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Air India Mum on Cost Savings as Restructuring Progresses

Edward Russell

April 7th, 2023

An Air India Express plane

Air India is moving on to the second phase of its Vihaan.AI turnaround plan, after claiming a number of financial and operational records during the first six months. But absent from the update are any details on the needed cost cuts at the formerly state-owned airline that was privatized just over a year ago.

Tata Group and Singapore Airlines-owned Air India claimed to have achieved the “highest ever single-day passenger revenue,” as well as single-day load factor, in an update Thursday on its five-year restructuring plan. During the past six months, the carrier placed the largest order ever by an Indian airline for at least 470 Airbus and Boeing aircraft to renew its fleet and fuel growth in the coming years. It also began consolidating its share of the Indian market by taking full control of joint ventures AirAsia India and Vistara that have cemented its number two spot — for now, executives would likely say — in the country. Air India said it has also made a number of customer, employee, and systems upgrades, including a $200 million investment in new technology, that will support its planned growth.

“The first six months of our transformation journey has … made great strides in tackling many issues that had built up over the years,” CEO Campbell Wilson said. “During this taxi phase, we have also come a long way in establishing foundations for growth … As we move into our take off phase, we will start seeing these investments bear fruit.”

In 2022, Air India and its subsidiaries — AirAsia India, Air India Express, and Vistara — flew 3.5 percent more domestic India capacity than three years earlier, according to Diio by Cirium schedules. The group’s main competitor, and India’s largest airline, IndiGo flew 10.5 percent more domestic capacity.

Air India and its subsidiaries had a 24 percent share of the market compared to IndiGo’s 56 percent share last year, data from India’s Directorate General of Civil Aviation show.

All of the investments and upgrades in Air India are certainly needed. The airline has long been a bloated, state-owned albatross with bureaucratic decision-making, labor unrest, poor customer service, and unreliable operations, all contributing to significant losses over the years. The Indian government, after numerous attempts, sold the carrier to Tata in a deal worth $2.4 billion in late 2021.

Absent from Air India’s update were any details on costs. Most in the industry would agree that the airline needs to reduce expenses to become competitive with the “upper echelons of global aviation,” as Wilson put it, that Air India wants to join. How it does that, whether through thinning its workforce or in other ways, remains to be seen. The carrier did note that it had “decommissioned pending sale” many of its “long-grounded aircraft” — one needed step to reducing expenses. Air India does not release its financial results.

IndiGo reported unit costs (CASK) excluding fuel of 2.76 Indian rupees (3.4 U.S. cents) during the December quarter. That was up 6 percent year-over-year, and 15 percent compared to 2019, driven by the return of some staff from pandemic furlough and foreign exchange pressures. IndiGo executives said in February that the airline planned to grow capacity further to offset the increased costs.

“Cost leadership remains a very essence of our profitability going forward,” IndiGo CEO Pieter Elbers said in February.

Elbers called the restructuring of Air India, as well as its consolidation with AirAsia India and Vistara, “a good thing for the market and for all the players in that market.”

Air India combined Air India Express, its budget arm, and AirAsia India on a single reservations and customer service system at the end of March. The airlines are to be combined under the Air India Express brand in the coming months following, for one, approval to consolidate on a single operating certificate.

Air India’s merger with Vistara is pending government approval.

Edward Russell

April 7th, 2023

Tags: Asia-Pacific

Photo credit: An Air India Express plane Flickr / Andrew W. Sieber

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