India’s government has budgeted for Rs 65 billion ($1.8 billion), as equity infusion for flag carrier Air India during the financial year 2014-15. Provision for the amount has been made in the union budget, unveiled by India’s finance minister Arun Jaitley in Delhi on Thursday.
This year’s provision is higher than the Rs 60 billion support that the loss-making airline received in financial year 2013-14. This is possibly because it has showed improved performance in the period. Air India was able to reduce net loss to Rs 53.8 billion in 2013-14 from Rs 54.9 billion in the year-ago period. Revenue improved about 15% to Rs 143 billion.
The airline still loses more money than any other Indian carrier. Mumbai-based Jet Airways came a close second this year with losses of Rs 41 billion. High operating costs and increased competition have put a huge pressure on both airlines.
Air India has made losses since 2007, going deeper into the red after an ill-executed merger with Indian Airlines. After losses mounted, the government was forced to step in to issue fresh equity. As part of a turnaround plan, the government will pump in funds over the next three years, provided the airline is able to show improvements in its performance. The way forward will not be too easy because two new airlines—AirAsia India and a Tata-Singapore Airlines joint venture—will begin services by the end of this year. Local analysts say this will add to pressure on fares. As a government-owned airline, Air India does not have the operational flexibility that private airlines have.
In a statement earlier this week, aviation minister Ashok Gajapathi Raju said Air India’s load factors had improved to 73.6% in 2013-14. He expected revenues to increase 4% to 5% after its entry into the Star Alliance. When Air India joins the alliance on Friday, it will be the first carrier from India to join an international airline grouping.
Meanwhile, the government has announced plans to improve India’s air connectivity. More airports are planned in smaller cities over the next few years. Visas on arrival will be issued to tourists arriving at nine major airports in the country.
Indian government budgets higher equity infusion into Air India