If there's an Indian airline that has consumed most of media's 'possession time', that is Air India. The rise in oil prices and the fall of Indian rupee takes the Indian Aviation Industry back to the ground. Even the most profitable airline suffered a loss.
Indian airlines have been struggling to make cash in the recent quarters. If we look up to the companies, Jet Airways, the oldest private airline of India, reported a loss of Rs1,034 crore in the Jan-March quarter. The airline is struggling to pay its fees to pilots, airport fees and failed to make payments to the owners of its leased aircraft and is also suffering losses from the three consecutive quarters.
Similarly, Air India has suffered a loss of Rs8,400 crore in the financial year 2018-19 due to a rise in fuel prices and higher costs as Pakistan closed its airspace for Indian carriers after the Balakot Airstrike by India.
Air India has to merge, re-route or suspend many of its international operations that connect flights from India to US and European cities and due to which additional 90 minutes were added to the journey and need for fuel increased which resulted in higher costs and caused a daily loss of Rs3 to Rs4 crore.
How is Air India affected by the hike in oil prices?
Air India received a letter from three oil PSUs Indian Oil Corporation Ltd (IOCL), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL), stating that "Commitment towards daily payment has been mostly adhered to by Air India, the outstanding has not come down considerably in the absence of the committed monthly lump sum payment."
In addition to that, the airline owed Rs 5,000 crore as unpaid bills from the last eight months. On August 22, BPCL and HPCL have stopped supplying fuel to the airline at six major domestic airports, including Vizag, Kochi, Mohali, Pune, Patna, and Ranchi.
However, on September 7, PSUs resumed the supply of fuel after the intervention of the Ministry of Civil Aviation.
Clearly, we can see that almost all airlines are affected by the increased prices of oil, and Air India is the most affected airline as it is also suffering from a significant debt issue. So if we breakdown the reasons why Air India is on the verge of divestment then it should follow as-
Less passenger revenue
The airline is facing less passenger revenue from their expectations and hence failing to meet the financial requirements to run the airline, which resulted in taking several short term loans.
Mismanagement of workforce
The Company had employees more than the required number. They had an unused team of pilots and cabin crews, which resulted in a loss for the airline.
Loss in international operations
Flights to New York from Mumbai and Delhi have been shut down because of less seat occupancy and closure of Pakistan airspace, and this closure is causing operating loss to the airline.
Non- availability of proper aircraft
The audit stated that there had been a mismatch of the demand and availability for the airline. When the demand and availability don't meet the urgency for the airline, the AI was bound to make a loss.
As Air India reports a loss of Rs8, 400 crores in the financial year 2018-19, but it aims to get their maharaja days back till 2020. The officials of the airline expect to turn operationally profitable 2019-20. They also assume that there would be no significant hike in oil prices and no fluctuation in the foreign exchange rate that can result in an operating profit of Rs700 to 800 crores. At the same time, the airline is facing financial issues, and disinvestment can be done.
According to a report, Air India’s officials expect a profit despite the financial crisis they are facing.
Expecting maharaja days back regardless of the financial crisis seems unimaginable when the whole aviation industry is on the backfoot.