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Coronavirus lockdown: How IndiGo, SpiceJet, GoAir could have cut their losses

In India, the situation with domestic carriers is pretty grim with just three months of losses being pegged at $3.6 billion; but did airlines actually have a chance to be better-prepared

twitter-logoManu Kaushik | April 16, 2020 | Updated 02:14 IST
Coronavirus lockdown: How IndiGo, SpiceJet, GoAir could have cut their losses

KEY HIGHLIGHTS

  • Domestic airlines involved in self-handling have hired large number of people on rolls
  • Engaging an outside ground-handling agency would have been a cost-effective option
  • Airlines have recently announced large pay cuts across workforce
It's the toughest time for the global aviation industry. With the suspension of international and domestic flights in a large number of countries, including India, due to lockdown, the global airlines industry is staring at losses of $314 billion - as estimated by global body IATA. In India, the situation with domestic carriers is pretty grim with just three months of losses being pegged at $3.6 billion (as per CAPA). The problem with the coronavirus crisis is that it has caught the entire airline industry unawares. Even the best-placed airlines like IndiGo (in terms of cash reserves) are now preparing to post record losses, and to witness a complete wipe-out of their reserves.

But did airlines actually have a chance to be better-prepared to deal with a crisis of this magnitude? Experts say that domestic airlines would have been in a marginally better situation if they had outsourced their ground handling operations to professional agencies.

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Back in 2016, the government developed a framework for new ground handling policy, and last year, the policy was implemented at the private airports. Following which, airlines like IndiGo, SpiceJet and GoAir started hiring ground handlers on their rolls because the policy prohibits the use of third-party contractors which was the norm back in 2016. Air India too manages its ground handling part with its own captive subsidiary - AIATSL (Air India Air Transport Services Limited).

"Once the self-handling was allowed, most domestic carriers made a quick move. These airlines kept the ground handling close to themselves instead of handing it over to an outside agency," says a large ground handler. But there's a problem with self-handling. Globally, the airlines don't typically do self-handling. They focus on their core business of flying, and leave this aspect to outside agencies for a simple reason. Instead of hiring a lot of workforce, engaging an outside agency, which has expertise in the business, costs much less. How? A specialised agency uses shared resources and brings economies of scale that bring down the costs for everyone.

"The airlines don't realise a large number of costs associated with self-handling. Most importantly, the cost benefit of not employing hundreds of people on their own rolls. This factor keeps outside agencies at a variance when it comes to costs," says Murali Ramachandran, CEO (India) of Turkish agency Celebi Aviation Holding.

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As per some estimates, IndiGo, SpiceJet and GoAir together employ about 12,000 people in the ground handling division, which is almost a third of their overall staff strength of about 37,000 at the end of March 2019. Imagine if carriers didn't have these many people on rolls, their payroll costs (one of the largest components) would have been somewhat lower.

To tide over the crisis, airlines have announced salary cuts recently. Market leader IndiGo, for instance, has implemented salary cuts of between 5 per cent and 25 per cent from April 1 across the workforce. Distressed carriers GoAir and SpiceJet have deducted March salaries of most employees as they are left with literally no option but to take such a step.

At the moment, the specialised ground handlers - Bird Group, Menzies Aviation, Celebi - in India are largely dependent on international side which has been badly affected after the suspension of flights. Perhaps, the current crisis could act as a wake-up call for airlines to become leaner in future.

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