Air India: Deployment of new aircraft helps increase carriage in 2009

The effect of global economic recession was severely felt by the aviation industry resulting in fewer passengers travelling and revenues dwindling. India was not an exception to this effect nor was Air India. Airlines resorted to rationalization of services, reduction in capacity, cost controls, retrenchment, etc to counter the situation. In India, the problem was compounded by excess capacity in the market resulting in low yields, which affected the revenue earnings of all airlines.

Despite difficult conditions, Air India faced and continues to face the challenges, to take the airline forward. While the traffic has picked up in the last few months, which gives a ray of hope to the airline industry, the finances are still weak due to low yields.

Mr Arvind Jadhav, Chairman and Managing Director, Air India, while addressing a Press Conference at Air India Building in Mumbai today spoke about the numerous measures that Air India has initiated to meet the current situation viz. improvement in on-time performance, operational restructuring, reduction in costs, etc.

Induction of new aircraft:

Mr Jadhav said that Air India has been one of the few airlines which continued to induct new aircraft into its fleet during the year 2009. Consequently, Air India could phase out the older and some of the leased aircraft. The new aircraft acquired by Air India are equipped with modern passenger amenities - In-Flight Entertainment system, comfortable seats, etc., he said.

During the year 2009, a total of 29 aircraft were added to the fleet of Air India, which included seven Boeing 777s, eight Airbus A321s, and nine Airbus A319s besides five Boeing 737-800s for Air India Express.

Mr Jadhav said that consequent to the induction of new aircraft in the fleet, Air India has deployed the Boeing 777s on all its seven West-bound destinations and to Tokyo, thus ensuring a consistent and superior product on long haul destinations in the USA, Europe, and Canada and to Tokyo. We can aver with a fair amount of confidence that on each of the routes on which the B777s are deployed, our aircraft can match the aircraft operated by competing airlines on that particular sector, he added. Deployment of new B777s has also resulted in substantial reduction in cost of operation as these aircraft are more fuel efficient. On the domestic services, Air India is deploying more and more of its Airbus A319s and A321s to replace the A320s. These aircraft are also fitted with the In-Flight Entertainment System and have a seat pitch superior to other airlines.

Induction of new aircraft in fleet has also enabled Air India to expand its network by introduce new domestic city pairs, especially in and from the South, which include - Bangalore / Hyderabad, Chennai / Bhubaneshwar, Hyderabad / Pune, Hyderabad / Cochin, Hyderabad / Colombo, Chennai / Cochin and Bangalore / Cochin, Mr Jadhav said. On the international network Air India has extended the Delhi - New York flight up to Washington thus providing direct connectivity between the Capital cities of the two countries.

Frequent Flyer Programme:

As the airlines are operating in a highly competitive environment with seats chasing passengers, Air India is all set to re-launch its Frequent Flyer Programme (FFP) to extend a bouquet of benefits to Air India's frequent travelers, Mr Jadhav informed.

The mileage table has been amended to be more competitive and made simpler. The award points are now based on Ticket Mileage Points (TPMs). The redemption levels are now comparable to industry standards, slab based and TPM related. Award threshold has been reduced, particularly on the international sectors. The Earn / Burn ratio is also more competitive, benefiting the passenger. To add further value, Lufthansa and Singapore Airlines are already participating airlines in our FFP programme.

Operational restructuring:

Amongst several initiatives by Air India on the operational restructuring has been network restructuring & route rationalization, elimination of positioning legs from base station to another city for operating international flights, rationalization of aircraft deployment, Mr Jadhav mentioned. These measures have helped in reducing costs, increasing revenues. We expect a net benefit of Rs.378 Crores in terms of cost reduction during the winter schedule 2009 and Rs. 563 Crores for the entire year, he said.

Air India's aircraft utilization has considerably improved across various types of aircraft in our fleet, which has been a major factor for the uptrend in our performance, said Mr Jadhav. Better utilization of the aircraft also helped in deployment of released capacity of five 747-400s and two Airbus A-330s for the Haj operations, resulting in substantial savings.

Induction of 29 new aircraft in 2009 and enhanced utilization of fleet has helped in phasing out 11 old aircraft. By March 2010, three more Boeing B777-200s, two Airbus A-310s and eight Airbus A-320s would be returned / retired from the fleet.

As part of the route rationalization exercise, Air India has withdrawn from certain sectors on India - Gulf routes and has transferred these routes to Air India Express, in order to improve profitability of the flights.

Improvement in performance:

During April to November this year, passengers carried by Air India increased by 10.1 per cent over the corresponding period last year. Air India's domestic market share in November 2009 has increased to 18.8 per cent from 16.6 per cent in August 2009. During November 2009, Air India's market share (18.8 per cent) and the seat factor of 74.1 per cent were higher than that of all legacy carriers on stand alone basis. Also, Air India's market share has been more than the capacity share in the market. We expect to maintain the uptrend in performance in the coming months too, Mr Jadhav said.

Reduction in cost:

Air India has taken several initiatives to cut costs through active monitoring of fuel efficiency parameters, which has enabled us to achieve a savings of Rs. 146 Crores up to October 2009 said Mr Jadhav. Air India was also the recipient of the First Prize in the General Category of the National Energy Conservation Awards 2009, instituted by the Bureau of Energy Efficiency and Ministry of Power, Government of India. The conferment of the Award has come as a befitting recognition of Air India's efforts in energy conservation and efficiency to make it a Green Airline.

Mr Jadhav stated that, Air India curtailment in costs have been achieved in areas of hotel accommodation, transportation, foreign and domestic travels and tours, reduction of over-time and work-through-break and other controllable areas. In India and abroad, Air India has combined the booking offices of erstwhile Air India and Indian Airlines to save on establishment costs. Similarly, the office at the Jeevan Bharti Building in New Delhi has been surrendered resulting in a savings of approximately Rs. 5 Crores annually.

Air India has also initiated action to appoint General Sales Agents in as many countries as possible to reduce operations and establishment costs. Also, apart from curtailment of foreign postings for officials, the Executive Directors of all international regions viz. USA, Europe, Gulf & Middle East and Asia & Pacific have been relocated in Mumbai, resulting in savings in establishment and housing costs, Mr Jadhav said. Contractual employment is being reduced substantially by Air India in every area of activity and renewal of contract is now being approved only after scrutiny for operational requirements.

Air India as a national carrier:

Mr Jadhav spoke about Air India's operation in the North East that extends to all 11 operational airfields providing 105 services and 9550 seats per week. Air India's operations as per Government's route dispersal guidelines have always been much higher than the stipulated, he elaborated. Air India is operating 22.4 per cent on Category 2 routes - from / to North East, J & K, Port Blair and Lakshwadeep Islands - as against the guideline of 10 per cent. Similarly, on Category 2A routes, Air India operates 2.3 per cent as against the guideline of 1 per cent.

Engineering MRO:

Air India, moving a step ahead on the Engineering MRO, entered into a strategic alliance for marketing Engine Overhaul facility with the Sharjah based Aerostar Asset Management, Mr Jadhav informed. The alliance has created an Engine MRO brand called "The A Team", which has started providing engine repair and management solutions to all airline operators of the Gulf region to begin with. "The A Team" will utilize the existing engine overhaul facilities of Air India at Mumbai and marketing set up of Aerostar in the Middle East. Mr Jadhav added that this alliance will sell repair services for jet engines such as GE CF6-50 & 80 series, P & W 4000 series, GE - 90 series and CFM 56-7 series and will also cover CFM 56-5 series engine in the near future.

Air India is not only an airline operating flights between cities but is a multi faceted organization engaged in air transportation, cargo, ground handling and engineering MRO, etc. The infrastructure it has created over the years and its experienced manpower, provide ample opportunity to stand up to the challenges in the aviation industry. These areas are receiving due attention for generating additional revenue for the airline.

Though Air India has achieved considerable progress during 2009 in controlling costs and enhancing revenues, the efforts are to be sustained and doubled in 2020 in order to turnaround the airline financially, said Mr Jadhav. This is considered imperative as the forecast for next year also shows that the demand, particularly in premium classes, will be sluggish. As a matter of fact, International Air Transport Association (IATA) has projected a net loss of US$ 5.6 billion net loss for the aviation industry in 2010.