Air India set to trim wage bill, routes for equity infusion

Air India set to trim wage bill, routes for equity infusion

New Delhi: Air India—the flag carrier operated by National Aviation Co. of India Ltd (Nacil)— trying to make itself look worthy of a $1 billion (Rs4,800 crore) government equity infusion, is seeking wage cuts and pulling out of loss-making routes while making sure flights are full, and generally putting austerity ahead of prestige.

The airline, which made losses of around $1.5 billion last fiscal year, needs the government money to survive as it buys new planes to replace an ageing and depleted fleet to compete with rivals, struggles to integrate its local and international units, and needs to avoid labour strife over reducing a bloated workforce.

It has committed to undertake an overhaul of its business operations, restructure its massive Rs15,241 crore debt and raise funds through a public offering in fiscal 2011 in return for the government rescue in the form of the equity infusion.

On Thursday, Air India’s board meeting in Mumbai, which was expected to finalize wage cuts that have been strongly opposed by unions, was postponed until 23 September.

With the peak winter season ahead, the airline is focusing on tweaking its international operations by introducing new stations and removing those that aren’t economical.

“We are trying to make our (winter) schedule more revenue-oriented and contain losses," Air India’s executive director Jitender Bhargava said.

For instance, in what will be a first for the carrier, the airline is planning to connect Washington with New Delhi and Boston with Mumbai in the winter schedule that starts in October.

Air India has new Boeing 777-200 LRs currently plying non-stop to New York from New Delhi and Mumbai daily. These services will be extended to Washington and Boston to fill up business class seats with diplomatic and business traffic.

“The (aircraft) sit on the ground for eight hours, it’s better to use them as much as possible," said an airline official, referring to the aircraft’s halt at New York’s JFK International Airport before returning to India.

“We will get two more points of traffic," said Bhargava, adding that the plans are still being finalized and are subject to regulatory clearances.

“This idea was discussed about a year back, but no one was willing to move on it for whatever reasons. The destinations that we were looking at were Houston and Los Angeles, besides Washington," said another airline executive, who spoke on condition of anonymity.

The move will result in a jump of 10-20% in occupancy according to surveys, the official said. Given the turnaround time, cities close to New York were targeted.

There is no direct service between India and Washington or Boston, with most American carriers offering connecting flights from their respective hubs in the US such as Delta Air Lines Inc., which flies only Mumbai-Atlanta.

“Almost all onward internal services in the US have tended to fail as cabotage is not permitted, that is, the US will not allow AI (Air India) to pick up any passengers originating in New York," said a London-based aviation analyst, who asked not to be named as he is not authorized to speak to the media.

Another option may be to base two smaller Boeing 737s or Airbus A320s in JFK and use them to carry incoming international passengers to Washington and Boston after they clear US immigration. US carriers United Air Lines Inc. and Northwest Airlines Corp. have adopted this strategy in Tokyo for onward flights to Guam and Vietnam.

Australia’s Qantas Airways Ltd has flown Sydney-Los Angeles-New York for many years, but this is more for carrying the “Australian flag to New York" than actual commercial logic, the analyst said. Still, “no Indian carrier serves BOS (Boston Logan International Airport) or IAD (Washington Dulles International Airport), so there is a chance that it may work."

Air India has also dropped plans to fly non-stop from New Delhi to San Francisco, which would have earned the airline status points for being one of the longest flights, but limited the carrier’s ability to make money from the route.

Air India is concerned about the US Federal Aviation Administration’s technical audit of India’s safety standards, which will be completed by the end of this year.

If there is a downgrade, no new services by Indian carriers can be started to the US. Also, according to the rules, “once placed in category II, no new code-share agreements can be allowed".

Mint had reported in February that in a similar case, Jet Airways (India) Ltd’s code-sharing agreement permissions with United Airlines were delayed.

Air India scrapped the loss-making Chennai-Mumbai-Frankfurt cargo service on 9 September, its sole international freight flight, and plans to stick to the expansion of its goods service in the domestic market instead.

Some of Air India’s new Boeing 777 aircraft, part of a total of 111 aircraft ordered in 2005-06 from the world’s two main manufacturers, are being introduced on routes such as the New Delhi-Tokyo sector as the airline has promised to return most of its leased aircraft in yet another cost-cutting measure.

“This will be the finest product in the sector because we are using the new B777 (the one used on the New York flights)," Bhargava said. Japan Airlines Co. Ltd is the only other carrier on this route.