Air India – The Economics Of A State Backed Airline

Operating an airline is expensive and complex and it seems many airlines seem to be in existence only because their government keeps them afloat.

In 1932 Air India was created, as Tata Airlines, a mail carrier.  In 1953 Tata Airlines was nationalized and renamed Air India, an international airline, while Indian Airlines was created as a domestic carrier.

After a long merger, and lawsuits to demerge, Air India and Indian Airlines became one airline, with the completion of their merger on the 27th of February 2011.   This merger is not without internal disputes … but what really stands out about the merged airline now is the question of how the airline is managing to stay afloat, pay its staff, fuel its planes and pay for new aircraft.

Presently, on average, Air India’s daily revenue is US$7,966,364, with the airline’s daily expenses totaling US$12,613,410.  An airline with its daily expenses totally 158.33% more than the airline generates in revenues is hard to justify, even if backed by the government.

There have been calls to privatize Air India in the past, but the potential to privatize Air India is limited due to the significant internal hurdles within the company and its massive financial losses.

As the airline moves forward in joining Star Alliance, in the summer of 2011 … long after the airline was expected to join the alliance … maybe it will find a way to reduce its daily expenses, cut its significant redundancy and inefficiencies.

While only a drop in the bucket compared to the overall daily losses of Air India, the airline may want to consider shutting some of the overseas offices in cities not served by the airline. In 2009, Air India spent an estimated US$864,265 (not counting salary costs) maintaining 14 overseas offices in cities that airline does not serve.

It’ll be interesting to see how Air India turns its self around, if it can turn itself around, and become a profitable airline … or at least break even.

Happy Flying!