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Air India: The Strategic Playbook Behind FY25's Impressive Revenue Growth

Air India aims to double international transit traffic in next 3 years

Air India aims to double international transit traffic in next 3 years

Air India’s Chief Commercial Officer (CCO) Nipun Aggarwal stated that currently Air India’s total international passengers close to 10 percent use Indian airports as transit hubs. Annually, around 130 million passengers fly over India. In this, the transit traffic of about 10 percent and 7.5 percent is handled by Dubai and Doha, respectively. Compared to this, Delhi handles less than 1 percent of this transit traffic in current times. According to Aggrawal, this could act as a significant growth opportunity. Air India’s total international traffic is expected to grow by 15 percent to 20 percent in the next three years. This is Air India’s aspiration and commitment to achieve the goal.

Expansion plan of international transit traffic
Aggrawal states that the airline has already increased its transit traffic to the west and now it is time to increase the connectivity in the east of India as well. With a particular focus on Southeast Asia to attract more international-to-international (I2I) traffic.

He further states that Indian airlines have largely failed to notice the unexplored potential in the Europe-Australia corridor. Air India has adjusted their flight schedules to ensure smooth and convenient connectivity of Western destinations such as Frankfurt, Paris, London with Eastern destinations such as Melbourne and Sydney.

Rebuilding Widebody planes
Since the year 2019 -20, Air India’s business class and premium economy cabins have recorded an increase in revenue by 2.3 times. While, the revenue generation of the economy class has recorded an increase by 1.6 times. By taking into consideration the category-wise revenue generation, the company plans to increase the number of seats in business as well as premium economy cabins which is also known as front-cabins in its widebody planes. Once the upgrade is finished, the number of front-cabin seats available will be doubled compared to the present number of seats available. Also, the revenue will also increase from these planes. The airline plans to start rebuilding of widebody planes by the month of July.

Expansion plans of Direct Flights
Air India has repeatedly rejected increasing bilateral rights with countries such as Qatar and UAE. It believes that these countries’ airlines use their hubs to carry a significant share of traffic from India to countries in North America and Europe. Also, the current bilateral rights of India with Dubai and Doha hubs is more than sufficient fr the purpose of origin-destination (point-to-point) traffic.

In the near future, Air India intends to increase its shares in traffic by increasing direct flights to North America and European countries. The company understands that in order to achieve a big share of the international market, there is a need to strengthen Delhi and Mumbai hubs.

Wet Leasing planes
Wet Leasing planes refers to not only leasing aircraft but also its crew, insurance and maintenance unlike dry leasing which only allows renting aircraft. In the month of December 2024, the government of India allowed airlines to wet lease planes on new routes. It was started to satisfy the rising demand and to give a temporary solution to slow deliveries of new aircrafts. The CCO of Air India stated that the company is not involved in wet leasing.

The reason for not using wet leasing planes is due to its operational challenges associated with it, particularly occurring while creating a sustainable flight network. The wet leasing method is quite useful in times of sudden rise in demand. Air India’s purpose is not at present to satisfy this current surge in demand but to focus on long-term growth. The company has already put orders for new planes.

Sales Channels of Air India
Air India’s website or app contributes to 20 percent of its international ticket sales. While, the domestic sales channels contribute to 40 percent of sales and the remaining sales of Air India’s international ticket is carried through foreign sales channels. It is difficult to identify a strategy to increase sales through foreign sales channels as it changes market to market. Also, the company focuses on maximising returns and not on focusing on one particular sales channel and its revenue.

Impact of Rupee depreciation
The current rupee depreciation has significantly burdened the cost structure of Air India. The reason for that is the company’s many expenses are done in dollar-denomination except employee related expenditure.

Due to its presence in operating many international flights and also charging in foreign currencies give it a somewhat natural protection from currency fluctuation. Despite this, it is facing challenges in profitability and fares due to around half of the tickets being sold in Indian currency. Also, depreciation of currency not only affects fares prices but also demand. This challenge is faced by the entire Indian aviation industry. Air India is taking efforts to resolve this issue by increasing productivity and also implementing measures to ensure efficiency in operations.

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Fourth tranche includes structural reforms in various sectors

Fourth tranche includes structural reforms in various sectors

In the 4th tranche of the economic package, Finance Minister Nirmala Sitharaman basically focuses on various sectors aiming towards growth stimulation and job creation. This time the utmost focus has been on sectors like coal, minerals, defence, aviation, power distribution, space and atomic energy sector. All the 4 tranches sums up the detailed guidelines and strategy of allocation of total fund as announced earlier by Prime Minister Narendra Modi. This pool of Rs 20 lakh crore package, that amounts to 10 percent of our GDP aims to help the nation survive the economic crisis that has risen due to cross country lockdowns laid to curtail spread of COVID-19.

 

Details of previous tranches:

The 1st tranche was announced on May 13, 2020 following the 2nd and 3rd tranche on May 14 and 15 respectively. The announcements in 3 tranches summed up to Rs 10.73 lakh crore. Similarly, 4th tranche has been aired on May 16, 2020 providing further details regarding the balance amount of fund dispersal strategy.

The 20 lakh crore package includes the amounts of earlier announcements made in March. Like the fund of Rs 1.7 lakh crore to take care of provision of free food grain and cash to poor for three months period, and monetary policy announced by RBI amounting to Rs 5.6 lakh crore. The First 3 tranches focuses on MSMEs, NBFCs, relief measures for poor migrant workers, street vendors, small businesses and farmers and agricultural sector.

 

Major announcements and reform in policies:

Investment upgradation:

States will be ranked on investment attractiveness to compete for new investments for industrial upgradation and infrastructure facilities and expansion of its reach. Major sectors in radar are Coal, Minerals, Defence, Airspace, Power distribution, Space and Atomic Energy. Let us consider them one by one.

 

Coal:

Government removes its monopoly over coal and announces commercial mining of this black diamond. Emphasizing on reduction of imports and increasing “Atma Nirbharta”. She also announces that government will spend Rs. 50,000 crores to develop this sector and looks forward to transparent and healthy competition welcoming private sector participation. Adding further, she tells around 50 blocks of coal will be auctioned.

 

Minerals:

Similarly, she announces that the government is looking forward to enhance private investment in this sector. Open and transparent auctions will be held to offer around 500 mining blocks. In order to boost competition in Aluminium industry, joint auction will be arranged for Bauxite and coal ores.

 

Defence Production:

With the aim of reducing dependence and becoming Atma Nirbhar, Foreign Direct Investment (FDI) in manufacturing under automatic route has been raised to 74% as compared to 49% previously. For domestic production of imported spares, budget provisioning has been done. These steps are taken to enhance autonomy, accountability and improvise efficiency in this sector.

 

Civil Aviation:

Limitations levied on usage of Indian Air Space will be uplifted, in order to make flying more efficient. This liberation will earn an annual benefit of around Rs. 1,000 crores for this sector. She also mentions vision of building world-class airports via Public Private Partnerships (PPP). Adding further, she said Government is taking efforts to make our country an international hub for repairs and maintenance and overhaul for aircrafts under authorization of the Airports Authority of India. Untill now 3 out of 6 airports have been authorized for the same on PPP basis.

 

Power:

In accordance with the newly laid tariff policies, Government opens doors for private players to enter into power distribution sector in the Union Territories. This is supposed to strengthen, stabilize and improvise efficiency in this sector.

 

Stimulating investments:

A revival scheme amounting to Rs 8,100 crores, has been launched to stimulate social infrastructure. This will boost private sector investment in social infrastructure.

 

Space:

Government welcomes private sector to become part of journey in space, launching rockets, satellite services and others. This will stimulate private participation in this sector. The finance minister also mentions that the government is trying to liberalize geo-spatial policy.

 

Atomic Energy:

Government wishes to see new startups in the nuclear sector. For stimulating this vision, government will set up incubation centres. These incubators are termed as Technology Development cum Incubation Centres. The welcoming the PPP model will help in establishing research reactors and making of medical isotopes.

Lastly, the above mentioned strategic plans and reforms are built with a vision of creating opportunities for businesses and at the same time generating employment and contributing to economic upswing.

 

 

Third tranche of economic package to support farmers along with governance reforms