Mumbai: As it hives off its ground handling and aircraft repair divisions into separate firms beginning November, Air India Ltd will also drastically lower its aircraft-to-employees ratio—an efficiency metric that’s key to its turnaround.
The ratio for the airline will drop to 1:100 from 1:265 now, bettering Lufthansa German Airlines’ 1:127, Singapore Airlines’ 1:140, and British Airways’ 1:178.
Legacy carriers such as Air India tend to have more employees per aircraft, adding to cost. It has become crucial to keep this ratio low to be able to compete with low-fare carriers that operate with as few employees as required to keep costs tight. Air India employs some 28,000 people.
“The cabinet has already approved in principle the operationalization of ground handling and aircraft repair companies, and it is proposed to make these companies independent units effective 1 November,” said a top Air India executive, requesting anonymity.
“Before 1 November, 7,400 employees would be transferred to the aircraft repair unit and 12,000 will be moved to the ground handling division. Post operationalization of the companies, the aircraft to manpower ratio will come down to 1:100 in the parent company,” he said.
Lowering this ratio is one among several measures the ailing airline is effecting to turn around its operations. Air India has decided to accept candidates for training from other airlines, has short-listed real estate consultants to advise on monetizing its assets, is re-negotiating catering contracts and marginally increasing its capacity in the winter schedule to recapture its market share.
“Air India is slowly getting its act right, and growing market share is one of the indicators of that,” said an airline consultant, who, too, declined to be identified. “The plans to hive off the aircraft repair unit is smart as the margins in this business are as high as 30-35% while margins for pure airline business are less than 5%.”
Air India has plans to induct strategic partners in the hived-off entities “like any other private carrier”, this person said, but pointed out that the “poor industrial relations climate at Air India can derail all these plans. Air India is too much exposed to vagaries of strikes and government interferences.”
Following in the footprints of its rival Jet Airways (India) Ltd, Air India also plans to open up its training centres to employees at other airlines to get more revenue. Initially, Air India will start accepting candidates from outside for its Central Training Establishment in Hyderabad, which has three Airbus aircraft simulators.
“We’ve already got offers from a leading Indian private carrier for training in Hyderabad for Airbus A320. We want to make this as a separate profit centre,” said a second Air India executive, who also requested anonymity. “We have a similar facility in Mumbai for Boeing family aircraft training and we will open that too for third parties once we are able to train sufficient in-house pilots.”
Jet Airways has said it will start an aviation academy to impart training to employees of other carriers; Kingfisher Airlines Ltd already has such a facility.
In April, the government approved a Rs.30,000 crore package to bail out the state-owned airline, including an upfront equity infusion of Rs.6,750 crore and assured equity support of Rs.23,481 crore till 2020-21. It also approved the restructuring of Rs.21,348 crore of short-term loans into long-tenure debt.
The government, however, wants Air India to qualify for equity support by achieving certain operational parameters and has an oversight panel to periodically review the airline’s performance. Last week, K.N. Srivastava, secretary in the civil aviation ministry, and finance ministry officials reviewed Air India’s performance as part of the committee.
“The oversight committee has noted that the April-August performance of Air India was in line with the turnaround plan prescribed by the government, if not better,” the first Air India executive said. “Following a series of measures, the net loss of Air India came down by approximately Rs.550 crore during April-August as compared to the previous year.”
On domestic routes, Air India had a market share of 18% in July, after a long gap of 28 months. It now plans to add 5% capacity on domestic routes and 5-8% on international routes in the winter schedule to recapture its market share, the second Air India executive said.
Air India’s domestic market share in June was 18%.
On 20 September, Air India slashed its ticket prices by as much as 15% on advance purchases of 30 days, two days after aviation minister Ajit Singh asked it to submit a plan to increase its domestic market share.
Air India is regaining market share as its on-time performance improved to 88.4% on domestic routes and nearly 80% on international routes for August, the second Air India executive said. “The yield of the domestic sector was Rs.5.98 per passenger km; on the international sector, it was Rs.3.50 per passenger km for the period April-August 2012. Overall network yield was at Rs.4.29 per passenger km.”
Air India is also re-negotiating with its catering vendors to lower the cost by at least 25%, he added.
Air India, which has real estate assets worth Rs.10,000 crore in the form of offices and buildings, has short-listed seven consultants to advise it on monetizing these. “This asset monetization programme is headed by a senior committee at the level of joint managing director and the bids for appointment of real estate consultants have been received and are being evaluated,” the first Air India executive said. “We are also planning to lease out some floors of our headquarters at Nariman Point to public sector undertakings and banks.”