CRIPPLED national carrier Air India (AI) has commenced route restructuring work on its international

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network as part of a cost-cutting exercise that may help it save up to Rs 1,200 crore a year. To begin with, the carrier plans to discontinue several flights to west Asia and southeast Asia where it has traditionally dominated as a “cattle carrier” to and from India. Passengers on these sectors may now look forward to fewer flights to Dubai, Sharjah, Singapore, Hong Kong and Bangkok.

However, most of these slots will be vacated in favour of flights being operated by what was once Indian Airlines, and is now part of a common entity called National Aviation Company of India (Nacil), the corporate nameplate for the merged Indian Airlines and Air India brands. Air India does not want to lose its frequent customers to competitor airlines.

“We have already started rescheduling our flights especially to West Asia. These are mainly routes where we have common flights of both Indian and Air India, leading to excess capacity,” a senior Air India official said without wanting to be named.

Even two years after the merger of Air India and Indian Airlines, Nacil has not been able to rationalise routes where both the state-owned flag carriers once competed. As a result, the merged entity that now flies under the Air India brand continues to operate both Indian and Air India flights on several common routes without many modifications in their respective schedules.

For instance, Nacil operates daily flights under the Indian Airlines and Air India flight codes on the Bombay-Dubai route. Similarly, on the Trivandrum-Sharjah sector it operates daily flights under the Indian Airlines code and an additional four flights a week under the Air India code, adding up to almost a dozen flights per week on the same sector.

Civil aviation ministry officials believe that excess capacity on these sectors has led to low passenger load factor for the airline. “While AI’s average occupancy rate is about 85 per cent on some sectors, its only 45 per cent for Indian. In others, the reverse holds true. The aviation industry considers occupancy rate below 70 per cent as loss making. The carrier will work out its schedule in such a manner that flights are no longer empty,” the ministry official said, without wanting to be named.

Another Air India official confirmed that the company was looking at several route rationalisation plans, including passenger load factor, in order to synergise its operations. “We are inter-changing flight codes as well. We need to ensure that we have more flights on sectors where there is still huge demand and eliminate loss-making routes. I can’t give specific details, but the new schedule will be out by October,” the official said.

The airline, stuck with huge losses of up to Rs 7,200 crore, is desperate for a government bailout. While the carrier is seeking an immediate equity infusion of Rs 2,000-2,200 crore, it may need up to an additional Rs 10,000 crore as financial assistance in the longer term.

As part of the cost-cutting-cum-revenue-enhancement plan, Air India also plans to bring down the performance-linked incentives (PLIs) it pays to over 31,000 employees by 40 per cent, according to a company official. However, the amount of money that may be saved from this exercise has not yet been frozen. Air India has an annual wage bill of Rs 3,000 crore, with PLIs accounting for almost 50 per cent of that amount. The airline has also started working on common PLIs for both Air India and Indian Airlines employees as promised at the time of their merger two years ago. At present, PLIs range from Rs 2,000 to Rs 3 lakh per employee and is based on designations.