Airline business becomes high risk affair, Air-India claws its way back into the black

Flying, as airline advertisements would have everyone believe, is statistically safer than any other form of transport. Viewed purely in terms of profitability, however, the airline business has suddenly become an extremely high risk affair.Last year, the world airline club (barring Aeroflot which sagely refuses to remove the 'Top Secret' stamp from its annual report) incurred a mind-boggling collective loss of Rs 4,000 crore - the worst in aviation history. And, if figures for the first quarter of the current year are an indication, 1981 threatens to dunk international carriers even deeper in red ink. British Airways, which last fortnight announced retrenchment of 9,000 employees, lost Rs 72 crore in the first four months of 1981, while Pan American had comparable figures of Rs 97 crore. Even Laker Airways, one of the most spectacular success stories in aviation, was semaphoring frantic May Day signals last month.Meanwhile, back in India, the Air-India Maharaja was starting to look like he'd just lost his privy purse. In 1979-80, the airline was reeling under its biggest ever loss of Rs 15.09 crore, a figure that spiralled to Rs 21.30 crore in 1980-81. Then, as though the airline's fairy godmother had waved a magic wand, the tide started unobtrusively to turn. February 1981 saw the airline making a miniscule profit which edged upward in March and, by the end of last month, Air-India had clawed its way bravely back into the black. Computed profit for the first three months of the current financial year is a shade under Rs 2 crore and the airline's management optimistically predicts that profits for the year will end up nestling around the Rs 5 crore mark.Surprising Change: Statistically, the good news is still pouring in. Air-India's passenger load factor (ratio of revenue passenger kilometres to available seat kilometres) is up by 10.2 per cent from last year. The overall load factor, which includes mail, cargo and excess baggage is up by 8.7 per cent while total yields (revenue divided by revenue tonne kilometres) have increased by 5 per cent. Raj : Centre's hackingFurther, the airline's punctuality average in 1981 has been around 80 per cent, an improvement of almost 25 per cent over last year. Considering the turbulent financial weather that other international airlines are currently battling through. Air-India's performance is nothing short of spectacular."We are in this business to make money, not to lose it," pontificated the airline's craggy-faced chief executive, Raghu Raj who would like to take credit for hauling the airline back from the jaws of financial disaster.But that, according to aviation sources, is loo simplistic an answer considering that Raj is not generally known to be a financial wizard - and it would have taken a superhuman effort on the part of any individual to wrestle the Rs 600-crore company-back onto the rails.The sceptics in the industry - aviation probably has more of that particular breed than any other field - hint darkly at the possibility of Air-India's accountants having indulged in some fancy financial jugglery to erase the splotches of red ink on the company's books. Nobody, however, can dispute the fact that the odds against the airline turning the corner so dramatically were overwhelming. Cost per ATKM (available tonne-kilometres, or the maximum traffic that can be carried) has more than doubled in the last three years, up from 53.4 paise in 1978-79 to 121.7 paise in 1980-81. Fuel costs have risen by a crunching 218 per cent since 1975, while air fares have registered a comparable climb of 32 percent. In fact, Air-India's total operating expenses leap-frogged from Rs 401.47 crore in 1979-80 to an estimated Rs 522.88 crore in 1980-81.Timely Steps: "Something drastic had to be done," recalls Raj. However, it is obvious that while the company's top brass are busy patting each other on the back, much of the real thrust behind the airline's success originated in the dingy offices of the Aviation Ministry in New Delhi. "We suggested certain measures to Raj and then backed him all the way down the line in his implementation of them," says a senior Aviation Ministry official.The first step in the Air-India strategy was the ruthless elimination of what Raj terms "frills". Says he: "Air-India is flying 30,000 passengers on 61 flights to 43 destinations every week and there is no room for frills." In a drastic pruning operation, the airline cut back on its cabin crew compliment on jumbos. From 18 personnel the cabin crew was reduced to 15, resulting in a total of 91 crew members being offered alternate jobs on the ground (all but six accepted). Net saving in terms of reduced expenditure was Rs 2 crore.Additional savings were affected by a concentrated effort to re-route various flights with an eye on the economics involved. By requesting and obtaining permission to overfly the Soviet Union, the airline saved 30 minutes of flying time on each of its flights arriving from London or Europe. A low-revenue run like the Bombay-New York route was reduced by one flight a week while three 747 flights on the Bombay-Europe route were temporarily curtailed. Another tough money-saving measure was the decision to restrict the departure point of the airline's Europe-bound flights to Bombay and eliminate Delhi.Rationalisation: The pruning extended to items like the sales promotion budget which was reduced by Rs 8.5 crore while a tightening up on food wastage on aircraft and elimination of certain items put a further Rs 2.7 crore into the company's kitty. The airline boosted its passenger traffic further by government directive sent to all government agencies and public sector companies ordering all officials going abroad to fly Air-India unless it was absolutely unavoidable. "We found that too many government and public sector officials were flying other airlines because they were being offered fringe benefits like an overnight stay abroad. Now, unless Air-India has no flights to their destinations, they have to travel by the national carrier," says an Aviation Ministry official. The pruning shears, predictably, extended down to the stall as well. There was a discernible tightening up of discipline and stall control leading to a major cut back in staff travel, overtime and recruitments. By curtailing the filling up of vacancies that the airline considered unnecessary, the airline saved Rs 323.93 lakh in its wage bill.Another major financial booster was the replacement of the gas-guzzling and limited capacity Boeing 707s on the lucrative Gulf routes with the larger, more economical Boeing 747s which the airline added to its fleet in early 1980. Last fortnight, Air-India's plans to order three L-101 1-500 Lockheed Tristars were announced and the move is widely expected to improve the company's financial bottom line. The Tristar, a three-engined long-range jetliner which will enter service in 1983 is ideal for long routes.Fuel-saving Measures: Air-India has also successfully managed lo cut down on its flight delays -a major gripe with a majority of the airline's regular clients-from 52 per cent in March 1980 to around 24 per cent by March 1981. This has allowed the airline to cut back on hotel expenditure for passengers and crew-the airline is normally required to provide hotel accommodation in case of delayed flights.Predictably, with fuel costs accounting for 35 per cent of the airline's operating expenses, Air-India's main focus has been on desperate fuel-saving measures. The introduction of "optimum cruise" techniques for their fleet of Boeings, a measure already in use by other major international carriers, was one such step while another was the decision to order all their pilots to only use three engines while taxiing instead of the-previous practice of utilising all four.Finally, in a rather belated move, the company's executives closely monitored international fuel prices which enabled the company to lift extra fuel at prices cheaper than what it was paying before. According to Air-India's own estimation, the new measures have resulted in net savings of almost Rs 30 crore over a 12-month period.Its sales effort is now directed at a specific clientele: namely, at what is known in airline parlance as "high-yield customers", or first class and full-fare economy class passengers. At the same time, the airline has also resorted to the dubious technique of offering massive mouth-watering rebates on its uneconomical flights, mainly on the Far East routes. On its Singapore and Bangkok flights, for instance, the airline is offering rebates as high as 20 per cent which is in direct contravention of IATA regulations. Shrugs an airline spokesman: "If all the other IATA airlines are doing the same thing I don't see why Air-India should adopt a holier-than-thou attitude and refuse to jump on the bandwagon, especially at a time when the industry is in a highly precarious position."Controversial Practice: Equally questionable is the current practice of overbooking its flights. While it is generally accepted practice in the aviation industry to overbook. Air-India has been doing so at a time when there is a heavy demand for seals to Europe and the US. The result is the almost every flight finds a large number of passengers with confirmed reservations being unceremoniously "bumped", leading to unpleasant scenes and a severe mauling of the company's image. Airline spokesmen brush aside the situation airily by pointing to the fact that passengers who are "bumped" get a free stay in a five-star hotel until they are given a seat. But that is little or no consolation lo businessmen who have urgent work in another country or tourists who have run out of their budget. But however diverse Air-India's profit-making methods may be, the fact remains that in what is widely recognised as dog-eat-dog business, the only God that airlines are responsible to is the bottom line in the balance sheet. In that context, Air-India's sins of omission and commission will probably be overlooked on Judgment Day when the company's annual report is presented lo Parliament, notwithstanding the inevitable bleats of protest from the likes of Jyotirmoy Bosu and company.Published By: AtMigration Published On: Nov 4, 2013 09:13 IST--- ENDS ---

Download App

Get 37% off on an annual Print +Digital subscription of India Today Magazine

Airline business becomes high risk affair, Air-India claws its way back into the black

Flying, as airline advertisements would have everyone believe, is statistically safer than any other form of transport. Viewed purely in terms of profitability, however, the airline business has suddenly become an extremely high risk affair.

PUBLICATIONS

TELEVISION

EVENTS

RADIO

GAMING

USEFUL LINKS

PRINTING

WELFARE

DISTRIBUTION

SYNDICATIONS

WEBSITES

EDUCATION