BackFlight rationalization, cutting costs part of restructuring
Flight rationalization, cutting costs part of restructuring
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Air India will focus on increasing non-stop flights to the lucrative regions of West Asia and South-East Asia, discontinue most of its multi-stopover flights to increase its market share, streamline operations, and start short-haul flights concentrated around key metros using smaller aircraft.
All these are part of the airline’s restructuring plan after its merger with Indian. Consulting firm Accenture, appointed by the government as an adviser to the merger, has helped create the plan.
The new international route network, which will roll out for flights to and from Delhi and Mumbai from 1 August onwards, is aimed at rationalizing the overlap in routes between the two merging firms, Air India Ltd and Indian Airlines Ltd. The elimination of overlapping flights, code sharing and transferability of tickets in these two regions alone is expected to result in savings of Rs187 crore annually, according to Accenture. The merger will create Asia’s fourth largest airline by fleet size.
The restructuring coincides with the civil aviation ministry’s possible decision to open the international market to more private carriers from India. A review on opening routes in West Asia to other private carriers will likely come up in December. So far, West Asian routes were exclusive to Air India, its low-cost international subsidiary Air India Express and domestic carrier Indian Airlines.
Air India said it is prepared for competition. “It’s not new (competition on the other sectors) to us. If the government takes a decision, of course, we will have to go with it. The only difference is that we are getting a new fleet, and the government should allow us to settle down (with the merger before opening up the route )," said S. Venkat, executive director (finance), Air India.
West Asia, which has a significant migrant population, accounts for 25% of Air India’s revenues and 35% of Indian Airlines’. The growth in the sector is one of the key reasons for growth in passenger traffic at south India’s airports. The performance of the sector explains why private airlines Kingfisher Airlines Ltd, Jet Airways (India) Ltd, Air Deccan and SpiceJet Ltd are lobbying hard with the government to open up international routes.
Kingfisher Airlines, which plans to start international operations from the first quarter next year, sees this as a way to reduce the share of foreign airlines that have a 75% market share of international passenger traffic to and from India.
“The Middle East market is likely to grow at 6.5% annually till 2025 and passenger traffic from India will be the biggest proportion of this domestic growth," said managing director for the Middle East wing of German consultancy firm Airpas Aviation Ltd,?Torsten Hohe .
Meanwhile, Air India Ltd and Indian Airlines Ltd, which will legally merge into a single entity called the National Aviation Co. of India Ltd (Nacil) by 22 July, will divide their routes depending on profitability and fleet requirements.
The focus would be on increasing point-to-point connectivity with limited one-stop flights. In the Kuwait sector, for example, Air India and Indian have 34 weekly flights of which seven are multi-stop, while the rest are non-stop or with a single stopover.
After the restructuring, the airline will stop all its multi-stop flights on this route and increase frequencies of one-stop flights. “They (people) want point-to-point connectivity. It is more convenient and (flight) timings are easy to remember," said Vishwapati Trivedi, joint managing director, Air India.
Air India will stop flying to Oman; and Indian and Air India Express will increase their flights to it. Similar rationalization will happen on flights to Singapore, Bangkok, and Shanghai, with the three airlines either dropping or adding flights. Air India and Air India Express hope to induct about 12 long-haul aircraft this year. Of these, the first Boeing 777-200 LR to be delivered next month will launch Air India’s non-stop flight between Mumbai and New York on 1 August. The Delhi-New York non-stop flight is scheduled to be launched by December.This will be Air India’s first direct flight to the US.
In the second half of the year, Air India Express will also start domestic operations as a low-cost carrier using three new Bombardier aircraft apart from four existing ATRs. These short-haul aircraft will be pressed into operations between a metro city and tier II cities around it. Some of these sectors are currently being serviced by Airbus A320 family aircraft (Delhi-Amritsar, for example), which is usually financially unviable for short-haul flights. Smaller aircraft will also add to the airline’s profits by savings in fuel tax and airports charges, which are considerably lower for aircraft with less than 80 seats.
Airpas’ Hohe says India’s state-run airline should be able to take decisions quickly if it wishes to succeed. “If they are able to have a flat organization then it (the merger) will work," he said. “Or they will run losses, losses and losses."
That’s one of the concerns that the government-appointed consultant Accenture has raised in a report. There is still no clarity on various issues including appointing heads for each of the six SBUs (strategic business units) of the new carrier, the appointment of senior officers to steer the merger process, and the creation of a grievance redressal cell for human resource problems that may arise as a result of integrating more than 30,000 employees.
It took 18 months for Qantas and Australian Airlines (which were merged) to integrate their IT systems alone. Air India’s Venkat says several steering committees are working on these issues.
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