1st fiscal of Tata airlines' mergers: Losses of FSC drop, but balloon for LCC

NEW DELHI: Tata’s full service Air India managed to cut its losses by almost a quarter while the low cost (LCC) AI Express saw its losses more than triple in the first fiscal (FY 25) of the salt-to-satellite conglomerate consolidating its airline business.

AIX Connect (erstwhile AirAsia India) was merged into AI Express last Oct. The merged LCC’s provisional loss in FY 25 was Rs 5,678.2 crore, up 318% from Rs 1,357 crore combined loss of AI Express (Rs 163 crore) and the other (Rs 1,194 crore). Vistara was merged into Air India last Nov and the combined FSC’s loss in FY 25 was 3,890.2 crore, down 23% from the combined loss of Rs 5,025.1 crore of AI (Rs 4,444.1 crore) and Vistara’s (Rs 581crore) in FY 24.

While loss-making since it started flying in Jan 2015, erstwhile Vistara (a JV of Tatas and Singapore Airlines) enjoyed the best flyer perception among the Tata’s thorny bouquet of four airlines and many were disappointed to see it go before the Maharaja’s promised metamorphosis. AI Express had been profitable in three out of last nine years. On a combined operational and financial basis, AI and erstwhile AIX Connect (which started flying in the summer of 2014) were the biggest challenges on a standalone basis. Tatas had acquired AI and AI Express in Jan 2022.

However, AI’s constant improvement in financial performance — product upgrade for the Maharaja’s wide body remains a distant dream — in terms of cutting losses and revenue/flights’ increase is going to take a big hit this fiscal due to the impact of the June 12 AI 171 Ahmedabad crash. AI has both cut flights and has to pay hefty compensations, apart from facing legal cases over the crash.

“The merger of four airlines into two has led to its own set of challenges. AIX Connect was relatively small and therefore its merger into AI Express has not caused too many operational challenges while the losses have ballooned. Vistara’s merger into AI, on the other hand, has caused several bigger challenges which are still being ironed out. Most recently AI had to increase retirement age for pilots from 58 to 65 to bring parity between cockpit crew of both the merged FSCs as Vistara always had 65 as retirement age for them,” said people in the know.

In another parliamentary reply on Thursday, Union minister of state for civil aviation Murlidhar Mohol spoke about the merger woes. “Directorate General of Civil Aviation (DGCA) had issued four show cause notices to Air India over 29 violations.… Few instances of systematic issues were observed post-merger of Vistara and Air India. Systemic issues were due to the adoption of new software and systems. Compliance reply has been received from Air India,” he said.

The minister said Akasa and SpiceJet recorded a loss of Rs 1,983.4 crore and Rs 58.1 crore in FY 25 while IndiGo had a profit before tax of Rs 7,587.5 crore.

The geopolitical situation this fiscal, which saw a war between India and Pakistan, will impact airline fortunes this fiscal. Crisil Ratings on Thursday said Indian carriers will see their operating profit moderate 11%-14% to Rs 20,000-21,000 crore this fiscal from about Rs 23,500 crore last fiscal, because of muted demand in the first quarter and an expected decline in yields. “Driven by lower operating profit, debt metrics of airlines will moderate this fiscal, however, overall credit profiles will remain stable driven by healthy liquidity and planned equity infusion by some airlines,” Crisil said.

Vinit Patil of Crisil Ratings said: “Given fleet expansion, we expect the net debt (including lease liabilities) of the airline industry to increase 10% on-year to Rs 1.1 lakh crore by March 2026 despite improved liquidity. This, coupled with lower operating profit, could weaken credit metrics, with net debt to operating profit ratio likely to rise to 5-5.5 times this fiscal, up from 4.3 times last fiscal.”
While watching adverse movement in fuel prices and forex conversion rates, Crisisl said, “The medium-term credit outlook for airlines remains stable, driven by a gradual rebound expected in passenger traffic growth, combined with lower costs with moderation in both, fuel prices and aircraft grounding-related costs. Net-net, enhanced yield-cost dynamics put airlines in a favourable position to attract capital and maintain comfortable capital structure.”

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