Air India's cost-cutting plan: No 5 star hotels for staff, loss-making routes to be stopped

New Delhi: Loss-making Air India has announced a slew of cost-cutting measures which include plans to cut reimbursables by 10 percent and abolition of posts from the non-operational areas.

The national carrier has also decided to discontinue loss-making routes, among others steps, to rein in the spending and return to break-even.

The use of expensive hotels or five-star hotels for stay during the travel or holding events has been restricted unless it is unavoidable and the budget for such activities has been reduced by 10 per cent as part of the measures, Air India sources said.

"These cost-cutting measures are part of a two-pronged drive to speed up our return to the break-even status. The measures are aimed at cutting costs under all controllable account heads by nearly 10 per cent," they said.

Reuters image

After a long spell of losses, Air India had recorded a net profit of Rs 14.6 crore in December last on account of a healthy growth in both passengers and cargo revenues.

Air India's total revenue rose by 6.5 per cent to Rs 2070 crore during December 2014 as compared to Rs 1,944 crore in the same period in 2013.

The state-run airline has reduced both its operational and net loss over the last two fiscals. Its net loss came down to Rs 5,389 crore in the last fiscal compared with a net loss of Rs 5,490 crore in financial year 2013 and Rs 7,559.74 crore in FY12.

AI has a cost base of nearly Rs 24,000 crore out of which nearly Rs 14,000 crore is variable and this includes fuel cost of Rs 9,500 crore.

"With the decline in fuel prices, the company plans to achieve at least a 20-25 per cent reduction in its fuel bills in the next fiscal, which will be a substantial saving for the carrier," the sources said.

Air India currently has a 22,500-strong workforce as against 33,000 at the time of merger of AI and Indian Airlines.

also see

The sources said that once the hiving-off process of the Air India engineering and ground-handling subsidiaries get operational and some 11,500 employees are transferred on these companies' payrolls, it would have only 11,000 employees by the next fiscal, which would reduce the airline's wage bill significantly.

The management has also directed that all routes should be critically reviewed and routes which are not covering fuel
cost or variable costs, removed from the network after studying the historical trends, they said.

The Finance Ministry has already made this as a mandatory condition in the Turnaround and Financial Restructuring Plan
while providing the budgetary support.

The government had granted the state-owned carrier a performance-linked bailout package of over Rs 30,000 crore in
April 2012.

According to the sources, the airline management has also indicated that posts in non-operational areas should be frozen
or abolished.

The management has also emphasised to all its employees that the targets set under the turnaround plan and the budgets should be achieved for this fiscal on a "war footing" and there can be no compromise on these, they said.

On the operational front, the measures are aimed at improving aircraft utilisation by cutting down the turnaround time at transit stations, reducing duty travel of crew to the minimum to increase their productivity, close monitoring of occupancy ratios on various flights, bringing down expenditure on entertainment at foreign stations, among others, they said.

PTI