Flying In The Face Of Facts

There are only two choices in life: to accept things as they are or take responsibility for changing them." The quotable quote engraved on a small piece of wood adorns the table of most Indian Airlines officials. Ironically though, the airline seems to have taken the first half of the quote quite literally. The more things change at the airline, the more they remain the same.

Yesterday, Indian Airline's outgoing chairman and managing director Anil Baijal announced a record Rs 79 crore net profit for IA for the year 1999-2000. Speaking at a crowded press conference at the airline's corporate headquarters in New Delhi he said: "IA has made a net profit of Rs 79 crore which is the highest ever. It gives us some sense of satisfaction as this has been achieved despite sluggish traffic growth and no fare increase last year." He added that the Rs 79 crore profit had been achieved against a budgeted profit of Rs 15 crore.

 

The operating revenue, according to Baijal was Rs 3,542 crore compared to Rs 3,423 crore last year while the total revenue was also up by almost Rs 100 crore _ Rs 3,556 crore compared to Rs 3,445 crore achieved in 1998-1999. When compared with IA's fortunes in the year 1998-1999, the net profit figure is undoubtedly impressive.

Ideally, the record profits achieved this year should make the employees happy. However, not many in the organisation are opting for any kind of high flying celebration. If some like the aircraft maintenance engineers are sour with the management for not being able to meet their long-pending demands of a pay hike and a promotion policy, others are taking the princely performance figures with a pinch of salt.

Here is why. One, when the management talks of increasing profits despite no increase in fares, the fact remains that an 11 per cent fare increase was implemented by the airline only in November 1998. So the full impact of the increase was actually felt only in the year subsequent financial year, 1999-2000 As a result of this, Indian Airlines netted an additional Rs 195 crore in revenues.

Two, there is little clarity on where these profits have actually come from. Baijal says that the profits are a result of the company's new marketing initiatives. "They have been largely possible owing to our thrust on supply-demand management and pricing initiatives," he says. The break up of the figure, however, was not available. The CMD said that since these were just provisional figures, the break up would be available after the figures are audited.

A closer look at the company's revised budget estimates for the year 1999-2000 reveals that a chunk of this profit comes from its non-operating revenues. The airline, in fact, made a huge saving of Rs 41 crore by not leasing four A 320s it had budgeted for the year 1999-2000. The induction of the four aircraft would have seen the company's net profit dip to an insignificant Rs 15.7 crore. Showing the Rs 41 crore not spent on aircraft lease as a savings in the company's profits is an acceptable accounting practice. But the fact remains that it does not present a true picture of the beleaguered airline.

In fact, IA sources say the airline paid a huge price for not expanding capacity through leased aircraft. Its marketshare dropped by five per cent. Baijal does not agree. "Expanding capacity last year did not make any sense. There was no growth in traffic." He says that now the situation has improved and the leased aircraft will be added in the winter of 2000.

However, with or without profits in its books, few in the IA management deny that the airline is terribly short on cash. The airline is unlikely to show any profits if all its outstandings are taken into account. The airline owes Rs 60 crore to Air India in the form of a loan it had sought from the flag carrier a few years back. A senior IA official, however, dismisses AI's claim: "Even the IA bills are pending with Air India _ its an internal arrangement."

Then there are arrears _ dating back as far as the early nineties _ that it needs to pay its 20,000 employees for which it would need to shell out Rs 140 crore. When does it intend to do so? A deputy general manager says its hard to say, since the airline doesn't have the money in the first place! And if these dues were settled at all, where would that leave the airline? Clearly in the red.

Meanwhile, there's been a sharp decline in its marketshare (see chart) while the private carriers have hiked both capacity as well as marketshare. According to IA figures, its marketshare in February was at an all-time low of 54.8 per cent down from 60.4 per cent last year and a healthy 70 per cent in early 1997.

Private airlines have clearly grown at IA's expense. Recently, Sahara Airlines added two aircraft to its fleet of seven Boeings and started flights between Delhi-Chandigarh and Delhi-Bangalore. The new additions, according to Sahara Airlines vice president (marketing) Kapil Kaul, will help its marketshare to jump from 7 per cent to 11 per cent this year.

IA's main competitor Jet Airways increased its capacity by a significant 21 per cent in 1999-2000. As a result, points out the airline's executive director S K Dutta its markteshare has grown from 32 per cent in 1998-99 to 38 per cent in 1999-2000. Today the airline boasts of a 29 aircraft fleet including 25 Boeings and four ATRs for the regional routes.

IA has taken a beating on the domestic sector but is doing well on its international routes. It has deployed 30 per cent of its capacity on these high-yield routes. It is a well-known fact that a big chunk of its passenger revenue comes from its international flights. Of its 69 domestic flights only 21 are profitable while of its 33 international flights 18 are profitable. However, if the government implements its decision to designate private carriers on international routes, IA will have a tough time fighting the private carriers on these route as well.

Considering the sad state of affairs at the airline, it is about time that both the airline management as well as the government takes a more long-term view of the airline rather than concentrate on short-term profits and clean balance sheets. As an aviation expert points out: "Even a Rs 100 crore profit is not impressive for a Rs 3,000 crore airline. Also, the emphasis should be on its growth, marketshare and whether it is the most preferred airline or rather than just profits.

But perhaps, it is expecting a bit too much from the government that is yet to appoint a successor to the current CMD Anil Baijal who vacates his post on May 26. IA never seems to be out of an airpocket.