Air India charts out Rs1,000 cr savings route to offset rising costs

Air India charts out Rs1,000 cr savings route to offset rising costs
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First Published: Mon, Aug 18 2008. 01 05 AM IST

Restructuring moves: Trimming flights on unprofitable routes and executive perks are among Air India’s planned cost-cutting measures. Photograph: PTI
Restructuring moves: Trimming flights on unprofitable routes and executive perks are among Air India’s planned cost-cutting measures. Photograph: PTI
Updated: Mon, Aug 18 2008. 09 18 AM IST
Mumbai: State-owned National Aviation Co. of India Ltd, or Nacil, which runs Air India, expects to save at least Rs1,000 crore in the year to end-March 2009 by introducing a slew of measures to trim its cost of operations.
Restructuring moves: Trimming flights on unprofitable routes and executive perks are among Air India’s planned cost-cutting measures. Photograph: PTI
These measures include curtailing domestic and international flights, surrendering leased planes, phasing out old ones, reducing inventory of spares, outsourcing jobs and eliminating perks to senior executives. “We are contemplating cutting 15-20% of domestic and international flights from the winter schedule,” said a senior Nacil executive. “Nacil will cut routes that are making cash losses or are unable to meet the basic cost of operations. These routes are mainly in the US, the UK, and West and South-East Asia. We will be able to save Rs900 crore a year by route restructuring.”
Mint has reviewed a 12-page circular issued by Nacil detailing these measures.
According to various industry estimates, domestic airlines are expected to post a combined loss of $2 billion (about Rs8,568 crore), up from $1 billion last fiscal year, primarily due to high jet fuel costs and overcapacity in the market.
Over the past few months, almost all domestic airlines have reduced capacity to bring about some balance. Growth in capacity is now expected to be flat or negative in some instances.
Rival Jet Airways India Ltd, the country’s largest private airline by passengers, has also rationalized and restructured its routes. The Mumbai-based airline operated its new West Asian routes with spare capacity of its domestic Boeing 737 aircraft (medium-sized planes), and kept some of its large and wide-body planes such Boeing 777 unutilized owing to high jet fuel rates.
Billionaire Vijay Mallya-promoted Kingfisher Airlines Ltd is also re-evaluating its plans to start international operations because of the high fuel costs.
Aviation fuel in India is 60% more expensive than in international markets.
“There is no point in flying to international services with 30-40% seat occupancy,” said an aviation analyst, who did not want to be identified as he is not authorized to speak with the media. “For instance, Air India has four flights to the UK in less than three hours. It will save substantial amount by cutting those flights.”
Nacil, as part of its plan to surrender leased planes, will return six A310, one Boeing 747 and five A320 planes to the lessors during the year, thereby reducing lease rentals.
The same Nacil executive quoted earlier, who didn’t want to be identified, said the airline would use new planes to start new routes. Until now, Nacil has inducted 38 new planes out of the 111 that it has ordered with plane makers Boeing Co. and Airbus SAS. Its current fleet size is 153.
“We are also seriously looking at reviewing the inventory profile by introducing modern techniques such as ‘just-in-time.’ Except critical components, the airline will not keep certain spares and will order for these only when required. Moreover, the requirement of spares will be reduced as the carrier is inducting brand new planes,” the Nacil executive said.
Nacil is also looking at phasing out its old fleet to significantly reduce maintenance costs and frequent engineering inspections.
“Accordingly, three Airbus A300-type planes and two Boeing 747-300 planes that are more than 20 years old are on the block for sale,” he said.
Nacil has also started washing its airframe and engines to reduce “drag” while flying, so it will consume less fuel. Kingfisher, Jet and SpiceJet have also started similar exercises to improve fuel efficiency.
Apart from operational restructuring, Nacil has also cut and rationalized a number of perks of senior executives, such as reimbursement of telephone and mobile phone bills, fuel bills, electricity bills and foreign travel, from 1 August.
“Now, certain free or concession tickets given to staff will come under the scanner. The airline has also cut overtime allowance and compensation for working on holidays,” the Nacil executive said.
Nacil has asked its executive directors and heads of strategic business units to explore the possibility of outsourcing certain tasks. “The top bosses of the airline were asked to do a critical analysis on outsourcing of certain services. Hereafter, hiring of retired officers will be restricted only in the operational areas with stringent terms and conditions,” the executive added.
Another executive said these cost-cutting measures were a step in the right direction but the cut in perks should start at the executive directors level. “Charity beings at home,” he said, asking not to be named.
A Nacil labour union leader said the workers have been briefed and have agreed to the cost-cutting measures.
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First Published: Mon, Aug 18 2008. 01 05 AM IST