Too much clutter on the flight paths

The recent announcement by Ashwani Lohani, the chairman and managing director of Air India, that the airline was in discussions with representatives of 16 State governments and Union Territories to put smaller towns and cities on the aviation map, is nothing more than a case of old wine in a new bottle.

Regional connectivity was on the agenda nearly two-and-a-half decades ago when it designated Vayudoot to enhance connectivity to smaller towns and cities. A little later the India Shuttle plan was mooted as a part of the turnaround plan for Air India. It was intended to get 40 aircraft for regional connectivity to places that could be covered in one hour of flying time.

While Vayudoot’s plans fell by the wayside, possibly because of lack of traffic and the fact that it expanded way too fast for its own good, there are many who now believe that the ‘new’ idea is nothing more than the India Shuttle plan in a new avatar.

The recent announcement is riddled with many problems. First, the civil aviation policy is in the last stages of being finalised after a delay of at least two months. The general thinking is that regional connectivity should form part of the policy instead of being discussed separately so that the policy document becomes a comprehensive one covering all aspects of civil aviation in the country.

Then there is the issue of the onus of providing connectivity being with Air India, with the private players not being involved — no private player was invited to the meeting the chairman had with representatives from States and UTs.

Though it is difficult to justify logically, even if one assumes that as a national carrier it is Air India’s responsibility to provide regional connectivity as a service to the nation, the Government seems to be going ahead with a plan formulated without any business assessment of how Alliance Air, Air India’s regional subsidiary which will operate most of these flights, will achieve this.

To begin with, the numbers tell a very different story.

For instance, Air India plans to utilise an ATR aircraft for which it will have to pay a lease rental of anything between $1,70,000 and $1,90,000 (₹1.13 crore and ₹1.23 crore) a month. Add to this the monthly salary of a pilot which is likely to be around $10,000 (₹6.7 lakh) and fuel, crew, maintenance and other costs.

The airline estimates that it will have to earn ₹6-8 per kilometre of flying to ensure these operations make a profit. With an ATR aircraft being able to cover 600-700 km an hour, the average cost of the flight per hour is ₹2,25,000 and the average fare per passenger works out to ₹4,500 at a 70 per cent load factor.  

It remains to be seen how many passengers will be willing to pay such fares for a flight say, between Puducherry and Bengaluru, a sector the State governments are keen the airline operates.

Lohani’s assertion that the States have agreed to provide viability gap funding (VGF) for these flights sounds good on paper but if you consider the airline’s track record with State governments on this front, the situation becomes totally different.  Recently the airline stopped operations to some destinations in the North-East as the ₹80 crore owed to it as VGF in 2013-14 and 2014-15 were not paid. The airline also pulled out of Mysuru as the annual ₹1-crore VGF provided by the Karnataka government was insufficient to support operations.

At a time when AI is advancing its fiscal targets and hopes to report an operating profit of ₹ 8 crore in 2015-16, almost two years before what was envisaged in the original turnaround plan (TAP) approved by the Centre in 2012, and when it also hopes to report a profit after tax in 2019-20 instead of in 2021-22, that was envisaged in the TAP, it might be a better idea to look at consolidating the airline’s fortunes. Further expansion can be kept on hold.