AI sets sight on staff cost as a recovery measure

Mgmt points to declining trend in these expenses & associated rise in productivity, with more to come

State-owned Air India is set to clamp sharply on staff costs over the next three years to sustain an improved financial performance, through a rejig in organisational structure and  monitoring systems to better the performance parameters of employees.

Staff costs as a proportion of overall expenses are projected to decline to 12.9 per cent from 14.7 per cent in 2012-13. With new monitoring systems, productivity per employee is targeted to increase 23 per cent to Rs 85 lakh in FY14 as compared to Rs 69 lakh at the end of March 2013. According to official data, productivity per employee improved 18 per cent in 2012-13.

A senior AI official said, “We are not only going to reduce our employee expenses by around Rs 300 crore every year but even staff costs as a proportion of overall expenditure will come down to 12.9 per cent this year from 15.2 per cent two years earlier. This has happened largely because we have rejigged our organisation structure, frozen recruitments and have stepped up focus to enhance productivity of our employees.”

As of March, it had 25,000 employees, a decrease of around 1,800 from a year before. In the current financial year (from April 1), around 6,600 were transferred to Air India Engineering Services Ltd (AIESL), a new subsidiary, and 5,300 to the new ground handling services venture, Air India Air Transport Services Ltd (AIATSL). The two wholly-owned subsidiaries were formed as part of the turnaround and financial restructuring plans. The two bodies have been functional since February. Currently, AI has 13,000 employees.

The government carrier expects its personnel to reduce by about 4,600 through normal retirement over the next three years, translating to Rs 300 crore of annual savings in staff costs. “Our natural attrition rate is quite high. Over the next three years, around 1,500 employees would retire from service every year. As a result of this, our wage bill would come down by about Rs 300 crore every year,” said the official.

The airline is projected to have around 9,500 employees by 2015-16. In the current financial year itself, staff costs are estimated to come down to Rs 3,100 crore from Rs 3,300 crore in 2012-13.

“The reduction in staff costs is not proportionate with the reduction in employee base currently because we have given pro forma promotions to 800 employees and an added 1,400 promotions in the engineering department. But with the reduction in employee base over the next three years, our employee expenses will come down substantially,” another official added.

Due to this, the aircraft to employee ratio would improve to 1:179 in 2015-16 from a peak of 1:301 in 2011-12. The ratios includes the employees in the two new subsidiaries.

If we consider the staff in only the main airline body in FY16, the ratio would improve to 1:82, probably the best globally, say AI executives.