NEW DELHI: Air India Ltd is looking to implement steps to cut costs and reduce flights in the wake of the Iran war, sources say, just as the unprofitable airline searches for a new leader to navigate an exceptionally difficult period.
Among measures discussed in a board meeting last Thursday were furloughing non-technical employees and cutting flight capacity by over 20% for the next three months unless the situation improves, the sources said, asking not to be identified as the talks are private.
The board also discussed paying out lower bonuses for all employees, and pay cuts for those at the level of vice-president and above, the sources said.
“The cost-cutting measures at India’s second-largest airline are likely to be announced soon,” they added.
An Air India representative did not immediately respond to a request for comment.
The moves signal the first major sign of distress at an Indian airline since the start of the Iran war, which has roiled the aviation industry worldwide.
For Air India, the war compounds its existing struggles following a fatal crash and airspace closures due to the border flare-up with Pakistan last year.
The carrier reported a record loss of more than 220 billion rupees (US$2.3bil) in the financial year ended March 31.
Singapore Airlines Ltd, which owns 25.1% of Air India, has seen its earnings dragged down by the losses and is deepening its operational involvement at the carrier.
The turmoil also comes as the Tata Group-owned airline looks for a new chief executive officer (CEO) to replace Campbell Wilson, who resigned in April.
India’s largest carrier IndiGo appointed aviation veteran Willie Walsh as its new CEO at the end of March.
Flight reductions aren’t just expected at Air India. Indian airlines may cut capacity by as much as 30% this summer as tepid demand adds to the financial strain from soaring fuel prices, according to sources.
Jet fuel costs in May were 63% higher for international flights and almost 15% higher for domestic flights, compared with levels seen before the Iran war, according to data compiled by Bloomberg.
Fuel typically accounts for as much as 40% of an airline’s operating expenses so even modest increases can significantly affect profitability.
In addition, Indian airlines are flying longer routes to Europe and the United States as the closure of airspace above Iran adds on to their limitations of flying in Pakistan airspace since May last year.
Higher costs have been passed on partially to fliers in the form of increased fares, a move that has depressed demand in the world’s third-largest domestic aviation market.
Plane ticket sales are even weaker than they were last summer in the aftermath of Air India’s fatal crash and the border skirmishes with Pakistan, the sources further added..
“Advance bookings for travel during summer months is much lesser this year, and the key reason for that is uncertainty due to the Middle East situation and high fares,” said Ajay Prakash, CEO for Mumbai-based Nomad Travels.
Furthermore, Indian carriers are also grappling with a weakening rupee, which inflates dollar-denominated costs such as aircraft leases and overseas airport charges. — Bloomberg
