Air India Should Adopt LCC Model

Wednesday, 24th April 2013 at 10:50am

To be able to sustain its operations longer than where it is heading now, Air India needs to adopt a business model that most budget carriers are using.

The use of such model was a recommendation by a panel of government advisers who were tasked to find ways for the ailing airline to trim its mounting daily deficit of Rs14 crore.

The state-owned full-service flag carrier has been accumulating losses since its merger with Indian Airlines in 2007. Among the preventive measures that the panel have suggested to the airline to tame its losses to a minimum or to a manageable level include, but not limited to, charging passengers for pre-selected seats, selling in-flight meals and charging customers for their excess baggage.

The airline, according to the panel, needs to follow exactly what most low-cost carriers in India and most other countries are doing to be able to increase their profitability. In most LCC model, passengers pay only for the services and products they want to avail of during flight.

The aviation minister received the report containing the panel's recommendation on Thursday last week. The Minister will examine the report and if found to be feasible, he will give order for the full implementation of those proposals as soon as possible.

According to the airline official, the management has already concurred that it is planning to do away with free full meals on board on all domestic routes. Instead, domestic passengers will be served light snacks and refreshment such as biscuits or peanuts and pair them with a choice of either coffee, tea or cold drinks. Though they will still serve full meal on these routes, passengers will need to pay for it separately apart from the ticket cost.

If the airline manages to implement this the soonest possible time, it will be able to stave off losses. On average, a full meal on domestic routes costs about Rs175. In contrast, a lighter snack consisting of biscuits and a cup of either coffee or tea, will cost only around Rs25 to the airline per passenger.

If the airline omits this costly service and opt instead for a much lighter snack, it will be able to trim its losses over time. As a result, it will be able to save RS100 crore annually if it carries out this cost-saving measure.

Another cost-cutting measure proposed by the panel is the choice of accommodations for the flight crew on international flights. Currently, they are billeted in hotels near the city centers which usually cost higher by as much as 25% than hotels closer to the airport.

Several cost-saving measures are proposed by the government panel which was headed by IIM (Ahmedabad) professor R Dholakia with aviation ministry joint secretary Prabhat Kumar and AI joint MD Syed Nasir Ali. These include the scrapping of less profitable routes and shutting down some of underperforming AI offices overseas, among others.

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