The Hindu Business Line : Analysts unsure of benefits from job cuts by airlines

While Indian airline companies are on a staff cutting exercise, analysts differ on how beneficial this move would be for their bleeding profit and loss accounts.

Equity analysts say there is unlikely to be any short-term benefits. “These numbers (retrenched staff) are not big and there is not going to be any significant impact on their P&Ls. Losses for 2008-09 are estimated in the region of $2 billion (Rs 8,000 crore) for the domestic aviation sector. In such a scenario, laying off 300 or 700 people will not make much of a difference,” an equity analyst from an Indian brokerage told Business Line.

Another analyst from Centrum Broking Pvt Ltd said the retrenchment is mostly at lower levels, and not much savings are expected from there.

Also, the compensation packages are going to be an added cost, said the analyst.

KPMG’s Senior Advisor, advisory services, Mr Marc Martin, also seemed unsure of what benefits these job cuts would do for the airlines.

He said, “Aviation is a cyclical industry and it will see its ups and downs every year. In such a scenario, downsizing staff is not the solution.”

Instead, airlines should opt for cost optimisation plans and improve efficiencies, he said.

“Optimal utilisation of terminal buildings, aircraft maintenance planning and similar moves would fetch better benefits in the long-term. Innovative steps to improve non-core revenue areas through marketing and advertising will go a long way, especially for low cost carriers.”

For example, distribution of wafers by ‘X’ company to the passengers would mean promotion for that company, appreciation by passengers and revenue for the airline, he said.

Airlines would do anything to make a symbolic shift to return to profitability, Mr Kapil Arora, Partner, aviation sector with Ernst and Young said.

Biggest expense

He was explaining the airlines’ emphasis on staff reduction.

After fuel costs, employee costs are the biggest expense for Indian carriers. Mr Arora feels the current trend constitutes only the first round of cuts. “If the situation in the industry does not improve, there might be more staff cuts.”

According to industry estimates, employee costs account for 20-30 per cent of the overall cost of the Indian carriers, depending on the airline.

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