Airlines on budget drive as rising fuel price, falling rupee start to pinch

No-frills airlines like IndiGo and SpiceJet, too, have clamped down on salary raise for employees, citing high fuel cost

It is going to get hard to differentiate between a full-service carrier and a budget airline as the aviation industry goes on an economy drive. Threatened by rising fuel price and a falling rupee, airline companies are planning drastic measures ranging from freezing increments to cutting down on flights and in-flight luxuries to save and earn that extra penny.

State-owned Air India, reeling from a Rs 500-billion debt after a failed privatisation attempt, is at the forefront of cutting out the frills. Overtime pay, staff conveyance, travel expenses, and building maintenance costs are among the first casualties at Air India. The airline will also review purchase and lease of new vehicles while undertaking common contracts for transport of its pilots and cabin crew, sources said.

“Air India is going through severe cash crunch and therefore, it is imperative to initiate measures to cut costs. Such measures are intended at promoting fiscal discipline without restricting operational efficiency of the company. In the context of the current fiscal situation, there is a need to continue to rationalise expenditure and optimise available resources,” Vinod Hejmadi, director (finance) at the airline, wrote in a recent note reviewed by Business Standard. The airline has already reduced the bonus paid to its agents from 2 to 1 per cent. It is even looking at shutting down some of the offices of the national carrier.

No-frills airlines like IndiGo and SpiceJet, too, have clamped down on salary raise for crews, citing high fuel cost. While both the airlines have paid a one-time bonus, which is part of profit-sharing, crews have been informed that there will be no increment.

While fares have largely remained flat, jet fuel price has risen 22 per cent and the rupee has depreciated 6 per cent from January to date, putting pressure on airlines. “The sustained rise in crude price, coupled with rupee depreciation, poses a near-term pressure on airline profitability. India’s aviation market remains an unattractive proposition as industry headwinds could weigh on sector profitability,” SBI Caps observed in a report for its clients recently.

The cost-control measures may mean a cut on the amenities that have been routine for flyers so far in full-service carriers. Mumbai-based airline Jet Airways, which registered a Rs 10-billion loss last quarter, is contemplating a buy-on-board scheme for economy class passengers. This would replace free snacks and meals it serves on flights. Jet had dropped its no-frills service in 2014 to return to a full-service model.

The airline is moving to a piece concept for check-in baggage too, implying that economy flyers would be allowed one piece of luggage for free check-in starting July 15. The step is expected to free up belly space, to boost cargo revenue, and help in faster turnaround of aircraft. “Fewer bags means faster turnaround and more belly space for cargo,” an airline executive said.

The airline has also cut down around 20 domestic flights between June to August from Delhi, Coimbatore, Bengaluru, and Chennai. “It makes sense to reduce flights in the lean season on routes which have multiple frequencies,” an airline executive said. Jet Airways did not respond to queries.

Singapore airlines affiliate Vistara, which has tried to market itself as a premium product, is mulling a differentiated product for non-metro routes. The steps may include introduction of a basic economy fare which would mean you get a cheaper ticket but pay for food, seat selection, and services like priority check-in. There are plans for a separate seating configuration as well, a step that may prompt the company to fly planes with dense seating in non-metro routes as compared to the current arrangement of 154 seats. The airline, which has struggled to increase fares in tier-2 routes, has suffered more than Rs  10-billion losses in its three years of operations. Vistara did not reply to a detailed query on its plan.

Experts, however, contested the efficiency of such measures and instead suggested that airlines should control their operating cost. “For airlines, the primary operating cost includes fuel, airport charges, and ground handling. A little efficiency there would help optimise costs and trim flab. Airlines should re-examine how they are spending their money in core areas rather than inducing customer-focused cuts,” Mark Martin, chief executive officer of consulting firm Martin Consultancy, said.

Shrinking economics of flying

• Air India has put a freeze on overtime pay, staff conveyance, and travel expense
• Jet Airways has cut down on flights, contemplates a buy-on-board for meals
• IndiGo, SpiceJet have put a freeze on salary increments for employees
• GoAir is looking to moderate growth and phase out old planes
• Vistara is contemplating a denser cabin, a no-frills basic economy fare for non-profitable non-metro routes