel costs, which currently rule around 37 percent of the overall costs, which he claimed to be comparatively lower than the industry average of 40 percent or above.
AIE, which operates 195 flights a week, saves on fuel cost because of the typical nature of its operations--only to the Gulf markets, where aviation fuel is cheap--and can thus fill up on return trips from there.
While Gulf carriers' fuel cost is only 20 percent of their overall cost, for others it is 40 percent or above.
Citing lack of aircraft and the inability to hike fares as his biggest handicaps, he said, "In the past 18 months, I could not touch my fares at all. The market is so competitive that I just cannot afford to reprice tickets, though there is no dearth of demand."
"But the problem is that it is difficult to beat the Gulf carriers when it comes to pricing as their operational cost is much lower than us due to cheaper fuel, which is almost one-fifth of our price and thus can sell tickets at much lower rates," he said.
Another big reason is the acute shortage of aircraft for my poor financial numbers. "We have put up a tender two months back for leasing, but have so far received only one response, who says he can try to lease out two planes to me in 2014. That is the market condition now. So where is the question of expansion," he quipped.
On manpower utilisation he said, unlike the parent AI, it has a very healthy employee-aircraft ratio of 46.4 employees for an aircraft. He also said, there is better productivity as all the employees are on contract and no unionisation is allowed in the company.
AI, which is sitting on a debt pile of over Rs 62,000 crore, has an army of employees running into over 32,000, making an employee-aircraft ratio of 221 per aircraft, which one of the highest in the world, while Jet has just under 150 per plane. The airline concedes that there is an "unofficial unionism".