To an outsider, it may seem as if the once proud Indian national carrier – Air India – is on the brink of bankruptcy. And there now is a real issue about the airline’s future. Will Air India go bankrupt? What made it to fall to this situation? And how could it be saved from this situation? We’re going to find out.

The airline’s present issues came to light when a report by the Indian Auditor General was released criticising then Minister Praful Patel’s decision to buy 68 aircraft from Boeing. ”The entire acquisition was to be funded through debt ..  [and was a] recipe for disaster” said the report, adding that the assumption that an increase in capacity would lead to a rise in market share was “unduly optimistic”.

 What really caused the problems?

While the report mainly centers around the former minister’s decision to renew the airlines’ ( Air India and Indian merged shortly after ) fleet, this is far from the root of the airline’s problems. While the order might have become too large in Air India’s present situation, it was the poor execution of the fleet renewal and the airline’s overall strategy which has made it so. In fact, in my opinion there was nothing wrong with the order. Air India’s fleet was ageing and it was falling behind the competitors on service levels. What should Air India have ( AI ) done was to create a long-term strategy for its network and to assign the new deliveries accordingly. If it had any difficulty in payments, it could have deffered the deliveries. Unfortunately, Air India hardly seemed to have a strategy. This lack of strategy was a key issue that I pointed to, when I wrote about what could eventually happen to AI, and how to save it, back in 2009.

Instead of implementing the new capacity under a proper plan, AI seemed to simply assign the aircraft without any strategy in place. This inefficient use of capacity was evident by the moves such as using narrow-bodied Airbus A320 series aircraft on major trunk routes out of Delhi to Bangkok and Singapore. And the airline opted to the 1960s strategy of creating a hub in Europe in order to fly to the US. This led to a dilution of revenue and dragged down the long haul fleet’s utilization.

A merger went wrong

The decision to merge AI and Indian Airlines, in fact was a necessary step at the time. The two airlines had conflicting market interests and there was a host of cost savings that could be achieved by the synergies of a merger. But it was never executed properly. The fact that the merger took four years to be comleted explains it well.

The lack of strategy and inefficiency

In an ideal world, the two airlines should have carefully constructed a plan and defined the future strategy for the now merged single airline. Without wasting time, they should have taken a thorough review on the performance of its routes and taken steps to curtail the losses and improve the performance. They should have aligned their fleets and the crew resources, and utilized them far better. They should have deferred the new aircraft deliveries when they felt that the demand was decreasing. They should have expanded Air India Express’ ( the low-cost arm of AI ) operations and used it to fight the competition.  And they should have launched a proper marketing campaign aimed at uplifting the airline’s image. Instead, Air India worked at the snail pace.

And as a result, AI today is saddled with a huge debt and a considerably overstaffed workforce. But it is still not too late to solve the issues, and make Air India a proud national airline again. Here’s how.

The solution

While partly privatizing the airline will be a great move forward, it is unlikely that the Government of India will agree to a such measure anytime soon. Hence it is of utmost importance that the airline be properly restructured.

Air India, over the years, has always been lead by an industry outsider with little to no industry knowledge. The airline industry is unique in the sense that it has very little profit margins compared to other industries and a management with a sound knowledge on how the industry performs is essential – specially when you’re trying to bring back a debt-ridden airline into stability. So that it is very important right now that AI appoints a management team with very good industry knowledge and the ability to steer the airline forward. While there are many suitable executives from overseas, it is also likely that there are more than enough talented Indian nationals if the government prefers to have a local management team.

 The network

Rationalizing AI’s network is critically important at this stage. The following measures can be suggested to improve the network’s performance.

Long-haul network

• Cut loss making routes (as obvious!)
• Define the long-haul network’s hub strategy to exclusively focus on Mumbai and Delhi
• Instead of routing the majority of flights via both Delhi and Mumbai, create a shuttle between Delhi and Mumbai airports
• Use smaller sized aircraft ( this is where the 787 would help) to operate frequent nonstop services out of both Delhi and Mumbai to key business destinations
• Cut services to U.S till the rest of the network’s performance improves
• Avoid any kind of scissor-hub activity at any cost, and make the flights to U.S destinations go nonstop

Medium Haul network

• Increase the flying activity to key regional destinations
• Focus on the trunk routes by using larger capacity aircraft
• Create focus cities with two to three based narrow-body aircraft to operate services to major regional points, this will enable AI to counter the competitors better
• Increase Air India Express’ flying on key routes with intensified competition
• Expand services into Southeast Asia and try to attract as many new tourism opportunities as possible
• Focus on improving connecting traffic

Short haul and domestic network

• Rationalize the ex- Indian Airlines’ network and cut services on routes where operating is no longer sustainable profitably
• Create shuttle schedules between major cities
• Create connections into Delhi and Mumbai’s hub flows
• Introduce Air India Express services on routes that are presently loss making for AI

( Expect a more detailed piece on how AI’s network should be shaped, soon)

Fleet

The airline should aim to increase the utilization of its fleet. The surplus aircraft after the route rationalization should be leased out or returned to the lessor, depending on what turns out to be the least costly.

The long-term fleet of Air India should be rationalized as below

• Airbus A320 series
• Boeing 787-8
• Boeing 777 series

Other areas

AI should focus on more stringent revenue management coupled with better marketing to position itself as a reliable, friendly and vibrant carrier among the travelling public. The airline should take advantage of Air India Express in a way similar to Qantas – jetStar to explore new opportunities and to keep the bottom line healthy. The airline must take bold steps to reduce its excess overstaffing level. All the related stakeholders need to realise the urgency of the situation and understand that half measures won’t do. The Indian government needs to persistently support Air India through this restructuring mission, including regarding possible lay-offs, if it wants Air India to emerge as a successful national asset, and one that it can be proud of, in the future.

Originally posted on Airline Industry Review

Air India is sinking and long gone is the golden era of J.R.D Tata, no doubt. But the Indian government does not want it to sink, so what can be done to keep it afloat ? That’s what we’re going to discuss now.

Bjoern Schmitt – World of Aviation

The Indian government had stated about turning Air India into a low-cost airline and while this would not be a complete solution, something along the lines of what Shashank Nigam suggested would be worth looking at.
Whatever it takes, Air India needs to do a boatload of cost cutting and needs some serious business discipline. To make this a reality, they need a good CEO and a sound management team. I would not suggest that they must appoint a foreign national, but I personally wonder whether they’ll be able to find such a capable and experienced airline executive from India. Someone with talents similar to Temel Kotil, Robert Fyfe or Tony Fernandes would be a good fit for the ailing national carrier.

M. Azizul Islam

Rationalization
Air India currently has four divisions – Air India Express, Indian, Air India Regional and Air India itself. While diversifying the business is good, there is a clear overlapping in the missions of these airlines. To avoid this, Air India needs to rationalize its units.
Three units could be enough
1. International arm
2. Domestic arm
3. Low cost arm

A favorable approach would be making Air India international only, Indian domestic only and Air India Express the low cost carrier.

Branding
It is pretty evident that Air India is not a strong brand. While there is a lot to be done to make a strong and resembling brand, Air India needs to simplify and unify its brand, do some good marketing and live up to the expectations. That would be, delivering what it promises and promising only what it can.

Service levels
Again, Air India needs to simplifly its service levels and promise the customer what it can deliver. But to compete, Air India also needs a strong product – but this should not be hurting the bottomline. So, the current product onboard its 777 could be accepted, but they need to unify it throughout all of its long-haul fleet. Fare structures should also be more simple and the low-cost domestic service could be a good solution.

Fleet
Air India’s fleet rationalization is a must, but securing financing for its huge backlog will also not be an easy task. Hence Air India needs to increase utilization and in the same time, phase out older aircraft. Deferrings and cancellations must not come at the cost of cutting the service.

A fleet similar to the following would be nice.

Airbus A320 family – to be operated by Indian on domestic and regional routes
Boeing 737-800 – to be operated by Air India Express
Both of the above fleets should be replaced by a single fleet type when their synchronization occurs when Airbus and Boeing will have developed their next generation narrowbody

Airbus A330-200 – to be operated by Air India and medium and long-haul routes.
To be replaced by 787-8

Boeing 787-8 – to be operated by Air India

Boeing 777-200ER/200LR/300ER to be operated by Air India

The Boeing 747-300s should be immediately phased out. A310-300s should also be phased out soon since this aircraft does not perform a special mission and could be easily replaced by the A330s but could also be converted into freighters. The Boeing 747-400s can stay in the fleet for a few more years.
The cargo fleet should consist of the A310 freighters and if possible, 777-200LRFs.

New Air India Economy class. Lasse Kaila

Expansion
16 international destinations never help Air India to compete with the likes of Emirates and Etihad who continue to steal Air India’s traffic and Air India should rapidly expand. This investment would be worth it when the market returns to normal.

For the moment, new A330-200 flights should be launched to
Sydney, Australia (SYD)
Manchester, United Kingdom (MAN)
and,
Milan, Italy (MXP).

The Singapore and Bangkok services currently operated by Indian should be transferred to Air India . Air India should use its 777-300ER equipment in both of these routes ( for use on a daily BOM-SIN and DEL-BKK ) and compete effectively and somehow regain its lost market share.

More new destinations should be added when 787-8 begin to arrive.

If Air India is able to complete the above steps successfully, it could enter a good path to success. But the government should also keep in mind that profits do not come overnight and should make sure not to spoil the carrier and also to keep it free of politics.

What do you think of the above plan ? Please leave a comment. I may have made some mistakes, so make sure to point out them too.

Originally posted on Airline Industry Review