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Air India’s turn-around plans revealed

Thanks to friends at Airliners-India, we have managed to secure highlights of Air India’s turnaround plan as it proposed to be presented to the government.

In a very straight forward approach, reflective of the work culture of Chairman and Managing Director Mr. Arvind Jadhav, the report does not pull any punches.

As an example — fleet acquisition. It is well known fact that many in the government are partial and friendly to the private airlines. Fleet procurements at Air India were needlessly held up at a time when the Indian airline market was exploding thus giving advantage to airlines like Jet Airways. Now that the fleet is being renewed there is criticism.

It is very sensible that Air India is going for customer service advice to Singapore Airlines — the airline it helped found, and which is today undoubtedly the leader in on-board customer service.

Some bold steps announced in this plan include a clear roadmap towards an IPO. It remains to be seen if the politicians and bureaucrats will let this Kamadhenu slip out of their control.

Readers will also observe there are only oblique references to the politically explosive subject of “people rationalisation”.

Thanks to a political class that panders to its vote banks, over the years, Air India has accumulated over 20,000 excess staff with a wage bill three times that of a comparable private airline. The strong unions promoted and protected by the various political parties have ensured the staff of Air India have become a pampered lot, full of sloth, expecting to be paid for no work.

I strongly recommend a reading of Mr. Jadhav’s interview.

Highlights:

Global Aviation Industry is currently going through the most difficult phase. Airlines have collectively lost over US $10.4 billion last year, and are estimated to lose a further US $9 billion this year, of which US $2 billion (Rs 10,000 crores) will be the share of Indian carriers. With Air India operating in a global environment, the national carrier has been impacted as adversely as other airlines the world over. [Bangalore Aviation readers will recall the statistic “Air India contributes 10% of global airline losses with just 0.35% of global traffic” was first seen here].

The causes for the losses suffered by Air India need to be viewed in the perspective of:

  • Escalating costs, particularly of ATF [Aviation Turbine Fuel].
  • Fewer passenger numbers, particularly in the premium class.
  • Low fares with a gradual shift of passengers from legacy full service airlines to low cost airlines.
  • Decline in carriage of cargo.
  • Excess capacity in a ‘falling’ market.

As the existing downturn is expected to continue, Air India has initiated several measures for operational and financial turnaround. The measures proposed for attaining these objectives are:

  • Product upgradation through improved on time performance and enhanced customer touch point experience.
  • Seamless connectivity from interior points of India to destinations abroad.
  • Pre-mature retirement of old aircraft, including leased aircraft, and their replacement with a newer fuel efficient fleet.
  • New aircraft with best-in-class passenger amenities.
  • Rationalization of routes and capacities.

These measures will enable Air India to achieve higher passenger revenues through improved load factors and increased yield.

The management will simultaneously focus on increased revenue generation through allied businesses like cargo, engineering and ground handling.

Hard Facts

  • Air India has never received budgetary support, except for the initial equity.
  • Past fleet acquisitions by Air India have always been financed through internal resources. In the past 20 years alone, 41 aircraft worth US $3 billion were self-financed.
  • Air India also inducted leased aircraft to augment capacity, without any government support.
  • Aircraft acquisition after a 15-20 year gap has resulted in a large fleet order and high debt burden.
  • In the last 3-4 years the entry of low cost carriers has caused the aviation tariff structure to transform from a cost plus to a market driven pricing structure, with capacity exceeding demand.
  • Internal resource generation in the current context is insufficient to fund aircraft acquisition costs.
  • The magnitude of debt burden and rising cash deficit in a ‘falling’ market necessitates aggressive financial restructuring (capitalisation and debt restructuring).
  • There are several national carriers across the world who have received financial support from their respective Governments e.g. Japan Airlines, China Southern, China Eastern, British Airways, etc.
  • Air India and erstwhile Indian Airlines have contributed an amount of approximately Rs. 4500 crores [$1 billion] by way of taxes, duties and dividends to the exchequer.

Air India Roadmap

  • Focus on execution, accountability, cost reduction and revenue generation.
  • Adopt international best practices in airline operations, MRO activity, airline terminal
  • services, cargo, aviation skills development, corporate governance and HR.
  • Be accountable to the stakeholders.
  • Current market pressures are expected to continue over the next 2-3 years. Therefore the only option available is the rationalization of costs without losing sight of the long term requirements of Air India.
  • Route rationalization and route profitability:
    • NACIL [National Aviation Company of India Limited – the owner of the Air India brand] will enhance focus on LCC [low cost carrier] for high density domestic/international routes,
    • will undertake an aggressive route restructuring for seamless connectivity facilitated by 6th freedom traffic rights, Star Alliance network and other code shares with airlines for routes where NACIL has nil or insignificant operations.
  • Revenue generation through better revenue and yield management, greater customer segmentation and adoption of more effective CRM practices.
  • Creation of subsidiaries for Maintenance, Repair & Overhaul (MRO), Ground Handling and Cargo to fully leverage existing capabilities, reduce overheads on airline operations and create new sources of long term revenue generation.
  • Manpower rationalization to achieve industry benchmarks. Utilization of assets and operating/technical crew as per DGCA/FAA/JAA.
  • Monitor Operational Quality and Efficiency by initiating business process, inventory and IT audits through independent agencies.

Fiscal Year ending March 2010
Focus on ‘Survival’

  • Operational restructuring
  • Cost Reduction
  • Revenue Enhancement
  • Financial Restructuring

Fiscal Year ending March 2011
Focus on reducing losses

  • Business restructuring
  • Low cost model,
  • Subsidiaries for Cargo, MRO, etc.
  • Brand building and Makeover
  • Preparation for IPO

Fiscal Year ending March 2012
Deliver the ‘future’ Air India with healthy operating margins

  • Additional Public Offers to public, Indian financial institutions, qualified institutional placements
  • Adopt a robust Enterprise Risk Management framework to eliminate redundancies and minimize dilution of revenues.

Employee Participation in Turnaround Process

Air India has constituted committees to address issues of turnaround. For the first time, Air India management has engaged workers through their representative unions on these committees, so that their experience can enrich the turnaround process. The committees will work in areas such as route rationalization/schedules, manpower rationalization, green
initiatives, integration, procurement and contracts, engineering, customer feedback, safety, alliances and turnaround strategy.

Brand Building and Makeover

  • Tie-up with major hospitality chains for service standard training and makeover for cabin crew, customer handling and sales functions.
  • Tie-up with Singapore Airlines for cabin crew training
  • Periodic Customer Satisfaction Surveys through independent agencies will be undertaken.
  • NACIL will focus on F & J [first and business] class, leisure travel to improve yields. Aggressive brand harmonization across key customer interfaces will become the prime directive to increase brand loyalty.
  • NACIL will undertake strategic initiatives to ensure market presence and continuity by fast tracking entry into Star Alliance, improving the existing loyalty programme, and commercial process transformation supported by an enterprise-wide IT transformation that will allow NACIL to achieve international quality levels in terms of delivery and service. Some of the key systems that will enable this transformation are Enterprise Resource Planning (ERP), Passenger Scheduling System (PSS), Hub Control System/IOCC (Integrated Operations Command Centre), MRO (Maintenance Repair and Overhaul).
  • NACIL will closely function with IATA for Strategic Alignment Assistance programme and seek advisory support from Lufthansa, Singapore Airlines, Egypt Air, Malaysian Airlines, Delta on their transformation programmes. For this purpose, an International Aviation Advisory Board with representatives from Europe, Asia and USA will be constituted.

What are your constructive opinions on this plan, for now let us to put aside the usual Air India bashing.

About Devesh Agarwal

A electronics and automotive product management, marketing and branding expert, he was awarded a silver medal at the Lockheed Martin innovation competition 2010. He is ranked 6th on Mashable's list of aviation pros on Twitter and in addition to Bangalore Aviation, he has contributed to leading publications like Aviation Week, Conde Nast Traveller India, The Economic Times, and The Mint (a Wall Street Journal content partner). He remains a frequent flier and shares the good, the bad, and the ugly about the Indian aviation industry without fear or favour.

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