In December I had the pleasure of meeting with Karl Ulrich Garnadt, the Lufthansa board member responsible for their global network planning. Amongst many subjects discussed, I asked him what he thought would be a good strategy for Air India to adopt for the next five years.
In parallel Behramjee has written a well thought out route re-structuring plan. I would like to buttress Behramjee’s plan adding in pearls of wisdom I learnt from Mr. Garnadt, a recognized giant in the airline industry.
Air India is facing competition from carriers across the world. For west bound traffic — North American and European routes — the Europeans — British, Virgin, Lufthansa, Air France, Swiss, Austrian, Finnair, who in turn are being pressured by the Gulf carriers Emirates, Qatar Airways, Etihad, and Oman. The ultra-high volume ‘used to be profitable’ middle east routes have been taken over by the Gulf carriers and Jet Airways. Even the low cost middle-east operations of Air India Express are holding on by the skin of their teeth since Gulf low cost carriers flyDubai, Al JAzeera, and Air Arabia have not been given free run at Indian airports. The east bound traffic to Asia, the US west coast, and Australia is cornered by Asian giants Singapore Airlines, Cathay Pacific, Thai and others.
Further retreat is no longer an option. With its back to the abyss Air India has to fight back or risk oblivion. The average Indian tax-payer is fed-up of the government mis-treatment of the airline, wasteful policies, freebie upgrades and tickets to the various powers that are, and the resulting bail-outs. The team at Air India is not above reproach either. All the way from the management right down to the over-unionised, under-motivated, and generally slothful workforce, needs to shape up or ship out.
1. Increase economy class
Air India has eight Boeing 777-200LRs (B77L) and twelve Boeing 777-300ERs (B77W). As Behramjee rightly suggests the eight first class seats on the B77Ls should be removed to fit in 32 more seats in economy class. Air India has lost the confidence of premium passengers with frequent delays, flight cancellations and a boorish on-board crew. For now it is better for Air India to have more economy seats which it can fill with price sensitive customers, rather than a super-premium first class, where its competition like Singapore Airlines and Emirates are way ahead. Premium passengers will still have a lie-flat business class product.
2. Put pride aside
Air India operates many flights for the sake of prestige. These include the ultra-long-haul (ULH) non-stop like Mumbai – New York and Delhi New York. ULH flights have to carry and therefore consume a lot more fuel per passenger when compared to medium to long haul, and therefore need to have a significantly higher percentage of premium first and business class passengers. Even the mighty Singapore Airlines and Thai Airways had to re-configure or discontinue their ULH Singapore/Bangkok to New York/Los Angeles services when oil prices were peaked out.
In the near term, China and India, both major fuel consumers, are leading the global economic recovery and oil prices are sympathetically rising as demand returns, further leading the imbalance in the costing of ULH flights.
Simple solution — stop ULH non-stop flights to North America. Which begs the question — North America is the largest destination for Indian passengers after the middle east?
3. Leverage the partnership with Lufthansa and Fraport
Lufthansa is the mentor and sponsor for Air India’s entry in to the Star Alliance. Lufthansa also has a wide ranging code-share arrangement with Air India involving hundreds of flights. Fraport, the operator of Frankfurt Rhine Main airport have a strategy to re-make Frankfurt a global transit hub, and have put aggressive plans in to operation to raise passenger capacity to 88 million passengers within the next 4 years.
Air India should leverage this partnership and use Frankfurt as their hub. Operate one flight each from Mumbai and Delhi to London Heathrow, with its strong south Asian population, and bring the balance west bound passengers destined for other European and North American cities, from the major metros in India (Delhi, Mumbai, Bangalore, Chennai, Kolkata, Hyderabad) in to Frankfurt. Deepen the code shares with Lufthansa and leverage the latter’s vast network in their strength area i.e. Europe and North America.
An additional edge for Air India will be the Lufthansa north America network. Currently the Gulf and Asian carriers have limited destinations in North America while Lufthansa operates 17 destinations in the US, 4 in Canada and Mexico City. Thanks to baggage charges and generally lower levels of service on domestic flights, north American passengers prefer to land as close to their destination as possible rather than transit on to a domestic flight. The same applies in reverse with India bound passengers but primarily due to poor transit facilities at major airports in India.
4. Delhi IGI T3 – Air India’s superhub
Air India has to capture not just origin and destination (O&D) traffic to India, but must also gain transit traffic between Europe and Asia. Air India should make Delhi its hub. From Delhi Air India can service Indian destinations with the erstwhile Indian Airlines narrow body network, and foreign destinations with its wide body fleet. The upcoming terminal 3 at Indira Gandhi International (IGI) airport at the national capital Delhi, is going to be one of the largest in the world. Unlike Air India’s current hub Mumbai, T3 will have integrated domestic and international operations making it ideal for connections. Fraport is a partner at IGI airport and the operating company DIAL is learning much on the art of hubs and transit from them. Air India can also learn from its mentor Lufthansa which has perfected the art of transit at its Frankfurt and Munich hubs.
Additionally, the value conscious tourist traffic is concentrated in north India notably Rajasthan and Agra, and prefers New Delhi as the port of entry. The upcoming Commonwealth games which will increase brand Delhi, and the fact that Air India gets majority share of government travel which is based in Delhi only adds further justification.
5. Bangalore – the second hub
Bangalore is the technology capital and the most international city of India, boasting of foreign companies from across the globe. Bangalore is also home to global non-technology majors like Toyota, Akzo-Nobel, Bosch, Airbus, Boeing, and the entire spectrum of technology companies. Air India is now suffering the results of its traditional bureaucratic ‘four metro’ thinking with an over-focus on Mumbai and Delhi. Bangalore has been completely ignored, despite growing in to the third largest destination in India, and with a spanking new airport to boot, which is positioned as a transit point. Foreign carriers dominate the international sectors ex-Bangalore and no Indian carrier has a wide body flight ex-Bangalore. In addition to being a strong premium passenger destination, Bangalore leads the nation in air cargo as a percentage of GSDP.
Air India should make Bangalore its secondary hub which will also be a perfect foil for New Delhi and also open connections to Japan and ASEAN.
6. Go East
Air India must re-capture surrendered ground from the ASEAN and near-east carriers, and it cannot achieve this goal by following its current strategy of deploying narrow body A319s/A320s and old A310s. Its Boeing 777 fleet is new and will compete well with the older wide bodies currently deployed by Singapore Airlines, Thai and Cathay Pacific. Despite the recent incidents in Australia, there is a large traffic base of about 234,000 passengers annually between India (Delhi and Mumbai) and Australia (Sydney and Melbourne) with Delhi leading Mumbai 2 to 1. At present it is the ASEAN and Gulf carriers who enjoy the benefit rather carriers from India or Australia.
With large investments by Korean and Japanese companies in India, bi-lateral traffic is rising. Coupled with a lack of quality flights by the respective national carriers, traffic between India and Korea/Japan has been captured by Asian carriers, chiefly led by Singapore Airlines and Cathay Pacific.
In addition to this bi-lateral O&D traffic, wide bodies coupled with a T3 superhub will enable Air India to offer Europe to Asia / Australia passengers an additional choice.
7. Go wide to the middle east
Behramjee very correctly suggests Air India using its wide body Boeing 777 fleet to key high volume destinations the middle east like Riyadh and Jeddah. Apart from bringing a premium product for both the premium and economy passengers, Air India can leverage the belly hold and lower fuel requirements for uplifting cargo. Tankering from the middle east where fuel is half the price of India will also benefit Air India as will the return of the leased Airbus A330s which are currently used on these routes.
8. Integrate or perish
All the operational suggestions are dependent on the successful merger of Air India and the erstwhile Indian Airlines. Air India desperately needs to enter the Star Alliance, to gain passengers and increase its network. I asked Mr. Garnadt about ongoing rumors that the merger may not be carried out, and the possible ramifications on Air India’s Star Alliance entry. Diplomatically, Mr. Garnadt refused to speculate, but the look said it all — no integration means no entry which will ultimately mean no survival.