Indian airlines flush out costs

Neeta Lal 

Woes of the global aviation industry are being reflected in the activities of the Indian air lines. Desperate measures are being taken to cut operational costs to remain in the air and competitive. Some airlines have resorted to taking a detour for refueling in countries where taxation is low and yet it is an opportunity for low cost airlines to recalibrate their operations. 

India's state-owned and private airlines, battling surging oil prices and dwindling load factors, are devising ingenious ways to whittle operational costs.

Retrenching staff, rationalizing routes and delaying expansion plans aren't the only actions they are taking. More desperate measures include pulling newspapers and magazines off aisle racks, swapping metal cutlery with plastic, striking snacks off menus and charging for drinking water.

Some airlines are even rumored to be discouraging frequent toilet use by passengers. "Though plane toilets don't use water for flushing, a single flush at about 30,000 feet guzzles up enough fuel to power a car for about 10-12 kilometers. So less toilet usage by passengers will obviously mean lower fuel costs for us," an airline source said on the condition of anonymity.

Such frugality is hurting passengers already reeling from a recent 30% increase in airfares. They are also missing the mollycoddling they were just becoming accustomed to after a slew of low-cost carriers began competing for their business since the launch in 2003 of Air Deccan.

Staff is also taking a hit. Some airlines are sending their expensive expatriate commanders packing, replacing them with local pilots at far more modest salaries. Still others (Jet Airways, for instance) are vacating their spiffy airport office space and distributing that workload amongst their existing city offices.

With fares already increased, the airlines have little choice but to trim costs or withdraw flights from loss-making routes, with about 100 aircraft grounded so far. Air India has withdrawn at least 20 services from different routes from July 1 while Jet Airways, the country's largest private airline, has withdrawn its low-cost subsidiary JetLite from 25 routes. Spice Jet, a Delhi-based low-cost carrier, has cancelled about 10 flights.

Kingfisher Airlines has deferred the launch of its international operations from next month to September. Simplifly Deccan, Kingfisher's low-cost unit, has struck off about 48 flights on its short-haul routes. GoAir has cut its flights from 1,000 to about 800 a month.

The losses confronting India's carriers - two of the country's biggest, Air India and Jet Airways, are each reporting losses to the tune of US$2 million a day - reflect the woes in the wider global industry. The International Air Transport Association estimates that the global airline industry will record a loss of $6.1 billion this year as opposed to a net profit of $5.6 billion last year. Accumulated losses at India's airlines could reach $2 billion in 2008-09, according to the Center for Asia Pacific Aviation (CAPA).

Most carriers operating out of India have announced that from October 1 they will be doing away with the travel agents' 5% commission, a $1 billion expense each year. As this cut is likely to push some agents towards extinction, the move has met opposition, with agents demanding that a "transaction fee" be included in the price of the base ticket to protect their interests. However, the airlines are adamant that this won't work.

Prabhash Katyal, a New Delhi-based travel agent, said, "I've been in this trade for four decades but things have never looked this grim."

Carriers' pricing leeway already appears to be sliding as growth in domestic passenger traffic slows, leading to a higher proportion of discounted seats and reduced load factors. Growth in domestic air passengers carried tumbled to 11% in the first quarter of 2008 from 25% a year earlier, according to industry reports.

Things might get grimmer if oil prices, though recently down from a record $147 a barrel, maintain high levels, keeping pressure on the profitability of listed airlines and delaying the break even of low-cost carriers such as SpiceJet and Deccan Aviation. Fuel accounts for 50% to 60% of airlines' total operating costs.

Washing aircraft frequently to remove dust helps improve fuel efficiency. Long-haul international carriers are also buying aviation turbine fuel (ATF) outside India to reduce the impact of a tripling in four years of the cost of ATF at home, where the price has jumped 65% in the past five months alone.

Carriers such as Jet Airways and Air India are making brief fueling stopovers or even detours to the Gulf, countries of the former Soviet Union or Iran, to tank up on the cheaper ATF available there.

Edgardo Badiali, chief executive of low-cost carrier GoAir, said, "It is a difficult time and it's hard to keep prices affordable. The passenger load factor is also getting affected. ATF prices are impacting us in a big way and it's hard to make profits."

Low-cost carriers are now seeing their ambitious bid to conquer the skies turn sour after expensive ad campaigns promising rock-bottom fares and a host of freebies to passengers. Analysts had already questioned their chance of success in a country whose infrastructure offered few channels for economizing, with no separate airports or terminals available to them.

Even so, some see a silver lining. A CAPA official said, "The current crisis offers India's airlines, and especially the low-cost carriers a good opportunity ... to recalibrate their business models. For state carriers, this is a good lesson in cost-cutting and thinking up innovative ways to make profits."

Meanwhile the passengers have to find alternatives to lost routes, lose out on free gifts and consider counting their trips to the toilet.