Air India (A-I) chairman Arvind Jadhav today announced that the state-owned airline was making an aggressive move to become a low cost carrier (LCC) in the domestic skies, competing against IndiGo, SpiceJet and JetLite, which control over half the market.
Jadhav, who addressed his first official press conference after taking over as chairman, announced that 54 flights a day would become low cost services under the brand name Air India Express, its international LCC.
| THE REVIVAL LOG |
| To make airlines profitable in 24 to 36 months |
| 54 domestic flights of Air India to become low cost services by September |
| To list company in 24 to 36 months |
| Hive off four business units into joint ventures or subsidiaries |
| Talks to defer aircraft deliveries and rationalize capacity |
| Restructure productivity-linked incentives scheme |
| Restructure Rs 11,000 crore high-cost debt into low-cost debt |
| Deadline of complete merger of AI with IA set for March 2010 |
A-I currently operates about 300 flights a day, which means one sixth of the flights will be low cost service. A-I will initially shift 10 aircraft which now provide full services on domestic routes to Air India Express, but the target is to eventually shift 150 flights a day, or about half A-I’s domestic flights, in the near future.
We will shift 27 flight pairs into a low-cost service from September this year under Air India Express. We plan to increase this number to 75 flight pairs, depending on the demand,” Jadhav told reporters in New Delhi today. He said the change was needed as the market in India was shifting to low cost carriers.
A senior executive of a low cost carrier said: “With costs that are much higher than that of LCCs, we estimate that Air India’s yield on such a flightwould be one-fourth of their cost. It is a recipe for disaster and will only help Jet and Kingfisher, which will see one less competitor in the full service carrier arena. For LCCs, they pose no threat because they can never make money.”
Meanwhile, as part of a 36-month revival plan, A-I, which has made losses of Rs 5,000 crore, will hive off its four business units — ground-handling, engineering, cargo and aviation training — into joint ventures or subsidiaries by the end of this financial year. It already has a ground handling joint venture with Singapore Airport Terminal Services, which is still not operational.
Contrary to its earlier plan, A-I is in talks to defer six aircraft deliveries for this financial year. A-I has already taken delivery of over 48 new aircraft from Airbus and Boeing and initially decided not to defer deliveries for fear of attracting penalties from manufacturers..
Conscious that the company has to go in for a financial restructuring to pay for its new aircraft, Jadhav said A-I requested the government to restructure its high-cost debt worth Rs 11,000 to low cost debt.
He added banks have told the airline it should get a letter of comfort from the government before the interest rate on the long term loans is lowered. The airline’s debt is around Rs 60,000 crore.
To reduce the wage bill Jadhav added that the carrier is closely looking at changing the productivity linked incentive scheme (PLI) which it has signed with 14-odd unions. “The PLI will be changed and it will be based on the Department of Public Enterprises, guideline,” he said.
However to do so Air India will have to open fresh negotiations with the unions, not all of which have expressed their readiness to do so.
The unions have greeted Jadhav’s plan of action with scepticism. Says Dinakar Shetty president of Air Corporation Employees Union : “He has not put out any concrete plan, he has just talked about his intentions. Also shifting more aircraft to LCC might increase passenger numbers but will adversely impact yields so we are not sure it will work.” Jadhav also said the merger between flag carrier Air India and domestic carrier Indian Airlines would be completed by March 2010 when both the airlines will get a common code to fly.
