Service airlines go for low-cost route

Full-service carriers, while retaining the frills, have embarked on a drive to cut costs, particularly in the areas of fuel usage, ticket distribution and salary, as they take on the burgeoning low-cost carriers. Airlines such as Jet Airways, Indian Airlines and Air Sahara have all embraced "low-cost" measures.

"Indian Airlines has started strict monitoring of fuel usage. The airline saved more than Rs 150 crore through these measures last year," said an executive with the state-owned airline.

The airline, apart from introducing online ticketing to cut the distribution cost, has frozen the recruitment in the non-core areas.

"Everybody is feeling the pressure on the bottom line due to the high jet fuel prices and salary cost. The next ideal step is to cut down the maximum input cost," said Gautam Sinha Roy, analyst, Edelweiss Securities.

Jet Airways is negotiating better rates for maintenance of aircraft and increasing productivity. It is also targeting ramping up of employee productivity and a lower employee-aircraft ratio.

Jet's employee expenses jumped 51.4 per cent to Rs 567.2 crore in the last financial year from Rs 374.7 crore in 2004-05. This was on the back of a rise in salaries and benefits, as well as growth in the average headcount to 8,285 during the financial year 2006 from 7,082 during FY05.

The airline is also pushing online ticket sales, which is expected to reduce its selling and distribution costs. "Jet's target is to sell at least 25 per cent of tickets through the internet over the next two years against the current 10 per cent. Through this initiative it can save Rs 450 on every ticket," said a senior company executive.

The airline has specified that all new aircraft that have been ordered are fitted with winglets, which will reduce fuel consumption significantly.

Following the abortive Rs 2,300 crore acquisition attempt by Jet Airways, Air Sahara has also been cutting costs by turning five of its aircraft, flying to non-metro destinations, to single configuration like low-cost carriers.

"This will help Air Sahara to add more seats to increase its revenues. But the positive results will show up only once the airline is able to cut costs on critical elements such as jet fuel, maintenance and employee costs," said an industry analyst.