Domestic carriers find ways to cut costs, see long-term gains

Domestic carriers find ways to cut costs, see long-term gains
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First Published: Thu, Sep 04 2008. 10 47 PM IST

Profit foresight: Aircraft of various domestic carriers parked at the New Delhi airport. To boost revenues, airlines are also looking to introduce on-board shopping, on-board advertising, in-flight co
Profit foresight: Aircraft of various domestic carriers parked at the New Delhi airport. To boost revenues, airlines are also looking to introduce on-board shopping, on-board advertising, in-flight co
Updated: Fri, Sep 05 2008. 03 08 PM IST
Mumbai: After years of intense competition and fast growth, domestic airlines are taking advantage of the current slowdown to gear up for the long term.
Record jet fuel prices this year have already forced airlines to cut operational costs, rationalize routes and raise fares, measures that are unlikely to be reversed in a hurry. These carriers are now digging for avenues that can add substantial earnings even if good times return.
Profit foresight: Aircraft of various domestic carriers parked at the New Delhi airport. To boost revenues, airlines are also looking to introduce on-board shopping, on-board advertising, in-flight contests, home delivery of tickets, travel insurance and advertising on boarding passes. Harikrishna Katragadda / Mint
Air cargo freight, for instance, is a key but mostly downplayed source of ancillary revenue for companies such as state-run National Aviation Co. of India Ltd, or Nacil, which runs Air India, as well as for Jet Airways (India) Ltd, Kingfisher Airlines Ltd and SpiceJet Ltd.
“In June alone, we have uplifted in excess of 1,320 tonnes that has generated revenue of over Rs3.5 crore,” said Samyukth Sridharan, chief commercial officer of the low-fare airline SpiceJet, which started ramping up its cargo operations in July. “The domestic cargo industry is estimated to grow over 15% annually. We are confident of touching a magic figure of Rs100 crore annually within the first three year of cargo operations.”
A medium-size passenger plane can carry 2-3.5 tonnes of cargo, but domestic airlines have for long ignored this non-core option because it can delay their turnaround time in airports.
“A slowdown is the right time to carry out an introspection... It is when airlines start right-sizing their operations,” said Gilbert George, a senior general manager at India’s largest private airline Jet Airways which has reduced the number of meal choices on its flights, among other cost-cutting measures.
On a smaller scale, domestic airlines are looking at on-board shopping, on-board advertising, in-flight contests, home delivery of tickets, travel insurance and advertising on boarding passes.
SpiceJet, for instance, plans to start car rental services from airports for its passengers, and provide in-flight entertainment with non-fixed video screens for a charge. “These ancillary measures will reduce the pressure of cost on us,” said SpiceJet’s chief financial officer Parthasarthi Basu.
Wadia Group’s Go Airlines (India) Pvt. Ltd, which runs low-fare carrier GoAir, has launched GoHotels, which provides bookings on other hotels.
With airlines hiking fares, the number of people travelling by air declined to 3.04 million in July, down 12.65% from a year ago.
Though domestic jet fuel rates were cut 16% last week, these airlines, which had pitched their fares at unsustainable low levels amid intense competition, are now reluctant to lower ticket prices.
These carriers are even re-negotiating deals with corporate houses to raise the value of their offers to them. Aimed at bulk sales, airlines offer tickets to corporate houses at special rates.
“We are planning to review the corporate deals shortly. We cannot continue to offer huge discounts since our operational costs are shooting up,” said an executive with a full-service airline who didn’t want to be identified.
A senior executive with Aditya Birla Management Corp. Ltd, for instance, said airlines have indicated a 10-15% increase in the value of their deals.
“The travel expense of our group will come up to Rs100 crore a year,” the executive said, asking not to be named as he’s not authorized to speak to the media. “Certainly, we compromise on travel since it is an integral part of our business. But we are now increasingly introducing video conferencing to cut down the travel cost.”
Meanwhile, airlines are exploring all possible ways to cut costs by rationalizing routes, deferring deliveries of aircraft and reducing in-flight weight to increase fuel efficiency.
As domestic airlines are expected to post a combined loss of $2 billion (Rs8,900 crore) this financial year because of high jet fuel cost, they have reduced their capacity by 15%.
“You will know about your real cash flow position at the time of a slowdown,” said Hitesh Patel, executive vice-president, Kingfisher Airlines. “It will teach you the art of discipline budgeting and cost-effective management. If you maintain that strict cost discipline, you will be a successful airline.”
Patel, who has witnessed two slowdowns in the global aviation industry, said his airline has already tough strict cost-cutting measures. “We are using light-weight trolleys, spoons and taking away magazines from the plane. We have stopped carrying additional food,” he added.
Kingfisher has stopped giving away some of the goodies usually provided to economy class passengers. Instead of a pouch with chocolates, a pen, headphone and other gifts, it now gives only a headphone and a pen to its passengers.
Sudheer Raghavan, chief commercial officer, Jet Airways, said his airline has reduced the number of meals it carries.
“As an experienced carrier, we know what will be the number of meal choices required. There is no need to carry more meal choices for a night flight. Wastage is reduced but quality is not compromised,” Raghavan said.
SpiceJet has reduced the weight of its boarding passes, saving Re1 per boarding pass. “For us, this means savings of Rs50 lakh a year. We have classified costs into good and bad. We don’t intend to cut the good costs as it will affect the quality of services,” said SpiceJet’s Basu.
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First Published: Thu, Sep 04 2008. 10 47 PM IST