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Last Updated : Mar 10, 2015 09:10 AM IST | Source: CNBC-TV18

Air India on cost-cutting spree, trims flights

The Dholakia Committee, which recommended that flights that are unable to meet their variable costs be either axed or restructured, found that this single step will get Air India maximum annual cost savings.


The beleaguered Air India continues to axe and restructure loss making flights to cut costs. This time, it is the turn of the Delhi-Moscow service, where frequencies were halved last month because these flights did not meet variable costs. This means these flights were not meeting even their fuel costs.


The Moscow route was opened in July last year, marked resumption of services by AI after 15 years. So the halving of frequencies, from four flights a week to just two a week, is quite surprising.


Besides its service to Moscow, Air India has also withdrawn a flight on the Delhi-Dhaka route and two flights between Delhi and Ahmedabad. These flights were not meeting their cash costs. This information was given by minister of state for civil aviation Mahesh Sharma in written replies to the Lok Sabha Monday.


The Dholakia Committee, which recommended that flights that are unable to meet their variable costs be either axed or restructured, found that this single step will get Air India maximum annual cost savings.


Minister Sharma listed out a host of cost saving suggestions made by this committee: if fully implemented, these suggestions can save the ailing airline whopping Rs 3,241 crore in annual losses.


The single biggest cost saver for Air India is eliminating or restructuring those flights which do not meet variable costs. The Dholakia Committe has calculated savings of Rs 580 crore from this single step each year.
 
The second biggest saver (Rs 450 crore) could be dynamic pricing, something the minister of civil aviation has been asking the airline to take seriously. Another big saver could be strict enforcement of excess baggage charges - Dholakia has estimated Rs 350 crore in annual savings by this one measure alone.


Minister Sharma said Air India has seen growth in its revenues as more passengers board its aircraft. So passenger revenue for FY15 is estimated at over Rs 16,000 crore against just over Rs 14,000 crore in FY14 and close to Rs 12,500 crore in FY13.


Passenger load factor (which denotes the number of occupied seats on an aircraft) has also risen from 72.4 percent in FY13 to 73.6 percent in FY15.

So will the NDA government look to divest stake in Air India, get a strategic partner to improve its functioning? Speaking to reporters last week, minister Sharma said there was no proposal at present to either look for a strategic partner for Air India or to divest government stake in it. Instead, for the next six months the ministry will focus on getting the airline's on-time performance on track.

First Published on Mar 9, 2015 10:05 pm
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