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Can Air India Reinvent Itself?

February 27, 2015

Air IndiaAir India – The Legacy

Founded as Tata Airlines in the year 1930, Air India has been the flag carrier of the nation for a little less than a century now. The airline, which once owned over 60 percent of the domestic market share (as Indian Airlines), has been in doldrums for almost a decade. Private airlines have become more competitive and this state-owned carrier has been going downhill, much to the ire of the country. Despite being the third largest airline in the country (after Indigo and Jet Airways), Air India now has a market share of only about 19 percent in the domestic airspace.

Financial Losses

In FY 2011-12, Air India reported a loss of INR 7559.7 crore. For the following financial year (FY 2012-13), the airline reported a loss of about INR 5490.2 crore. By early FY 2012-13, the airline had reported a debt of INR 42,570 crore. A Comptroller and Auditor General (CAG) report from 2011 cited two important reasons for the financial woes of Air India:

  1. An ill-considered merger with Indian Airlines (February 2011)
  2. An order to purchase 50 medium and long-range planes at a cost of about USD 7.2 billion, and 18 other planes for Air India charters (despite the lack of budget)

In April 2012, the government of India announced a graded equity infusion of about INR 30,000 crore between 2012 and 2020 to help revive the national carrier. There was much dissent about the government’s decision to invest public funds into the enterprise and it became apparent that Air India had to make a turnaround and show some measure of success. In FY 2013-14 as well, Air India posted an operating loss to the amount of about INR 2,123 crore. Financial restructuring and improvement in performance resulted in the first positive EBITDA (earnings before interest, taxes, depreciation, and amortization) in almost half a decade. Operating losses last fiscal year were about 44 percent less than the previous years.

Loss Making Routes

According to a late 2014 report, Air India finds only six of its 370 daily flight routes profitable. The then Minister of State for Aviation, Mr. Mahesh Sharma informed the Indian Parliament that Air India was making a profit on only about three international routes and six domestic flights. None of these profit-making international flights connects India with either Europe or the US. The pertinent question is that with almost 97.5 percent of its daily routes incurring losses, why the airline’s management has not made adequate efforts to pull up the services and profitability. Instead, Air India seems keen on shutting down some key routes. In May 2012, the airline shut down the Amritsar-Delhi-Toronto flight citing a loss of INR 164 crore (FY 2011-12). The India-Canada route is rather profitable for other airlines. For those who don’t know, Canada has an Indo-Canadian population of about 12,60,000.

Air India flies to 64 domestic destinations and 34 international destinations in all.

Customer Relations and PR Failure

Unlike other private airlines that go out of their way to assist customers and address travel-related exigencies, Air India has remained infamous for its unyielding rudeness. A video, which has gone viral on Social Media sites shows Air India staff disallowing passengers from boarding for reaching the counter 55 minutes before the flight’s departure instead of 60 minutes. Other airlines generally allow passengers to board till 45 minutes to the flight. The incident is not an isolated one and one of many complaints that Air India passengers have been frequently raising.

Inability to Retain Staff

HR issues such as employee attrition, indiscipline, and non-conformity with DGCA guidelines have been major issues haunting the organization for many years now.

In November 2014, news reports announced that about 50 pilots and a number of other employees had resigned from their service in Air India following a drastic cut in salaries and other allowances. The national carrier also reported an acute shortage of cabin crew.

Reports from early February 2015 indicate that 10 other pilots have resigned due to changes in the employment conditions enforced by the airline. While starting out as full-time employees these pilots were later asked to serve as contractual staff. The financial woes of the organization have also led to a decrease in the post-retirement benefits – a move that has been protested vehemently by the staff.

In September 2014, it was also reported that about 102 pilots of Air India had been flying with lapsed licenses. Most of them were operating the airline’s Boeing fleet.

Is Revival a Real Possibility?

By May 2014, the government of India had injected about INR 13,200 crore into Air India by way of equity infusion. The NaMo administration, in its maiden budget had earmarked INR 6,500 crore for equity infusion into the airline. However, with budgets being cut to meet the fiscal deficit target, it is unlikely that Air India will receive the entire amount in 2015.

A number of airline industry veterans believe that the only way ahead for Air India is to demolish the existing set up completely and rebuild it from scratch. Sir Timothy Clark, the President and CEO of Emirates, is a firm advocate of such an action to rid the airline of its legacy issues. In his interview to the Economic Times in 2014, Sir Clark said that if the government attempts to privatise Air India completely, it is unlikely that the airline shall find takers in its present form.

With the government mired in the airline’s administration, legacy issues loom large and business objectivity seems non-existent. Efficient staffing will be the key to transforming and reviving the airline. However, it remains to be seen if such a revival is possible while withholding the existing structure and administration.


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