The Hindu Business Line : Air India hopes to save Rs 1,500 cr from cost cutting

New Delhi, Aug. 24 Air India is working on a multi-pronged cost reduction strategy, which the management hopes will help save about Rs 1,500 crore or 10 per cent of the annual cost platform of the airline.

The need for implementing steps to reduce costs is being felt as the airline estimates that the loss for the year will be around Rs 4,000 crore.

Sources told Business Line that apart from rationalising routes and returning leased capacity, the airline was also looking at implementing a programme to reduce the weight carried on the aircraft so as to burn less fuel, apart from adopting a just in-time system for ordering spares.

“The decision to rationalise the routes being operated is expected to lead to a saving of around Rs 900 crore over a 12-month period. In addition, steps are also being taken to ensure that there is no additional weight being carried on the aircraft so that the fuel bill can also be reduced,” sources said.

The airline feels that with the fleet being comparatively new there is really no need to maintain an inventory of spares.

“Besides, for the first five years there is original equipment manufacturer guarantee on both aircraft and engines,” sources added.

The airline has recently started inducting new aircraft into its fleet.

Withdrawals

To reduce its leasing costs and deploy the newly acquired and more fuel efficient aircraft in the fleet, Air India plans to return about 11 aircraft — including one Boeing 747 and five Airbus A-310 and Airbus A-320 aircraft, the leases on which expire during 2008-09.

The airline is paying more than $1.2 million as lease charges on some of these aircraft, sources indicated. The airline will also be phasing out two Boeing 747-300 combi, three Airbus A-300 B4 and two Dornier aircraft.

Besides, the management is looking at reducing both domestic and international services — a move that could see the airline withdraw some flights being currently operated and upgrade the product offering on some other sectors so as to attract more customers.

This could see Air India withdraw flights to Los Angeles and Seoul. Besides, the airline plans to operate the newly acquired Boeing 777 aircraft on the four weekly flights operated to Tokyo.

In the domestic skies, Air India has already cut back capacity by about 15 per cent.