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Carriers mull tie-up options to drive down operational costs

Carriers mull tie-up options to drive down operational costs
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First Published: Sat, May 24 2008. 12 41 AM IST

Cost cutting: Aircraft at Mumbai airport. The airlines have been hit hard by the fuel prices and are looking for options to reduce costs.Photograph: Hemant Mishra / Mint
Cost cutting: Aircraft at Mumbai airport. The airlines have been hit hard by the fuel prices and are looking for options to reduce costs.Photograph: Hemant Mishra / Mint
Updated: Sat, May 24 2008. 12 41 AM IST
New Delhi / Mumbai: Faced with rising fuel prices that threaten to drag them terminally into the red, airlines in India are increasingly looking at ways to reduce operating costs by partnering peer carriers in ground handling, engineering services, sharing aircraft hangars for maintenance, and sharing flights on common routes. But, the effort is unlikely to gather muster.
Airlines say they could save up to 2% of operating costs through such partnerships. Although it is tiny compared with fuel costs that are estimated to make for some 50-60% of an airline’s operating cost, the carrriers are still working at such partnerships to drive down costs.
The firms are lobbying state governments to reduce rates of sales tax on aviation turbine fuel, or ATF, which currently vary between 4% and 30%. At such rates, the tax component in operating costs works out to be nearly 14%. But, apart from Andhra Pradesh, Kerala and Rajasthan, which have reduced the levy to 4%, others have not shown any inclination to do so.
Gurgaon-based SpiceJet Ltd is at the forefront, urging peers to enter into such arrangements. Its director, Ajay Singh, said the areas being discussed include certification of aircraft by the same pool of engineers, or a common ground handling for passengers at certain airports, tow trucks at airports that are used by multiple carriers, and route sharing.
Cost cutting: Aircraft at Mumbai airport. The airlines have been hit hard by the fuel prices and are looking for options to reduce costs.Photograph: Hemant Mishra / Mint
Other airlines are less enthusiastic about the proposed parleys. “Implementation of these items might indeed be beneficial to the airlines, but economically they are very small compared with the cost of fuel; virtually a drop in the bucket,” said Bruce Ashby, chief executive of low-fare carrier IndiGo, run by InterGlobe Aviation Pvt. Ltd.
“But certainly there may be synergies realized through economies of scale (in ground handling),” he added.
Both IndiGo and SpiceJet, for example, have leased aircraft hangars from JetLite India Ltd for maintenance, a practice that is widely used by those who entered the airline business in recent years and do not enjoy the hangar rights owned by older carriers.
“A majority of the airlines do not have hangars. We all share hangars of National Aviation Co. of India Ltd (or Nacil, that runs Air India),” said Hitesh Patel, executive vice-president of country’s second largest airline by passengers carried Kingfisher Airlines Ltd that is merging with Deccan Aviation Ltd. Another senior SpiceJet executive admitted such cooperation will require more efforts. For example, he said, passenger handling by full- service carriers such as Kingfisher could be difficult to mix with that of a low-fare carrier whose basic premise is just picking and dropping passengers safely. This executive did not want to be identified.
Regulatory issues, too, can be a hurdle in increasing cooperation. “There are regulatory issues — like a security pass issued to use for one airline may not be allowed for the other,” said M. Thiagarajan, managing director of Chennai-based Paramount Airways Pvt. Ltd. Synergies on route sharing or rescheduling flights in a day are the least possible. For example, if IndiGo changes an aircraft departure time, he said, it will also need to change its arrival time at its destination, and then probably also the departure time for the next flight, and so on, leading to a logistical headache for the average seven-eight flights an aircraft makes every day.
“In practice, I cannot recall ever having seen (this) implemented,” he said.
Airlines are instead attempting other tactics to reduce costs. After last year’s merger, Kingfisher and Deccan are trying to cut down use of aviation fuel to lower costs.
“Our pilots are using better operational procedures on board while landing and taking off that will result in lower fuel cost. We are also increasing the washing cycles to keep aircraft clean (to minimize drag while flying),” Patel said.
The airline has instructed pilots “to avoid carrying additional fuel depending upon sectors. There will be only minimum fuel storage to cut down the weight (of the aircraft),” he added.
Also, the airline has begun using ground power units, powered by diesel generators, to run the aircraft’s air conditioning when it is on the ground. These measures, Patel said, will help the carrier save 1.5-2% of the total fuel cost.
The country’s biggest airline group by passengers carried, Jet Airways (India) Ltd, is renegotiating with all of its suppliers of spares and fuel in addition to sharing resources with other carriers. In an earlier conversation, Jet Airways chief executive officer Wolfgang Prock-Schauer said the carrier is aiming at maximizing asset utilization.
For instance, Jet Airways will be using Boeing B737 in the West Asian sector during the night and would deploy it in the domestic sector during day time. the carrier, which operates 81 aircraft with more than 380 daily flights, had recently started flights to West Asia including Kuwait, Bahrain, Muscat, Doha and Abu Dhabi. “In case there is any delay (on the West Asian leg), we have spare planes to adjust accordingly,” Prock-Schauer had said.
tarun.s@livemint.com
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First Published: Sat, May 24 2008. 12 41 AM IST