Air India focus on higher revenues, not trimming staff costs
New Delhi: Seeking a turnaround in its fortunes, Air India is looking to augment revenues rather than trim staff expenses even as it battles tough market conditions and financial woes.
The national carrier, which is surviving on a staggered Rs 30,000 crore bailout package, has around 19,000 employees, including over 1,500 pilots and about 6,000 people on contract.
A senior official said the airline is looking at various options to increase revenues and that there are no plans to cut down costs related to staff.
"Air India's staff is around 12% of the total expenses...It might be an easy way to slash expenditure by withdrawing or doing away with certain perks given to employees but that will not help in the long-term," he noted.
The Government-owned airline's annual wage bill stood at Rs 3,100 crore in the 2014-15 fiscal as against Rs 3,600 crore in FY 2011-12 by abolishing productivity-linked incentives as per the Department of Public Enterprises (DPE) guidelines.
Significantly, the carrier had early last year announced a slew of cost-cutting measures including reduction in reimbursables by 10% and abolition of posts from non-operational areas besides other measures to rein in the spending and return to break-even.
The use of expensive hotels or five-star hotels for stay during travel or holding events has been restricted unless it is unavoidable and the budget for such activities has been reduced by 10% as part of the measures...These cost-cutting measures are part of a two-pronged drive to speed up our return to the break-even status," Air India had said.
The sale and lease back of aircraft would be a good option that would help in better revenue management. Besides, the focus is on flying more number of people, introducing new routes, improving efficiency and services, the official said.
Sale-leaseback is an arrangement in which an owner sells an asset to a leasing firm and, at the same time, leases it (as a lessee) on a long-term basis to retain exclusive possession and use. This frees capital tied up in a fixed asset, while the lender obtains a guaranteed lease.
Currently all its 21 dreamliner Boeing 787-800 planes in its fleet are operating under the sale and lease back arrangement.
Buoyed by substantial improving in operational performance, Air India expects to have an operational profit of Rs 8 crore in the financial year ended March 31, 2016.
It would also be the first time since the merger of Air India and Indian Airlines that the national carrier would be reporting an operating profit.
The airline was expected to trim its losses by around 40% to Rs 3,529.80 crore in the last financial year.
"Air India is expected to earn operating profit of Rs 8 crore as compared to the operating loss of Rs 2,636.18 crore in the previous year. This is the first time that the company is going to achieve operating profit since its merger in 2007-08," Minister of State for Civil Aviation Mahesh Sharma had informed Parliament last month.
The flag carrier, however, had a total debt burden of Rs 51,367.07 crore, including Rs 22,574.09 crore outstanding on account of aircraft loans, as on March 31, 2015.
The national airline was extended Rs 30,231 crore lifeline by the government in 2012 under a turnaround plan stretching over a period of nine years to keep it afloat.
The Government has already infused Rs 22,280 crore in the carrier as part of this financial package till the last fiscal.