Air India lowered the base-performance levels in order to pay productivity-linked incentives to staffers.
Ravi Shah was flying from Ahmedabad to Newark and went to the Air India(AI) counter to pay $123 for additional baggage. He gave his Visa card, but was told by AI staffers that he should pay in cash as nobody at the Ahmedabad airport knew how to make a charge on the card. Writing in to the website airlinequality.com/Forum, Shah said if this wasn’t bad enough, his flight was 22 hours late. “One thing is for sure, this will be my last trip by Air India,” he wrote.
Another passenger on the London-Mumbai route, Sam Parkar, said he had booked a direct flight well in advance and paid the amount in full. Four weeks before departure, AI re-scheduled the flight to Mumbai via Delhi. He was promised an international flight from Delhi to Mumbai with his baggage to be sent directly to Mumbai. But he ended up going by a domestic flight and got his baggage in Delhi. So he had to transfer from the international airport to a domestic airport and have his baggage re-checked. He missed his scheduled flight and had to wait for hours for the next flight. When he asked for food vouchers in Delhi, he was refused point blank. Parkar’s conclusion was same as Shah’s — “Never, ever again by Air India”.
Come to think of it, Parkar and Shah were customers of an airline which pays almost half of its Rs 3,000 crore total wage bill as productivity-linked incentives (PLIs) to its 31,000 employees; an airline that employs 230 people per aircraft as against just about half that number in any other international or domestic airline. This is also an organisation where the wage- and fuel- bill contribute nearly 60 per cent to the total cost as against 40-45 per cent in case of other carriers.
It’s no surprise, therefore, that Air India, once the market leader, now has a share of only 18 per cent and is reduced to competing with low-cost carriers like IndiGo Airlines, which has a market share of around 15 per cent. The culmination of all this is that AI has incurred a net loss of more than Rs 4,000 crore in the financial year-ended March 31.
There are many problems with Air India’s HR policies — some of these are unavoidable due to its public sector character. But the productivity-linked scheme, introduced in the 1990s, was perhaps the most ridiculous scheme ever introduced by a company. So much so that one former MP famously described the scheme as nothing but a legalised bribe.
The irony is that the incentive, which inflated the annual wage bill hugely, was never linked to productivity from the start. Read the Comptroller and Auditor General’s report on the issue. Amazingly, the total payment under the PLI often exceeded the airline’s losses in a particular year.
Also, the entire incentive scheme seems to have been designed to meet the airline’s pay-more-for-less policy. By definition, incentive should be motivation for the employees to perform better. Strangely, Air India had pegged the base for the incentive below the average performance level.
For example, for on-time performance, the base-performance level for payment under the PLI was fixed at 60 per cent compared to the 65.92 per cent average performance level prior to the scheme. Similarly, for average annual flying hours per aircraft, the performance level under the PLI was fixed at 2,300 hours compared to 3,055 hours average performance before the scheme was introduced.
A closer look at the scheme reveals several other glaring loopholes. Conventional wisdom says any incentive plan should be linked to an increase in revenue. But Air India seems to think otherwise.
Employees got additional incentives as the average annual utilisation per aircraft showed an increase. There’s nothing wrong with that, except that the number of passengers flown on an average per day has been declining.
This means that though the airline did not get any additional revenue, the employees were getting richer. Air India had a strange explanation to the CAG’s observations: The purpose was to ensure higher utilisation of aircraft and to increase productivity. The airline had no answer as to why the incentive was not linked to any increase in revenue.
Now that the crisis has deepened, necessitating a two-week deferral of salaries, will the airline unions respond positively to Air India’s Chairman Arvind Jadhav’s suggestion that there is no option but to take measures to reduce the employee cost by 16 per cent?
Dinkar Shetty, President of Air Corporation Employees’ Union, says the union will not accept any delay in salary or any wage cuts. The financial mess is a result of mismanagement and faulty regulatory policies by the government after the merger, he says.
He may have a point, but going by the desperate situation AI is in, Shetty is only doing some public posturing to mask his private thoughts. The unions themselves know more than anybody else that time is indeed running out — fast.
