AI has less room for cost cuts

Air India's Chief Operating Officer Gustav Baldauf's announcement that he will carry on cost-cutting steps and turn around the airline in three years does not seem to find takers in the airline.

According to senior officials at Air India, there is nothing more that Air India can do on account of cost-cutting.

As per 2009 estimates, two major expenditure verticals were fuel cost, with 34.2 per cent, and staff cost, with 16.2 per cent.

"The fuel cost of all the airlines in India is huge because of the heavy taxes on jet fuel in the country. And there is a limit to savings on this account," said a senior Air India official, who did not want to be identified.

"Staff cost cannot be brought down as the management has assured that there will be no salary cut and retrenchment," added the official.

The other cost verticals of the airline are 8.1 per cent on account of interest for loans, 6.3 per cent on depreciation cost, 7.4 per cent on account of hire of aircraft.

"Since our loans are set to increase in the future, as we are taking the deliveries of more aircraft, interest payment and depreciation will increase," said the Air India official quoted above.

The landing and navigation charges are 4.5 per cent of the total cost, which are also set to increase as the airline plans to increase its flights.

However, some feel that this might work wonders for the airline. The COO will be the head of the operations in the airline and this will be beneficial in increasing the productivity of the airline, as till now different departments have different heads.

"The head of our airline, apart from working for the airline, also has to report and discuss things with the government; hence, actual functioning of the airline gets less time. The COO can dedicate all his time for the airline and make things better," said another senior Air India official, who did not want to be identified.

On the other hand, unions are looking forward to their meeting with the COO but believe that integrating the airline is the key to its turnaround. "If the airline sorts out all the contract and human resource policy issue, everything else will fall in place," said Sanjay Lazar, general secretary, All India Cabin Crew Association.