March 2016 PTI report quotes an Air India official<\/a> as saying that in 2015-2016, the fuel bill of the company would be around Rs 5,700 crore, which would be lower in comparison to the Rs 8,200 crore bill that the company ran up in 2014-2015.<\/p>\nWhat does this mean? The company saved Rs 2,500 crore because of lower fuel costs. And how much did the total expenditure of the airline fall by? Rs 2,515.2 crore, as I calculated earlier in the column.<\/p>\n
Hence, the expenditure of the airline has fallen primarily because of lower fuel prices. And this has allowed it to make lower losses and at the same time make an operational profit. The numbers make me wonder what operational efficiency was the civil aviation minister talking about.<\/p>\n
Further, lower fuel prices are not within the control of the airline. And as soon as prices start to go up, the airline\u2019s losses will start to increase as well. And the meagre operational profit will turn into a loss.<\/p>\n
In his reply to the Lok Sabha, minister of state for civil aviation, Mahesh Sharma, has offered a range of reasons as to why Air India makes losses. High fuel prices are one reason. This impacts all airlines and not just Air India. If high fuel prices were an issue, how did Indigo make profits all these years? Further, this cannot be reason for 2015-2016, when jet fuel prices have fallen dramatically.<\/p>\n
Sharma also offers other reasons for the non-performance of the airline. One reason offered is high airport usage charges. These charges are not just borne by Air India, other airlines shell it out as well, which in turn is recovered from the end consumer.<\/p>\n
Sharma then tells us that competition from low cost carriers is another reason why airline is losing money. But this is true about all other airlines which are operating. The competition is not just specific to Air India.<\/p>\n
This also brings out another important point regarding competition and the lack of success of public sector enterprises. As Dwijendra Tripathi writes in The Oxford History of Indian Business<\/em>: \u201cThe profits before interest and taxes as the percentage of capital employed in the public sector remain on an average very low\u2026Few of the profit-making units were operating in a competitive framework; the bulk of the profits came from companies operating in sectors in which the public sector employed a near monopoly position<\/em>.\u201d<\/p>\nThis is a point made in the latest Economic Survey as well. As it points out: \u201cThe Indian aviation and telecommunication sectors of today are unrecognizably different from what they were 20 years ago, with enormous benefits for the citizens. Public sector companies now account for a small share of the overall size of these sectors<\/em>.\u201d<\/em><\/p>\nLong story short\u2014when public sector enterprises face any sort of competition from the private sector, their best days soon get over. Air India is a brilliant example of that.<\/p>\n
Sharma in his reply also blames the weakening of the Indian rupee for extreme losses. Jet fuel has to be imported and if the rupee weakens against the dollar, the cost of jet fuel also goes up. Nevertheless, this is a risk faced by every airline in the world which does not earn a major portion of its revenues in dollars, and is not just specific to Air India. Also, there are ways an airline can go about hedging these risks.<\/p>\n
The point being that Sharma comes up with many reasons except for the fact that the government does not know how to run an airline. Or should a government be running an airline in the first place? Well, if it can make condoms, it can sure run an airline.<\/p>\n
And honestly, any other minister, in his place, would have come up with the same set of excuses. The fact of the matter is that a civil aviation minister without Air India coming under him, would essentially be rendered useless.<\/p>\n
To conclude, as I said yesterday, the Rs 8 crore operational profit, will be used as an excuse to show the revival of the airline and keep it running. Nevertheless, as soon as fuel prices start to go up, losses will increase. The taxpayer will continue to bailout the airline.<\/p>\n
Rest assured!<\/p>\n
The column originally appeared in the Vivek Kaul Diary<\/a> on Equitymaster<\/p>\n","protected":false},"excerpt":{"rendered":"In yesterday\u2019s column on Air India I made a rather silly mistake, which I want to correct here. For the year 2015-2016, the government run airline made an operational profit of Rs 8 crore. Using this data point, I said that for 2015-2016, the government wouldn\u2019t have to pour any more taxpayer money into Air … <\/p>\n
Read more<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"qubely_global_settings":"","qubely_interactions":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30,77],"tags":[188,758,1058,1086,2477,2628],"qubely_featured_image_url":null,"qubely_author":{"display_name":"Vivek Kaul","author_link":"https:\/\/vivekkaul.com\/author\/vivekkaul\/"},"qubely_comment":0,"qubely_category":"Equitymaster<\/a> Vivek Kaul's Diary<\/a>","qubely_excerpt":"In yesterday\u2019s column on Air India I made a rather silly mistake, which I want to correct here. For the year 2015-2016, the government run airline made an operational profit of Rs 8 crore. Using this data point, I said that for 2015-2016, the government wouldn\u2019t have to pour any more taxpayer money into Air…","jetpack_sharing_enabled":true,"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts\/4463"}],"collection":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/comments?post=4463"}],"version-history":[{"count":0,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts\/4463\/revisions"}],"wp:attachment":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/media?parent=4463"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/categories?post=4463"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/tags?post=4463"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}