High staff costs sapping Indian Airlines' revenues

Employee costs of Jet, Sahara much lower: CAG

Indian Airlines' employee costs as a share of its operating expenses is significantly higher than that of its competitors "" Jet Airways and Air Sahara "" despite a 10.93 per cent reduction in staff strength over the last three years.

According to the Comptroller and Auditor General's report for the year-ended March 2003, IA's total emoluments have increased 16.34 per cent to Rs 1,018.5 crore in 2002-03 from Rs 875.45 crore in 1998-99.

As a share of its operating expenses, however, it has dropped from 27.98 per cent to 23.8 per cent between 1998-99 and 2002-03.

The CAG's comparative analysis of employee costs of various airlines reveals that Jet's employee costs have shot up 96 per cent from Rs 116.48 crore in 1998-99 to Rs 228.21 crore in 2001-02.

But as a share of operating expenses, it is still lower at 7.35 per cent in 1998-99 and 11.11 in 2001-02.

For Air Sahara, it has dropped from 10.9 per cent in 1998-99 to 8.61 per cent in 2000-01. The figures for 2001-02 are not available.

The CAG has said IA's periodic increase in fares actually compensate for the higher employee costs. In the last five years, IA has hiked ticket costs 37 per cent on average.

The increase in employee cost is next only to the rise in fuel cost. The revenue generated from periodic fares revision, besides being used to meet the higher fuel cost, is being directed towards meeting the high cost of the employees, the CAG has noted.

IA should have framed appropriate employee remuneration policies given the fact that the airline has started incurring losses from 2000-01 and employee cost is the only controllable input.

The audit has also said despite payment of increased productivity-linked incentives, the airline's profitability has not improved. The company's losses have increased from Rs 159.17 crore in 2000-01 to Rs 245.5 crore in 2002-03.

The PLI has actually increased 27.5 per cent to Rs 344.07 crore from Rs 269.77 crore during the period.

The CAG has recommended that IA should review the applicability and relevance of payment of different allowances and also rationalise them.

The PLI schemes should be directly linked to increases in revenues, savings or profits, it has said.