Air India is considering becoming a low-cost carrier on its domestic services as part of a plan to restructure its operations in order to get a government bail-out.
"That is one option - becoming a low-cost airline on domestic operations so that it can compete more effectively with the privately-owned carriers, which increasingly offer more low-cost options on most of the domestic routes," says a spokeswoman for Indian civil aviation minister Praful Patel.
She adds that the state-owned flag carrier could cut costs and increase loads through this measure, and become profitable in the domestic sector. Air India has a low-cost subsidiary, Air India Express, that mostly serves international routes.
Indian government statistics showed that the country's domestic passenger market shrank 11% in May, with Air India trailing Kingfisher Airlines and Jet Airways/JetLite in third place with just 18% market share. Air India's load factor was 69%, the lowest among all Indian carriers.
On Thursday, the government agreed to bail out Air India, which posted an $800 million loss for the year ended 31 March and appealed to the state to save it from going under. The amount that will be disbursed has not been confirmed and will depend on how the airline plans to restructure its business, says Patel.
The airline has to submit a cost-cutting plan to a cabinet-level panel within a month, spelling out how it plans to reduce labour costs, cut capacity, and streamline aircraft maintenance and ground-handling services.
Air India said earlier this week that it aims to cut 5 billion rupees ($103 million) from its total wage bill of 30 billion rupees, and delayed paying $70 million in salaries from mid-June to 1 July due to a cash shortage.
It is also re-examining wage agreements, including flying allowances and productivity linked incentives, between management and unions. It is also considering ways to improve productivity, eliminate restrictive work practices, and reduce wasteful expenditure.