MIS of Air India Under Dr. Kinnarry Thakkar

7/30/2019 MIS of Air India Under Dr. Kinnarry Thakkar

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A Project Report

On

"Management Information System

Of Finance In

Air India

SUBMITTED TO SMT. K.G. MITTAL INSTITUTE OF

MANAGEMENT, I.T., & RESEARCH IN THE PARTIAL

FULFILLMENT FOR THE DEGREE OF

MASTER OF MANAGEMENT STUDIES

SUBMITTED BY

Ashvani R. Bhagat

Under The Guidance Of

Dr. Kinnarry Thakkar

Smt. K.G. Mittal Institute Of Management, I.T. & Research

Malad (West), Mumbai - 400064

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Declaration

I, Ashvani R. Bhagat the under signed that this project report entitled Management

Information System for Air India Ltd. is my original work. The empirical finding in this

report is based upon the information collected by me and not copied from elsewhere. I

understand that the detection of any such copying by me for this report is liable to punished

in any way the institute deems.

[Ashvani R. Bhagat]

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ACKNOWLEDGEMENT

No man can live as an island, journey through life alone

These words aptly describe the theme of this short but essential page of the report. In

our highly professional field, we need help from time to time from the people around us. Be

it simple suggestion or little words of encouragement, weird ideas or morale boosting talks.

Through these lines I humbly acknowledge the contribution of all those who have helped me

and to whom I am highly indebted.

I take this opportunity to convey my deep sense of gratitude towards the Director, ,Smt. K.G. Mittal Institute of Management, I.T. and Research and Prof. Annie Joseph for

permitting me to undertake this project.

I am extremely thankful to Ms. Surekha Neelkantan Ma'am (Sr. Manager

Finance)and Mr. Vinod Hejmade (Dy. General Manager) who has extended his full support

and co-operation in the successful accomplishment of the project.

We would also like to thank Mr. Bindu Madhav Katti(Manager), Mrs. Shraddha

Gandhi(Manager, Finance),Mr. Uday Donwalkar, Mrs. Bharati Tambaku(Assistant Manager,

Finance), Praful Bhagat, Sujata Broker, for providing me this opportunity for taking up this

challenging project.

We are also thankful to all the employees of Air India who have helped us in

completing the project.

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EXECUTIVE SUMMARY

MIS is something we all do. Planning and preparation for the future is not important

for an individual, but also for a business. Successful companies are constantly improving

their ability to predict their future operations and their related resource requirements,

enabling them to adjust their plans as needed and stay ahead of the competition.

A Budget is our best estimate of what our business will achieve during the budget

period. It is planning tools, which provide us with forecasts of what might happen and also

target that we aim to achieve financially.

By considering the importance of the MIS, this report focuses on the following areas

Preparation of the Annual Revenue & Expenditure Budget of the Corporation in the

form of the booklet for submission to the board for its approval

Intimation of the Annual Budget allotments, to the Outstations as well as the

departments at headquarters

Comparison of Actual Expenses with the Budget Allotments

Preparations of Monthly Report on Estimated Financial Result for submission to

Headquarters

Preparations of Quarterly Report, Performance Budget and other returns for submission to

Government Agencies

Preparations of Cost Analysis Statement

Submission of Data to the IATA

Information Required from the Stores & Purchases

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TABLE OF CONTENT

Chapters Particulars Page No.1 Company Profile

a. Historical Background

b. Wholly Owned Subsidiary Companies

c. Organization Structure

7

2 Types of Departments

a. Finance Department subsections

b. Financial Performance

12

3 Merger of Air India and Indian Airline224 Research Hypothesis

a. Research Methodology24

5 Working of MIS

a. Introduction

b. Management information System in Air India.

c. Role of MIS in the financial Aspects of air India

d. Route Analysis

e. Preparation of Route Analysis Report

30

6 Direct Cost / Revenue Ratio

a. Introduction

b. Preparation Of Direct Cost / Revenue Ratio Statement

c. Analysis Of Report

40

7 Revenue Expenditure Budget

a. Work of the section

b. Preparation ofRevenue Expenditure Budget

c. Layout of Preparation ofRevenue Expenditure Budget

62

8 ERP

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a. Introduction

b. ERP - Financial Accounting Graph

c. ERP SAP

70

9 SWOT Analysis Of Air India 75

10 Findings and Interpretations 78

11 Implementation of Study - Cost Accounting Tool 84

12 Limitations 89

13 Conclusion 9114 Recommendation 93

15 Future Scope 94

16 Bibliography 96

Chapter 1.

Company Profile

Historical Background

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Tata Sons Ltd has taken birth in the year October 15, 1932.Mr. J.R.D Tata who was

the first Indian to get his license in India. Mr. Neville Vincent a formal Royal Air Force

(RAF) pilot came to India in 1929 from Britain. He saw immense potential for aviation in

India. By consider future globalization of the world. Mr. J.R.D Tata has taken the first stepwith an air service.

On consultation with Mr. J.R.D Tata Mr. Vincent brought out a scheme to operate

an Air service. They got this to the notice of Mr. Peterson a director of Tata Son Ltd. After

the approval they operate the first Air service Karachi to Bombay via Ahmedabad. In the

first full year of operation, Tata airline flew 1,60,000 miles, carried 155 passengers and

10.71 tones of mails. When a light single engine Puss Moth aircraft took off from Karachi

with J.R.D Tata as its pilot and landed on grass strip at Juhu. There was no runway, no radio

facility in the aircraft or on the ground and no Aerodrome officer on the ground.

The Government initially bought 49% of the airlines shares in 1946, making it a

public company and renaming it as Air India. On 8th march, 1948 Air India international has

been incorporated then they launched its first service to London via Cargo and Geneva on

the date 1st Jan 1949 with a twice weekly service. In the year 1952 the planning commission

recommended the nationalization of Air transport industry. This resulted in creation of two

nationalized corporations. Air India International which retained its identity and international

flag carrier status & Indian Airlines to operate at domestic level.

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WHOLLY OWNED SUBSIDIARY COMPANIES

(A) Hotel Corporation of India Limited:

As part of the disinvestments programmer an advertisement was issued in all the

leading newspapers in India and abroad inviting bids from the prospective buyers for the

remaining properties comprising of Hotel Corporation of India, a wholly owned subsidiary

of Air India viz the Centaur Hotel Delhi Airport and Chef air units at Delhi and Mumbai.

(B) Air India Air Transport Services Limited (AIATSL):

With a view to improve the quality of Ground Handling services to Air India flights

and those of Customer Airlines, AIATSL was registered as a fully owned subsidiary of Air

India on 9 June 2003. While the Company has been growing at a moderate pace, the year

2005-06 has been a very eventful year with its wings being spread to many Indianinternational airports.

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AIATSL took over handling services at Calicut, Pune Ahmedabad and Amritsar in a

major way. While comprehensive handling was taken over at Calicut with the

commencement of AI Express flights effective 1August 2005, similar arrangementcommenced at Pune effective 12 December 2005. Terminal handling was taken over at

Ahmedabad and effective 1 May 2005 and 15 May 2005, respectively.

Resources for provision of security services have been inducted on three year

contract by AIATSL at these locations, the other handling activities are being availed

through outsourcing.

(C)Air India Engineering Services Limited (AIESL):

Air India Engineering Services Limited was incorporated on 11 March 2004 with

Authorized Capital of Rs. 10 cr. and is still awaiting Governments approval. The Certificate

to Commence Business was obtained on 17 January 2006. The Paid-up Capital of the

Company stands at Rs.5lacs. It is planned to develop this subsidiary company into a

Maintenance, Repair and Overhaul (MRO) facility in this Region with Air India providing

the necessary initial support in terms of infrastructure and domain knowledge.

(D) Air India Charters Limited:

Air India Express:

Air India Express, which operates under the flagship of Air India Charters Limited,

launched the first flight to Abu Dhabi from Thrivananthapuram on 29 April 2005. As on

31 March 2006, four aircraft had been inducted as follows:

VT-AXA23 February 2005

VT-AXB08 April 2005

VT-AXC19 April 2005

VT-AXD16 March 2006

In April/May 2006, three more aircraft were inducted asfollows:

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VT-AXG06 April 2006

VT-AXF 10 May 2006

VT-AXG24 may 2006

All the above aircraft have been taken on dry lease for a period of five years.

ORGANIZATION CHART

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11

Director

Finance


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Chapter 2.

Types of Departments

Air India has been divided into different departments for the purpose of smooth

administration and operations. Each department is further sub-divided into sections that

expertise in their respective categories of skill. The departments are as listed below:

1

.

Air Safety Department

2

.

Airport Services Department

3

.

Commercial Department

4

.

Civil Works & Properties Department

5

.

Department of Information Technology

6

.

Engine Overhauling Department

7

.

Engineering Department

8

.

Finance & Accounts Department

9

.

Human Resources Development Department

10. In-flight Services Department

11. Medical Services

12. Operations Department

13. Planning & International Relations Department

14. Public Relations

15. Security & Fire control

16. Stores & Purchases Department

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Air India generates revenue through sales of passenger tickets sales, cargo and mail

handling, maintenance of other airlines and revenue sharing with other airlines. The finance

department is an important backbone of the companys roles at different levels of operation.Due to the large number of activities involved in business and to facilitate division of labor,

the finance department is divided into eighteen subsections. Each of these subsections has an

important role and specialized role in the day-today functioning of the organization.

Although the functions have been assigned to different subsections, some of the subsections

are inter-related functionally to perform effectively and efficiently.

Finance Department subsections

1. Capital Budget

Capital Budget deals with budgeting requirements of the company. The main

function of the department is to forecast budget requirements of the upcoming financial year.

The elements that need to be taken into consideration are the requirements of new assets in

terms of aircraft, maintenance machinery, property and man power. This department is

responsible for deciding the capital structure to be used for the purpose of asset procurement.

Since most of the decisions taken by this department involve high cost and longer

decision making duration, each task is classified as a Project. The objective of a project is

to improve benefits and reduce cost and risk to the company. Decision making for a project

requires considering many elements that are important to the cost and risk factor of the

project. For example: Decisions regarding procurement of aircrafts and simulators is a

project under Capital Budget department.

2. Financial Accounts

Air India has a large number of operational and non-operational stations. Until 2005,

each station maintained its own accounts and these were later consolidated for the purpose of

creating the financial statements of the company. This was a very tedious, complex and time

consuming task. To overcome these difficulties, an ERP was implemented for the purpose of

centralized accounting. As a result, all accounts are now maintained on a common platform.

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This makes it easy to draw decisive reports and generate financial statements easily.

An ERP section also exists to impart training related to ERP and control the ERP

activities.

3. Management Information Systems and Statistics

The main role of this department is its contribution to analytics. The Management

Information System (MIS) implemented in the section is capable of generating around 100

reports at regular intervals. The reports provide a trend of the past performance for the

chosen parameters. These reports are forwarded to the management for decision making as

support tools. The reports along with some other decision factors form the basis for creating

future plans. The reports thus act as a bridge between the finance department and the

management. It provides an indication of the companys performance in all areas.

4. Fuel and Oil

For an airline, fuel accounts to 60 percent of the operational expenses in an

accounting year. Thus, it plays a major role in the financial bills payable by the company.

The fuel and oil department is responsible for ensuring the procurement of fuel to the airline

at the best cost. The department also decides on method of payments for fuels to vendors viz.

fixed rate, floating rate or mixed rate. Fixed rate involves buying fuel from a vendor at a

fixed cost. Usually, this cost is higher than the current market price. This pricing is done

taking into consideration the future changes in fuel prices. If the market price increases

beyond the fixed price company still continues to pay the price fixed between both parties.

In floating rate, the fuel prices are paid as per changes in the market price. In mixed

rate, certain portion of the amount is paid on fixed rate and the remaining at floating rate.

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Decisions regarding fueling strategy of aircrafts are decided by this section. If an

aircraft travels from Mumbai to London and then from London to New York, depending on

the fuel prices at different locations, it can decided how much fuel should be filled at

Mumbai and London.

5. Banking

Banking section deals with handling transactions with banks where Air India holds

accounts for operational purposes. These accounts are used to meet operational expenses at

the current station or any other station. Transfer of funds among bank accounts is done in

order to facilitate funds at stations facing shortage.

Treasury management is another important function of banking section. It controls

the cash inflow and outflows at the stations.

6. Passenger Sales

Passenger sales deals with revenue generated exclusively from sale of tickets to

passengers. This section is further classified into two subsections: Offline section and

Commercial section.

Offline section

Revenue generated from ticket sales to passengers from stations where Air India does not

operate its flights are handled by this section. Air India has signed provisos with other

airlines that help in moving passengers from offline stations to operated destinations from

where Air India can fly them to their destination. The provisos cover revenue sharing

agreements between the airlines that outline fares to be shared and their percentages.

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Commercial section

Commercial section deals with passenger handling at Air India operated stations. It

handles all cash sales, credit sales and agent sales of passenger tickets. Invoices are raised ondaily basis for passengers of other airlines who have used Air Indias services and issued to

the respective airlines. Also, it settles invoices issued by other airlines in lieu of Air India

passengers who have used other airlines services. General Sales Agent (GSA) commissions

and other payments are settled by commercial section.

7. Cargo and Mail

This department functions similar passenger sales section. It deals with revenue from

cargo and mail services.

8. Station Expenses Reconciliation (SER)

Station expenses reconciliation is responsible for handling expenses occurring at the

stations due to operations. It generates the statement of expenses and clears the dues.

Statement includes sharing of rent, telephone charges, conveyance with GSA, electricity,

government taxes etc.

9. Accounts Receivable Control (AR Control)

AR Control is responsible for ensuring the accuracy of entries in the ERP system.

Part of this system is outsourced to Kale consultants, an outsourcing agency. It handles

revenue documentation of passenger ticket audit coupons. Based on usage or cancellation of

passenger ticket effective revenue is calculated and credited to the respective sales station.

Before effective revenue realization, station is the debtor.

10. Insurance

Insurance section deals with all insurance needs of Air India. Insurance is mandatory

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for assets like aircrafts, property, maintenance facilities, passengers, cargo and employees.

In case of aircrafts and passengers, the insurance cost is very high and thus it

involves high risk to the insuring company. In most of the cases, the insurance companyreinsures part or the full amount with a third party to pass the risk factor and reduce liability.

Each aircraft also needs to be insured with the manufacturer i.e. Boeing and Airbus for Air

India.

For property and maintenance facilities insurance is required to safeguard in case of

any unexpected events like natural calamities or terrorist attacks.

11. Billing

Billing is the largest section in the finance department. It deals with payments that

are to be done to external parties by the airline. These are classified as

Miscellaneous Billing

Local Billing

Billing

It includes all payments that are to be done by the company to outside parties like fuel

vendors, other airlines, airport payments, legal charges etc.

Policies regarding priority payments are done by this department.

12. Store Accounts

Stores accounts deals with acquiring spares as required. Procuring inventory for

stationery and aircraft spare parts required for maintenance from the company approved

vendors at the lowest price is the responsibility of this department.

13. Income Tax

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Income tax department handles all income tax transactions for the airline. All these

factors are consolidated to help in filing the companys overall tax returns. The various

transactions handled are:

Earnings and employee taxes

Corporate taxes

Service taxes

Employee tax returns

Tax deducted on source (TDS)

14. IATA

International Air Transport Association (IATA) is the regulatory authority for all

airlines across the world. This section deals with all payments that need to be routed through

IATA. Payments to invoices raised by other airlines for passenger and cargo services are

performed by IATA section.

15. Revenue Pools

Revenue pools are responsible for identifying areas that can be used for better

revenue earnings. It helps in measuring the current level of efficiency and comparing it with

the expected results. This can help in planning for future based on new revenue

opportunities.

16. Pay Accounts

Pay accounts section deals with payments that are to be done for staff. Salaries and

other incentives to be credited to staff accounts are handled by this section. Air India houses

staff belonging to 38 categories and each category is further divided into grades. Pay

accounts section arranges for funds required for monthly salary payments. Along withmonthly payments, work related conveyance charges, other claims and dues are paid through

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the pay accounts section.

17. Staff Claims

Along with salaries, some categories of staff are also eligible for allowances like

telephone charges, vehicle claims etc. These non claims are non taxable and are handles by

the staff claim section. Other claims like outstation expenses and expenses incurred on

travelling for business related reasons for Air India are also settled by this section.

18. Refunds & Recoveries

The refunds section is responsible for handling all refunds and recovery related to

employees. Refunds like payments of unused staff tickets (fare and tax as applicable) are

handled by the refund section. The recovery section deals with recovering extra payments

that have been provided to staff for different reasons like advance taken for outstation

conveyance, salary paid in advance etc.

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Financial Performance

Revenue Earned:-

During the year 2005-2006, the total revenue of the company consisting of

passengers, Excess Baggage, Mail, Cargo, Pool, Charters, Block Seat Arrangement, Royalty

from Air India Charters Limited and Handling/Miscellaneous Revenue was Rs. 92,449.5

Million as compared to Rs. 77,268.9 Million in the year 2004-2005, representing an increase

of 19.6%

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Expenditure Incurred:-

During the year, the total expenditure of the company likewise was Rs. 92,325.2

Million as against Rs. 76,617.5 Million representing an increase of 20.5%.

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Chapter 3.

Merger of Air India And Indian Airlines

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As you would all be aware on 1 March 2007 Government of India approved to

merger of Air India and Indian Airlines known as National Aviation Company of India

Limited (NACIL). The Indian aviation industry to create a single mega national carrier

which is also poised to become South Asias largest airline Touted as the mother of Indian

aviation mergers. The merger of Air India and Indian is expected to form Indias largest

airline with a clout to take on the domestic and international competition.

The formal approval given for the merger by the Union cabinet on March 1, 2007

cover the way for the birth of the Rs. 15,500 cr. Airline which is almost thrice the size of its

closest domestic rival, Jet Airways. Though the cost of integration of the merger is estimated

to be around Rs. 200 cr.

The past couple of years many players like Kingfisher, Air Sahara, Jet Airways, Go

Air, Air Deccan, Spice Jet, Paramount, Indigo and Indus have entered the air space. Jet

Airways and Kingfisher, closest rival of the public sector airlines, have around 44 & 23

fleets respectively and gearing up to induct about 20 &109 aircrafts.

All these factors challenges for the government owned airlines which have been

witnessing declining market shares. In attempt to increase their market shares, both Indian

and Air India have started eating into each other market shares. The Indian Government, the

owner of these two airlines, has finally decided to merge these to companies to protect the

economic interests. The merger formalities are expected to be completed by 2010, forming a

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new entity with over 33,000 employees and a fleet size of 112 new generation aircrafts. The

government has already placed a orders for 68 and 43 planes from Boeing and Airbus.

The merger of the two airlines can be envisaged as the beginning of the consolidationefforts in the Indian aviation space which is the fastest growing in the world at a rapid pace

of 40% compared to 15-20% growth at the global level.

New airline introduce Boeing 777 aircraft on August 1st, 2007 the Non stop daily

flight Mumbai - New York - Mumbai.

Chapter 4.

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Research Hypothesis

A hypothesis is a preliminary or tentative explanation or postulate by the researcher of

what the researcher considers the outcome of an investigation will be. It is an

informed/educated guess. It indicates the expectations of the researcher regarding certain

variables. It is the most specific way in which an answer to a problem can be stated.

Research hypotheses are the specific testable predictions made about the independent

and dependent variables in the study. Hypotheses are couched in terms of the particular

independent and dependent variables that are going to be used in the study. The research

hypothesis of this study is as follows.

1) Ho: There is significant relationship between performance and profitability.

Mean

Std.

Deviation N

Performance 1.72 .573 20

Profitability 1.50 .707 20

Correlations

Incentives

Employee

performance

Cost Pearson Correlation 1 .655(**)

Sig. (2-tailed) . .000

Sum of Squares

and Cross-products16.080 13.000

Covariance .328 .265

N 50 50

performance Pearson Correlation .655(**) 1

Sig. (2-tailed) .000 .

Sum of Squares

and Cross-products13.000 24.500

Covariance .265 .500

N 20 20

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** Correlation is significant at the 0.01 level (2-tailed).

Inference:

Since the Correlation is significant at the 0.01 level (2-tailed) the null hypothesis that is

There is significant relationship between Performance and Profitability is rejected

and an alternative hypothesis is framed.

H1: There is significant relationship between incentives and employees performance.

2) Ho: There is no significant relationship between Cost Control and Poor Quality Services

Mean

Std.

Deviation N

career

development

opportunities

3.70 1.035 20

extent of

motivation3.36 1.317 17

Correlations

career

development

opportunities

extent of

motivation

career

development

opportunities

Pearson

Correlation 1 .909(**)


Sum of Squares

and Cross-

products

52.500 52.111

Covariance 1.071 1.184

N 50 45

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extent of

motivation

Pearson

Correlation.909(**) 1

Sig. (2-tailed) .000 .Sum of Squares

and Cross-

products

52.111 76.311


N 18 17


Inference:


There is no significant relationship between Cost and Poor Quality Services is

rejected and an alternative hypothesis is framed.

H1: There is significant relationship between Cost and Poor Quality Services.

3) Ho: There is significant relationship between MIS and Marketing.

Mean

Std.

Deviation N

Performance

appraisal system2.40 1.143 20

Extent of

Motivation 2.60 1.355 20

Correlations

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performance

appraisal

system

Extent of

Motivation

Performance

appraisal system

Pearson

Correlation 1 .962(**)


Sum of Squares

and Cross-

products

64.000 73.000


N 50 50

Extent of

Motivation

Pearson

Correlation.962(**) 1

Sig. (2-tailed) .000 .

Sum of Squares

and Cross-

products

73.000 90.000


N 20 20


Inference:


There is significant relationship between MIS and Marketing is rejected and an

alternative hypothesis is framed.

H1: There is no significant relationship between MIS and Marketing

RESEARCH METHODOLOGY

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Research is a systematic method of finding solutions to problems. It is essentially an

investigation, a recording and an analysis of evidence for the purpose of gaining knowledge.

According to Clifford woody, research comprises of defining and redefining problem,

formulating hypothesis or suggested solutions, collecting, organizing and evaluating data,reaching conclusions, testing conclusions to determine whether they fit the formulated

hypothesis

Sampling Design

A sample design is a finite plan for obtaining a sample from Air India. Simple random

sampling is used for this study.

Universe

The universe chooses for the research study is the MIS & Statistics of Air India ltd.

Sampling Procedure

The procedure adopted in the present study is probability sampling, which is also known as

chance sampling. Under this sampling design, every item of the frame has an equal chance

of inclusion in the sample.

Methods of Data Collection

The datas were collected through Primary and secondary sources.

Primary Sources

Primary data are in the form of Direct Cost / Revenue Ratio Statement to which statistical

methods are applied for the purpose of analysis and interpretations.

The primary sources are discussed with employees.

Secondary Sources

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Secondary datas are in the form of Budget Estimation as they have already been treated

statistically in some form or other.

The secondary data mainly consists of data and information collected from records, company

websites and also discussion with the management of the organization. Secondary data was

also collected from journals, magazines and books.

Nature of Research

Descriptive research, also known as statistical research, describes data and characteristics

about the population or phenomenon being studied. Descriptive research answers the

questions who, what, where, when and how.

Although the data description is factual, accurate and systematic, the research cannot

describe what caused a situation. Thus, descriptive research cannot be used to create a causal

relationship, where one variable affects another. In other words, descriptive research can be

said to have a low requirement for internal validity.

Sample

A finite subset of population, selected from it with the objective of investigating its

properties called a sample. The response to various elements under each questions were

totaled for the purpose of various statistical testing.

Variables of the Study

The direct variable of the study is the working of MIS in Finance Dept. in Air India.

Indirect variables are the Region wise Budget Estimation, Region wise Budget allotment,

Direct Cost/Revenue, Cost Profitability Ratio etc.

Tools and Techniques for Analysis

Correlation is used to test the hypothesis and draw inferences.

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Chapter 5.

Working of MIS

Introduction

A management information system (MIS) provides information that is needed to manage

organizations efficiently and effectively. Management information systems involve three

primary resources: people, technology, and information or decision making. Management

information systems are distinct from other information systems in that they are used to

analyze operational activities in the organization. Academically, the term is commonly used

to refer to the group of information management methods tied to the automation or supportof human decision making, e.g. decision support systems, expert systems, and executive

information systems.

Types

Management information systems (MIS), per se, produce fixed, regularly scheduled

reports based on data extracted and summarized from the firms underlying

transaction processing systems to middle and operational level managers to identify

and inform structured and semi-structured decision problems.

Decision support systems (DSS) are computer program applications used by middle

management to compile information from a wide range of sources to support

problem solving and decision making.

Executive information systems (EIS) is a reporting tool that provides quick access to

summarized reports coming from all company levels and departments such as

accounting, human resources and operations. Office (OAS) support communicationand productivity in the enterprise by automating work flow and eliminating

bottlenecks. OAS may be implemented at any and all levels of management.

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http://en.wikipedia.org/wiki/Information_systemhttp://en.wikipedia.org/wiki/Information_systemhttp://en.wikipedia.org/wiki/Decision_support_systemhttp://en.wikipedia.org/wiki/Expert_systemhttp://en.wikipedia.org/wiki/Executive_information_systemhttp://en.wikipedia.org/wiki/Executive_information_systemhttp://en.wikipedia.org/wiki/Transaction_processing_systemshttp://en.wikipedia.org/wiki/Decision_support_systemhttp://en.wikipedia.org/wiki/Executive_information_systemhttp://en.wikipedia.org/wiki/Information_systemhttp://en.wikipedia.org/wiki/Information_systemhttp://en.wikipedia.org/wiki/Decision_support_systemhttp://en.wikipedia.org/wiki/Expert_systemhttp://en.wikipedia.org/wiki/Executive_information_systemhttp://en.wikipedia.org/wiki/Executive_information_systemhttp://en.wikipedia.org/wiki/Transaction_processing_systemshttp://en.wikipedia.org/wiki/Decision_support_systemhttp://en.wikipedia.org/wiki/Executive_information_system


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Management information System in Air India

Initially in Air India, Internal Reporting was made manually and only periodically, as

a by product of the account system and with some additional statistic(s), and gave limited

information on management performance. Previously, data had to be separated individually

by the employees -in Air India as the requirement and the necessity. In the year 2007-08, the

Management Information System was also implemented in Air India. Thus the data was

distinguished from information, So instead of the collection of mass of data, important and

to the point data that was needed by the organization was stored. This informations

retrieved from the raw data was used for preparation of entire management report and these

report helped in analysis. Thus the MIS that was implemented and helped in providing the

manager with information about sales, inventories, profitability and other data that would

help would help in managing Air India as an organization. MIS provides for reports based

upon performance analysis in areas critical to any plan, with feedback loops that allow for

titivation of every aspect of the business, including recruitment and training regimens. In

effect, MIS not only indicates how things are going, but why they are not going as well as

planned where that is the case. These reports include performance relative cost centers andproject that drive profit or loss and do so in such a easy that identifies individual

accountability and in virtual real time.

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Role of MIS in the financial Aspects of air India

Management Information System (MIS) in finance have been widely adopted in AirIndia since 2007-08. They are information system with capacity to maintain large data base

enabling organization to store, organize and access financial information easily. These

systems are primarily used for accounting operation and generation of financial reports.

Increasingly they are also used to support budgetary, planning and decision making

processes. These systems are credit with increasing financial transparency, efficiency and

accountability.

Management Information System in the Finance department of Air India helps

In providing timely, relevant and accurate information related to finance in order to

support better business decisions

Provides integrated financial information

Helps in flexibility of report and additional control over expenditure

Helps in providing a clearer view of budgets versus actual

Budget Planning

Financial budget planning uses project financial statements that serve as formal

document of managements expectations regarding sales, expenses and other financial

transactions. Thus financial budget are tools used both for planning as well as control. MIS

in finance helps organizations evaluate what if scenarios. By modifying the financial

ratios, management can fore see the effects of various scenarios on the financial statement.

MIS thus serves as a decision making tool, helping in choosing appropriate financial goals.

Route wise analysis reports

The route wise analysis reports that are generated in Air India gives a summary of all

the aircraft that do not meet fuel cost, aircrafts that meet fuel cost but do not meet cash cost,

aircraft that meet the cast but do not meet the total cost and aircrafts that meet the total cost.Thus based on this report generated various decision are taken by the management.

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Direct cost / Revenue ratio

The direct cost / revenue ratio gives the ratio of direct cost to revenue and thus helps inplanning and controlled the cost. It gives region wise and region wise station wise summary

reports of the direct cost / revenue ratio. Thus giving clearer view of how and where cost is

incurred.

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ROUTE ANALYSIS

Introduction

To soar over turbulent times, it is vital for airlines to save every single penny and

optimally utilize their assets to reduce costs and increase profitability. This calls for careful

analysis of various data and talking well - informed decisions. One of the key factors which

decide the future of an airline is Route Profitability.

Route profitability reports help in determining whether a particular route is profitable

or not during a given period of time. Route profitability analysis enable the management to

take decision on whether to change, add or eliminate routes from airline's schedule.

The focus of the Commercial/Planning department of Air India is to improve revenues

on route from various points of sales. Towards this, the commercial function is expected to

have a thorough understanding of the route and take actions on a regular basis to improve the

performance. In a continuously evolving market place the only constant for the commercial

function is a focused analysis of routes on a regular basis.

Thus the MIS section of the Air India generates the "Route Analysis Reports" monthly

in order to study the routes and to analyze and monitor them. Route analysis is the technique

to study routes and analysis to study routes and analysis hem a give time interval.

Features

Review performance on existing routes

Determine the viability of proposed new routes

Validate the actual flown information with defined masters

Build route studies for domestic and international destinations

Providing to define specific rates for landing, parking, technical handling, ground

handling and cargo handling based on time slots and aircraft types

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Preparation of the report:

36

ROUTE

ANALYSIS

REPORTS

FINANCIAL

SYSTEM

EXPENDITUMASTERS

(internal

system)

REVENUEKALE

CONSULTAN

TS

FLIGHT

MANAGEMENT


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Preparation of Route Analysis Report

The MIS in Air India has facilitated the development of comprehensive framework

for analysis of route performance and identifying revenue drivers to evaluate route

performance against identified revenue drivers to provide on demand analysis.

The revenue report of Air India is generated by Kale Consultants by extracting the data from

the respective stations. It is then forwarded to MIS Section of AIR India where the revenue

report is then combined with expenditure report, which is generated in the MIS section using

the FoxPro software. The update rates are taken from the internal system and the report is

generated. This report is then forwarded to Management, the Marketing department and the

Commercial/Planning department.

Analysis of the Report

The Route Analysis is done separately for domestic flights and international flights.

These flights are then categorized based on the following four conditions.

Services not meeting ATF cost

Services meeting ATF cost but not meeting Cash cost

Services meeting Cash cost but not meeting Total cost

Services meeting Total cost

Services not meeting the ATF cost are those flights that do not meet the fuel cost i.e. the

revenue generated by the route is insufficient to even meet the fuel cost. Since fuel forms

almost 40% of the total expenditure, if the service does not meet the ATF cost then it cannotmeet the other costs too.

Services meeting the ATF cost but not meeting Cast Cost are those flights that meet the

fuel cost but fail to meet the other costs like aircraft landing fee, navigation charges etc.

Cash cost is variable cost which is incurred when an aircraft is used.

Services meeting Cast cost but not meeting Total Cost are those flights that meet the cash

cost but fail to meet the cost. Total cost includes the operating cost as well as the non

operating costs.

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EXAMPLES:

The two major factors considered for the route analysis are the cost and the loadfactor.

Passenger Load Factor (PLF) is the ratio of Passenger kilometers (PKMs) to Available Seat

Kilometer (ASKMs), usually expressed as percentage. PKM is the product obtained by

multiplying the number of fare playing passengers by the distance in kilometers flown by

them. ASKMs are the product obtained by multiplying the number of passenger seats

available in an aircraft by the distance flown in kilometers.

The Cost considered for the route analysis can be explained as follows:

A. CASH COST

Aircraft Fuel And Oil

Material Consumption Including Outside Repairs

Aircraft Landing free

Navigation Charges

Charges for Handling by other Operators

Cabin Crew expenses and insurance

Operating Crew expenses and insuranceLegal Liability Insurance

Booking agency Commission

Food and cabin service amenities

Hire of aircraft

Dry lease rentals

PLI

B. FIXED COST (Direct)

Operating Crew salaries

Cabin crew salaries allowances

Engineering, stores, GSD staff salaries

Engineering dept stores, GSD Staff

Aircraft insurance

Depreciation aircraft

Obsolescence on spares

Material consumption including outside repairs

C. DIRECT OPERATING COST (A + B)

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D. FIXED COST (Indirect)

Publicity Sales And Tourist Promotions

Salaries other than crew and engineering

Depreciation other assets

Other fixed costs

E. OPERATING EXPENSES (C + D)

F. NON OPERATING EXPENSE

Interest and other Charges on aircraft Loans

Interest on borrowing

Finance charges

TOTAL EXPENSE (E + F)

The Summary of ROUTE ANALYSIS is as given below:

SUMMARY

How does the Route Analysis Report help the Management?

Route profitability analysis can be broadly classified into two based on business drivers:

Past Performance Analysis This is mainly done to determine whether the existing

routes are profitable or not

Forecast This to understand the viability of new route and the profitability forecast

of existing routes based on future prediction of cost and revenue.

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Past performance analysis: Whenever the report is submitted to the management, the

decisions are made keeping into consideration the performance of the route for the past 5 to

6 yrs. The management also checks whether the marketed section had done enough

marketing for the route. If the route was not well marketed then the changes of the loadfactor being less is more. Thus the route does not meet the required load factor due to the

lesser marketing done by the marketing department and thus it cannot be shutdown. Also if

the number of passenger is less as compared to the available seats then the aircraft type also

needs to be adjusted. Moreover if the fuel price increases every year then the previous

reports of the route cannot be the only source of decision making. Also the bilateral

agreements are considered before taking any decision on the routes.

Forecast: While past performance analysis gives a clear indication on the performance of

the routes, forecast indicates how a particular route is likely to perform based on various

parameters provided in these system. While some of them are more or less fixed there are

components which can vary dramatically.

Components that may have relatively low variations and thereby better control

includes cost like depreciation, interest, insurance, landing, navigation, ground handling, etc.

A component that has a great impact and which cannot be controlled by Air India or other

airline is the fuel cost.

On the revenue side, the airline has limited control though the sale and marketing

functions tries to keep this as high as possible. While the break even Load factor can be

arrived at by feeding various parameters based on experience and expectation, some of the

following questions will remain a challenge and can affect the profitability factor drastically.

What will be the fuel cost be 6 months form now?

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Chapter 6.

Direct Cost / Revenue Ratio

INTRODUCTION

Every organization generates revenue and also uses the revenue for various activities.

Thus it is necessary to keep a control on the expenditure by the various activities. This cans

be done by calculating the ratio between the costs incurred to the revenue generated. As a

result it becomes easy to figure out which activity needs more expenditure. In this way we

can control the cost incurred by the particular activity.

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Direct cost/ revenue ratio statement is a statement that gives the ratio between the

costs incurred to the revenue generated by the stations. A lower percentage is better since

that means expenses are low and earnings are high.

Direct cost/ revenue ratio statement is prepared for both, the online stations and the

offline station. An offline station normally refers to a station that is not represented by an

airline, but still capable of supporting that airline i.e. the airline might not fly there, but do

have officers around that area so that the station is still capable of supporting that aircraft

should it need to land there is an emergency.

EXAMPLE

Sr. No. Region Station

1 USA Houston, Los Angeles

2 Europe Geneva, Amsterdam

3 Southern India Coimbatore, Trichur

An offline station is a place or station that the airline flies etc.

EXAMPLE

Sr. No. Region Station

1 USA New York, Chicago

2 Europe Frankfurt, Paris

3 Southern India Cochin, Mangalore

Preparation of the report:

42 EXPENDITURE

MASTERS

(internal

system)

REVENUE

FINANCIAL

SYSTEM

DIRECT

COST/REVENUE

RATIO STATEMENT


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PREPARATION OF DIRECT COST / REVENUE RATIO

STATEMENT

The statement of direct cost / revenue ratio of stations are generated based on the data

collected in one year. It is generated only once in a year unlike the route analysis reports.

The report is generated from the data received from the stations. The revenue and the

cost of every activity is received from the station by the MIS section of IAr India and the the

report is generated.

ANALYSIS OF THE REPORT:

The direct cost/ revenue ratio statement is a report that gives the details of the

stations performance and also the performance of the region.

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The total cost incurred by a particular station is calculated on the various parameters.

These parameters include Pay Allowance, Staff Cost, Landing, Handling, Publicity, Motor,

Insurance, Commission, Rent Rates, Printing and Stationery, Communication and

Miscellaneous.

The major cost that is the fuel cost is not considered during the preparation of the

direct cost / revenue ratio statement.

There has to be an effective use of the above mentioned parameters in order to

control or reduce cost. The Pay Allowance can be controlled by reducing new recruitments

or by avoiding overtime performance. The Staff Cost can be reduced by controlling the

conveyance cost and the welfare cost. The Landing fee depends on the operations. IF the

cost related to the landing has to be reduced or controlled then there has to be use of better

equipment etc .The handling Fees is based on the contractor. The only way to reduce the cost

is to negotiate about the costs or to wait for the contract to get over and give the contract to

another contract that can provide the same service at a lower cost. The publicity cost is

incurred on entrainment etc and can be controlled by use of barter system. The insurance

cost is the cost related to the employee insurance etc. It does not include the aircraft

insurance. This cost cannot be reduced. Commission is directly related to the revenue

generated; this parameter too cannot be controlled. The rent rates can be reduced by

checking out region with lower rent. The Printing and Stationery, Communication and

Miscellaneous Cost can be reduced by controlling the use of the stationeries available.

The analysis is done keeping into consideration the report generated form past 5 t o

10 years. The bilateral agreements are also considered before taking any decisions.

How does the route analysis report help the management?

These reports are helpful to both management as well as the station heads for

following reasons:

The Management is able to judge the performance of each online/Offline

office

Station head are in a position to take effective steps in controlling expenditure

and increasing revenue, as any deterioration in their performance will be

reflected in the percentage of the region and the corporation as a whole.

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Chapter 7.

Revenue Expenditure Budget

Work of the section:

Preparation of the Annual Revenue & Expenditure Budget of the Corporation in the

form of the booklet for submission to the board for its approval

Intimation of the Annual Budget allotments, to the Outstations as well as the

departments at headquarters

Control over the expenditure of outstations by calling for quarterly returns of the

actual expenditure incurred within the approved allotments under certain specific

heads, and calling for explanations regarding variations

Comparison of Actual Expenses with the Budget Allotments Preparation of Direct / Revenue ratio of station for submission to the Commercial

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department and bringing out in detail the performance of individual stations on the

basis of their direct expenditure viz-a-viz revenue

Preparations of Monthly Report on Estimated Financial Result for submission to

Headquarters

Preparations of Quarterly Report, Performance Budget and other returns for

submission to Government Agencies

Preparations of Cost Analysis Statement

Submission of Data to the IATA

Information Required from the Stores & Purchases

Data obtained from the outstation and department at Headquarters:

The Corporations Overall revenue expenditure budget estimates for the current year

(revised) and next financial year are based on the information collected from outstation and

departments at headquarter. The information in the form of Budget Estimates is called for

the month of October. For this purpose standard formats (separate for online and offline) are

sent to outstation. (From 1) The format lists out the various Revenue Expenditure Account

Heads along with the account codes so that no errors may be made in grouping various

accounts under these specific heads. The outstations are also required to submit the

worksheets for the certain account heads such as Landing and Handling Fess, Route

Navigation Charges, Rent Rates and Taxes, Crew Allowances and Hotel Expenses etc. as per

prescribed formats, in support of the estimates.

The Budget Estimates for the current year and next year are required to be sent by the

outstation to the Budget Section by 30th November every year.

The Actual expenditure incurred during the first half (April/September) of the current

financial year, and the estimated expenditure for the second half (October/March) of the

current financial year are required to be given in the Budget Estimates Form. The total actual

plus estimated expenditure of the current financial year together with the actual expenditure

of the previous year form the basis on which the budget Estimates for the next financial

year are required to be prepared. The Winter Time table for the next year circulated to

stations also forms the basis for preparation of Budget Estimates.

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Some of the information called for department wise is a given below:

Planning Traffic Revenue:

Scheduled Services:

The Estimates of Revenue from Scheduled Services in respect of each route, and

each aircraft type in fleet with detail working for the remaining period up to March

and also for the next year is provided category wise as follows:

1. Passenger

2. Excess Baggage

3. Mail

4. Freight

The above information is broken down month wise by Planning Department

Revenue Pools:

The revised Estimates of Receipts / Payments in the revenue pools for current year

and estimates for the next year.

RTKM and PKMS:

Aircraft type wise, category wise and route wise for both years with month wise

years.

Commercial Department:

Opening of new Online / Offline offices

Particulars relating to opening of new online / offline offices during the remainder of

the current year and the next year giving estimated recurring expenditure

Closure of Online / Offline Offices

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Particulars relating to the effective date of closure transfer of sales staff and available

details of saving in cost / estimated loss of revenue.

Charters:

The estimate of number of flights, flying hours, route, revenue and load factors should be

give for the following:

Open Market Charters

Cargo Sub-Charters

The information is given for each aircraft type

Billing:

Handling and servicing receipts (Current year revised and next year)

1. Handling Revenue: - An estimate of station wise handling revenue shows the

revenue from regular contracts and casual operations. Details of additional

handling contracts which are likely to be obtained during the above period

and information on any of the existing contracts I likely to be terminated.

Above information is given aircraft wise.

2. Servicing Revenue: - The estimated revenue under this head covers overhaul

and defect rectification jobs form outside parties.

3. Aircraft type wise number of flights of other carriers handled at Indian

Stations.

Miscellaneous receipts under the following heads

1. Sale of Scrap

2. Hire of transport to outside parties

3. Loan of equipment to outside parties

4. Storage Commission

Number of staff to be taken for calculation of ATKM per employee

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Operations

Fuel and Oil (Aircraft)

Block fuel and oil consumption (US gallons per hour) in respect of scheduled flying

on each route and by aircraft type. Estimates of overflying Charges payable during the

current year and next year country wise. As regards Euro control charges, the anticipated

percentage increase in charges and the effective period is also advised by Engineering

Department. Estimated expenditure on Procurement and Issue Of Operating crew uniforms

during current year and next year separately giving details of item wise uniforms long with

cost thereof and the number of crew entitled for such uniform. A current list of Operating

crew, category wise stating Name of the Crew, Staff Number and Type of aircraft operated.

The crew layover pattern for the current year (winter time table) and the next year.

Information is given station wise, on number of sets and weekly layover days.

In-flight Services:

Estimated expenditure on Procurement and Consumption during the current year

and next year, in respect of:

1. Cabin services material (Consumable)

2. Cabin services material (Non Consumable)

Estimated expenditure on Procurement and Issue "of cabin crew uniforms during

current year and next year given separately, giving details of item wise uniform along

with the cost thereof and the number of crew entitled for such uniforms.

Aircraft type wise cabin crew complement

Crew layover pattern for current year and next year. Information is given station wise

and aircraft type wise

Airport Services:

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Estimated cost of consumption of spares for maintenance of ground support

Equipment and Transport Separately-Station wise

Estimates station wise cost of consumption of fuel and oil on operation of Ground

Support Equipment and Transport separately

Estimated station wise cost of outside repairs to above equipment

Estimated cost of spares on maintenance of Equipment, Provision required for

replacement of existing equipment and additional equipment is to be furnished

separately

Aircraft type wise number of flights handled for other carriers

Number of staff handling such flights category wise

This information is required both for the current year (revised) and next year the basis on

which the expenditure on Ground Support Equipment to be allocated to each aircraft type.

The other departments that give in their information are Publicity, Engineering, Stores,

Computer Division, Communication Division, Pay Accounts, Staff Claim, etc.

PREPARATION OF REVENUE EXPENDITURE BUDGET

The Preparation of the revenue expenditure budget is done in MIS section of the Finance

department in Air India. The MIS section sends a circular to the various stations and the

departments regarding the estimates needed for the preparation of the budget, This circular is

sent in the month of October November every Year. The stations and departments are

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supposed to submit their budget Estimates by December. The estimates received from the

outstations and the departments are thoroughly scrutinized and subjected to various checks

based on the latest available data in MIS section as well as the other sections of the

Accounts Department. The estimates after scrutiny are tabulated Account Head wise toarrive at total estimated expenditure of the corporation for each account head. The estimated

for some expenditure Account Head such as Landing Fees, Handling Charges, Route

Navigation Charges, Crew Layover and Crew Hotel expenses etc. are independently worked

out in MIS section and compare with the stations estimates and differences if any

investigated. The outstations are advised to breakdown the annual allotment into

monthly/quarterly allotments according to the expenditure anticipated to be incurred by them

during each month/quarter. The reasons for increase or decrease in the allotment as

compared to the estimates given by the station are mention in the remarks Column.

LAYOUT OF PREPARATION OF REVENUE EXPENDITURE BUDGET

51

Budget preparation

Revenue Expenditure

Scheduled

services revenue Other revenue DepartmentPreparation of Profit and Loss

A/C to submit to the Board

The approved Profit and Loss A/C is

then allotted to the stations and

departments accordingly


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Stations are required to monitor the progress of actual expenditure vis--vis budget

allotments under individual Heads of account on month to month basis to ensure that the

same does not exceed the allotments. If for any reasons, revision to the budget allotments is

required by stations, the proposal for revision with detailed justification is required to be

forwarded by the Station Head to the MIS section, duly vetted by Regional Finance and

Accounts Manager/Regional Accounts Manager. On receipt of the proposals for revision of

52

Stations

Estimates are scrutinized,

checked and tabulated account

Estimates of some expenditure account

heads such as landing fees, handling feesetc. worked out independently in finance


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the budget allotments, the same are examined in the MIS section after which the allotments

are revised or the status quo maintained according to the merits of each case and stations

advised suitably.

Chapter 8.

Enterprise Resource Planning

Introduction

Enterprise Resource Planning or ERP is an industry term for integrated, multi moduleapplication software packages that are designed to serve and support multiple business

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functions. An ERP system can include software for manufacturing, order entry, accounts

receivable and payable, general ledger, purchasing, warehousing, transportation and human

resources, Evolving out of the manufacturing industry, ERP implies the use of packaged

software rather than proprietary software written by or for one customer. ERP modules maybe able to interface with an organizations own software with varying degrees of efforts, and,

depending on the software, ERP modules may be alterable via the vendors proprietary tools

as well as proprietary or standard programming languages

The advantages of implementing ERP in an enterprise are:

ERP systems allow companies to better understand their business.

Companies can standardize business processes and more easily enact best practices.

By creating more efficient processes, companies can concentrate their efforts on

serving their customers and maximizing profit

ERP Oracle

Oracle delivers a comprehensive portfolio of applications and technology solutions to

help airlines reduce costs and enterprise risk by modernizing their operating platforms;

increase agility and operating efficiency by simplifying their application architecture;

increase customer loyalty personalized customer service; and enhance regulatory compliance

through automated controls. ERP Oracle provides a comprehensive platform to manage

back-office processes ranging from financial management and human capital management to

procurement and enterprise asset management. ERP Oracle also offers a comprehensive

suite of solutions for customer relationship management to help airlines identify, manage,

track and provide differentiated personalized service to customer at all airline touch-points:

pre-travel, and post-travel. ERP Oracle also delivers a powerful platform for aircraft

maintenance, Repair, and overhaul thats designed from the ground up for airframes,

engines, and components.

ERP Oracle in Air India

The ERP Oracle System is implemented within the enterprise with the objective of making

information in Air India in the year 2007 08. The System is designed to integrate all areas

of the enterprise including financial accounting and inventory. ERP Oracle improves the

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performance of the organization in terms of resource planning, management control and

operational control. By the implementation of Oracle, Air India could easily reduce costs,

maximize asset utilization, and enhance the customer experience so that they can retain and

grow their customer base in an intensely competitive environment

The benefits of implementing ERP Oracle in Air India:

TIME SAVING:

The implementation of ERP Oracle has led to speeding up all of the activities of

Air India. Since the database is large, the data can be stored and accessed whenever

needed. The retrieval of data is also done fast.

ACCESSIBILITY:

Information can be easily accessed throughout the enterprise in real time.

HELPS IN DECISION MAKING:

Gives managers and senior executives the ability to monitor activity, strategically

Plan and make timely decisions.

INTEGRATION:

Integration can be the highest benefit of them all. The only real project aim for

implementing ERP is reducing data redundancy and redundant data entry.

Drawbacks of ERP Oracle:

Any software will give accurate information only if the data is entered in it

accurately and on time.

The ERP system designed for the Finance Department of Air India

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ERP FINANCIAL ACCOUNTING

s

ERP SAP

56

Accounts payables

Supplier

Invoices & Payments

Purchasing &

Inventory

Accounts

Receivables

ORACLE GENERAL

LEDGER

Cash

Management

Fixed Assets

Treasury

Transfer of

AR INTERFACE

DSDC (Booking Office

Sales)

Misc. Billing System

GL INTERFACES

Revera (Pax

Revenue)

Cargo sales

AIEAS (Staff

Disbursements)

Payroll


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While confronting current challenges, Air India must prepare for new opportunities

in emerging markets, modernize their fleets with more fuel efficient air craft, and leverage

technology to personalize the customer experience across the travel lifecycle. In order to

have a better interface between the new modules in the enterprise, Air India is planning toimplement ERP SAP in the coming years.

ERP SAP provides cargo and financial business process optimization for Air lines

managing freight.

Relentless focus on cost effectiveness, yield maximization and regulatory compliance

requires comprehensive visibility of business performance and the agility to manage change

effectively.

To help address this Air India has teamed up with IBM, a world leader in financial

and enterprise resource planning (ERP ) solutions, to create a new, dedicated air freight ERP

platform which will enable airlines and freight handlers to realize important cost savings,

optimize revenue-generating opportunities, and rationalize all aspects of operations.

The Board of directors of National carrier Air India on 28 th September 2010 approved

the implementation of the SAP Enterprise Resource Planning Project. The implementation of

the ERP Project is in line with the business objectives and strategy of the company for

affecting a turnaround.

ERP SAP aims at creating interfaces between the modules which will help in better

communication between the various departments of AIR INDIA. This reduces the

redundancy of data and helps in faster accessibility. Some of the interfaces to be

implemented are

PSS (Passenger Service System) which will have all the data regarding the

passenger information that can be further used for processing.

HRMS/ payroll,

AMBER- cargo interface,

IOCC (Integrated Operations Control Center)

MBS

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The benefits which will accrue to Air India are

ERP-SAP will help in analyzing data in terms of profits centers and cost centers.

Integration of key business functions in the erstwhile NACIL(A) and NACIL(I)

Seamless integration with other systems and ensuring availability and consolidation

of critical data and information.

Improved profitability by availability of real time information on route network and

profitability. It will help in analyzing data generated flight wise, route wise etc. Thus

helping the management in better and faster decision making

Better reliability in revenue accounting.

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Chapter 9.

SWOT ANALYSIS OF AIR INDIA

STRENGTHS:

Air India has been the largest air carrier in India in terms of traffic volume and

company assets.

It owns the most updated fleet and competent repairs and maintenance expertise.

Its information systems are advanced and compatible with its operation and service.

Air India does not serve it customer but treat like a god (atithi devo bhava)

It has a good reputation in both international and domestic markets, quality service

and the age-old Goodwill that has still kept it alive in the interests of the rescue

operators.

Has financial backing of the Government.

WEAKNESS:

Air India is operating across broad international and domestic markets competing

with world leading giant airlines as well as local small operators. This lack of clarity

on the strategic direction largely dilutes its capabilities and confuses its brand within

markets.

Low profitability and under utilization of capacity.

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Growing Competitor base and entry of Low-Cost Carriers (LCCs).

The airlines high-cost structure and the compulsions of being a public sector unit are

the reasons and it had been making a loss and shall continue to make losses for some

more quarters.

Payment of Employee :- 27000 employee are working, so giving the payment to huge

number of employee in not a easy thing.

OPPORTUNITIES:

India airline industry is growing faster and will continue to grow as the GDP

increases, and the trend is predicted to continue once the slowdown recedes.

Worldwide deregulations make the skies more accessible; the route agreement is

easier to be achieved. The number of foreign visitors and investors to India is increasing

rapidly.

Complementary industry like tourism will increase demand for airline service. The

Civil Aviation Ministrys strong regulation and protection provides opportunities for

consolidation and optimization.

Customers are getting wealthier, tend to be less price-conscious and prefer to choose

quality service over cost.

Best time for introducing LCCs.

Untapped market where bilateral agreements are there

THREATS:

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Air India faces imminent aggressive competition from world leading airlines and

price wars triggered by domestic players.

The Indian Railway Ministry has dramatically improved speed and services in their

medium/long distant routes, attracting passengers away from air service, with prices

almost at par with the low cost carriers.

OBJECTIVES OF THE STUDY

Primary objective

To study the important factors which are needed to implement on MIS

Secondary Objective

To study the effect of monetary and non-monetary benefits provided by the

organization

To study the effect of Cost profitability ratio on Organization

To provide the practical suggestion for the improvement of organizations

performance

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Chapter 10

Findings and Interpretations

Cost driver rate is the basis on which cost drivers can be associated to the cost

categories in co-ordination with the volume-based cost drivers and related operation-based

cost drivers. Cost driver rate depends on the factors upon which the cost of individual

elements is calculated and the manner in which these cost drivers can be used in calculating

the overall expenses.

Fuel Cost

Fuel costs depend on the quantity of fuel uplifted during a flight. The operation-based cost

driver rates are:

1. Estimated block hoursThis depends on the aircraft to be operated and also on distance between the origin and the

destination.

2. Average consumption per block hour

This depends on the aircraft to be operated and also on the sector to which it is to be

operated.

3. Average cost per gallon

This depends on the quantity of fuel uplifted by the aircraft and the cost of fuel at each

uplifted station.

Hence, the technique of allocation fuel cost per flight is:

Fuel Cost = Estimated Block hours x Average fuel consumption x Average Cost per

per block hourgallon of

fuel

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Average Cost per = (Fuel uplifted at station i x Price of fuel per gallon at station i)

gallon of

fuel

Price of fuel per gallon at station i

where i = 1,2,3,..n

Crew Cost

Operating crew and cabin crew cost for a flight depends upon the number of crew operating

an aircraft on its scheduled flight. The operation-based cost driver rates are:

1

.

Crew salaries

This is a fixed cost as salaries for operating crew are fixed. The salary can be allocated to the

flight based on the total flying hours of a crew member in a year. In a year, an operating

crew and cabin crew members can operate for a maximum of 1000 hours and 1800 hours

respectively. Assuming that every operating crew member completes the 1000 hours time

limit and cabin crew completes 1800 hours of service; their salary can be allocated to theflight.

2

.

Crew allowances

In addition to salary, crew members are eligible to receive flying allowances for the operated

block hours. This allowance is directly proportional to the flying hours operated by the crew

members.

3

.

Crew expenses

Air India is responsible for arranging the conveyance, accommodation and lodging of crew

members when they are on duty or stationed at any destination away from their base station.

Conveyance of the crew members needs to be facilitated from the residence to the airport

and vice versa at the origin and destination. These expenses are directly proportional to the

number of crew required for a flight.Hence, the technique of allocation crew cost per flight is:

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Operating Crew = (Total Salary/1000 + Flying Allowance) x Flying hours

Cost+ Operating Crew Expenses x Number of Operating Crew

Crew = (Total Salary/1800 + Flying Allowance) x Flying hours

Cost + Operating Crew Expenses x Number of Cabin Crew

Maintenance Staff Cost

Maintenance labor cost is directly proportional to the maintenance performed on an aircraft.

The maintenance performed on an aircraft is directly proportional to the flying hours of the

aircraft. Thus maintenance labor cost can be allocated as per the flying hours of the aircraft.

The operation-based cost drivers rates are:

1. Engineering department salaries

This is a fixed cost as salaries to engineering department staff are fixed. Aircrafts are

subjected to maintenance checks depending upon the flying hours of the aircraft. Thus, each

flying hour of the aircraft contributes towards maintenance. Engineering department salaries

can be allocated based on flying hours of aircraft.

2. Additional hours staff cost

This is the cost incurred due to unexpected maintenance arising apart from the scheduled

checks. Staff is then required to work for extra hours for which they are paid overtime

allowances. This is a variable cost since there is no basis for expecting such maintenance.

3. External Maintenance Overhead

This is the cost incurred due to maintenance activities being outsources to external parties.

When maintenance facilities cannot be performed within Air Indias engineering facilitiesdue to lack of resources, unavailability of facilities, machinery not functioning etc.

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maintenance functions are performed by external companies that are capable of performing

the required maintenance services. This component is variable, since the occurrence of such

events cannot be exactly forecasted.

Hence, the technique of allocation maintenance labor cost per flight is:

Maintenance = Engineering Department Salaries + (Additional Engineering Labor Cost +

Labor Total block hours of all

aircrafts

External Maintenance Cost +

Cost in a year online station

Block hours of the aircraft in a year

AB = (A + B) x Block hours of the flight

Operation Statistics

Operation statistics are the methods used for measuring the efficiency and profitability of

operating a flight. It involves comparison of volume based drivers, operation expenses and

operation revenue. The operation statistics are benchmarks for decision making process. Thestatistical measures used are:

1. Passenger Load factor

It is the ratio of RPKM to ASKM. It presents the capacity utilization of aircraft in terms of

passenger seats.

Passenger Load factor = RPKM

AKSM

2. Overall Load factor

It is the ratio of RTKM to ATKM. It presents the capacity utilization of the aircraft in terms

of passenger seats, cargo, mail and excess baggage.

Overall Load factor = RTKM

ATKM

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3

.

Cost per ASKM

It is the ratio of total operating expenses to ASKM. It presents the cost incurred by the

airline for operating one passenger kilometer.

Cost per ASKM = Total operating expenses

ASKM

4. Passenger Revenue per ASKM

It is the ratio of passenger revenue to ASKM. It presents the revenue earned by the airline

per booked passenger for operating one passenger kilometer.

Passenger Revenue per ASKM = Passenger Revenue

ASKM

5. Total revenue per ASKM

It is the ratio of total revenue to ASKM. It presents the revenue earned by the airline for

operating one passenger kilometer.

Total Revenue per ASKM = Total Revenue

ASKM

6

.

Cost per RPKM

It is the ratio of total operating expenses to RPKM. It presents the cost incurred by the airline

for operating one revenue passenger kilometer.

Cost per RPKM = Total operating expenses

RPKM

7. Passenger revenue per RPKM

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It is the ratio of passenger revenue to RPKM. It presents the revenue earned by the airline

per booked passenger for operating one revenue passenger kilometer.

Passenger Revenue per RPKM = Passenger RevenueRPKM

8. Total revenue per RPKM

It is the ratio of total revenue to RPKM. It presents the revenue earned by the airline for

operating one revenue passenger kilometer.

Total Revenue per RPKM = Total Revenue RPKM

9

.

Cost per RTKM

It is the ratio of total expenses to RTKM. It presents the cost incurred by the airline for

operating one revenue ton kilometer.

Cost per RTKM = Total operating expenses

RTKM

10. Passenger revenue per RTKM

It is the ratio of passenger revenue to RTKM. It presents the revenue earned by the airline

per booked passenger for operating one revenue ton kilometer.

Passenger Revenue per RTKM = Passenger Revenue

RTKM

11. Total revenue per RTKM

It is the ratio of total revenue to RTKM. It presents the revenue earned by the airline for

operating one revenue ton kilometer.

Total Revenue per RTKM = Total Revenue

RTKM

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Chapter 11.

Implementation of Study - Cost Accounting Tool

Implementation of study is the final stage when the findings from the study will be

implemented in the form of a tool that can be used for aircraft operation related forecasting

to take real-time decisions. The tool will act as a decision making mechanism by considering

past operational data and utilizing it for future operational situations for the airline.

Tool creation methodology

Understanding the target users

The tool can be used by staff of Air India involved not only in the planning function

but also in the budgeting and costing functions. Planning and budgeting would make use of

historical data whereas costing can be done by use of actual data. To ease the use of tool, it

will consist of automatic calculations by the tool when the required selections and data are

provided to the tool.

This tool is designed in a manner such that it can be used for middle level and top

level management decisions. Middle level decisions regarding cost involved in each

category and sub category will require details of the costing model. Top level decisions

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regarding reaching the decision requires statistics that can be used as benchmark and support

for decision making.

Selecting appropriate platformThe department staff is well acquainted with the use of Microsoft Excel. Most of the

reports and invoices are in the form of Excel worksheets that are used on a daily basis. Thus,

using the same technology to implement this tool will help in easy understanding and better

utilization of the tool by the staff.

Creation of tool

The tool is a physical implementation of relations found in the analysis. The tool

accepts values in the form of estimated number of passengers, cargo load, mail load and

excess baggage load. It also accepts values from users related to costs of various cost drivers.

Using the relations computed from analysis ope

MIS of Air India Under Dr. Kinnarry Thakkar

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