Mumbai: Jet Airways (India) Ltd, the country’s second largest airline by passengers carried, expects information technology (IT) solutions to help cut its total fuel consumption in the current fiscal by 1.5-2%, saving $20-25 million (around Rs.111-138 crore), a senior airline official said. Last year, it had saved $6 million on fuel cost.
Expenditure on fuel accounts for as much as 50% of the operating cost of an airline.
Jet Airways is not alone in seeking help from technology companies. National flag carrier Air India Ltd and SpiceJet Ltd are adopting similar strategies to save costs and expand their ticket distribution reach.
Sudheer Raghavan, chief commercial officer at Jet Airways, said his company is using technology solutions from IBM India Pvt. Ltd to save substantially.
A senior Air India executive, who requested anonymity, said, “we are spending Rs.150-200 crore every year on IT upgradation. By effective use of IT tools, we could reduce operating cost by 10% every year.”
According to a March technology report by Centre for Asia Pacific Aviation and SITA, spending on IT was in the range of 1-3% of revenue in fiscal year 2012 compared with the global trend of around 1.8%.
“Considering the current financials of airlines, IT spending is not expected to increase much over the next two years except in the case of a couple of airlines,” it said.
Technology outsourcing strategy for most airlines follows a hybrid approach in which the majority of non-core IT functions are outsourced. In most cases, 60-80% of the non-core functions are outsourced while the rest is done in-house because of strategic reasons.
Ramesh Narasimhan, director (client servicing) at IBM, said his company has worked with Jet Airways in good times and “not-so-good times”, adding that the critical issues are to save fuel costs and expand inventory distribution.
In September 2010, Jet Airways and IBM had signed a 10-year technology outsourcing agreement, valued at $62 million.
Jet’s Raghavan said IBM has helped his airline integrate three dispersed data centres into one centralized area in Navi Mumbai. IBM had upgraded the database of Jet Airways to help the airline credit air miles to the frequent flyers in just 24 hours, down from 72 hours.
“Saving 2% in fuel uplift is not a small change in a sector that is struggling to break even. We believe that effective use of technology can actually reduce the cost. Following the outsourcing of data centres to IBM, Jet Airways has never faced the risk of server down,” Raghavan said.
The senior Air India official cited earlier said Air India is using IT companies to get demand forecasts and estimating the revenue and cost for a planned schedule.
“It is also using critical analysis of fuel consumption on all flights by setting up fuel council and fuel manager with help of IT companies,” he said.
In mid-August, SpiceJet said it has become the first Indian low-fare carrier to tie up with Madrid-based Amadeus IT Group SA, a leading transaction provider that helps airline in selling tickets. The airline’s tickets are now available on Amadeus’ online multi-global distribution system, or GDS, a corporate booking tool.
In a joint statement, SpiceJet and Amadeus had said users of the system in India would be able to book ancillary services such as in-flight meals while ensuring they are booking negotiated corporate fares.
The GDS is largely used by full-service carriers such as Jet Airways and Air India to sell tickets for a small fee. Though SpiceJet pays a fee, the airline executives said it would extend the reach of the airline.
“Corporate travel is on the rise in India and is expected to grow by 10% this year,” said Neil Mills, chief executive of SpiceJet. This tie-up will ensure SpiceJet fares are available to companies in India and has potential to reach at least 6,000 corporations worldwide.