AIR INDIA-CASE STUDY

BY: SANIYA CHAWLAFACULTY ASSOCIATE

• Air India Limited is the national flag carrier airline of India, flying a worldwide network of passenger and cargo services.

• Air India is state-owned, and administered as part of the National Aviation Company of India Limited - which was created in 2007 to facilitate Air India's merger with Indian Airlines.

• The main bases of operation of the airline are Mumbai's Chhatrapati Shivaji International Airport and Delhi's Indira Gandhi International Airport.

• Air India is the 16th largest airline in Asia, serving 25 destinations worldwide, and, with its affiliated carriers, serves over 100 cities.

• Air India has code share agreements with twelve other international airlines. In 2010, Air India is expected to join Star Alliance, the world's largest airline alliance.

HISTORY OF AIR INDIA• Air India was founded by J. R. D. Tata in 1932 as

Tata Airlines, a division of Tata Sons Ltd. (now Tata Group).

• On 15 October 1932, J. R. D. Tata flew a single-engined De Havilland Puss Moth carrying air mail (postal mail of Imperial Airways) from Karachi's Drigh Road Aerodrome to Bombay's Juhu Airstrip via Ahmedabad.

• The aircraft continued to Madras via Bellary piloted by former Royal Air Force pilot Nevill Vintcent.

• Following the end of World War II, regular commercial service was restored in India and Tata Airlines became a public limited company on 29 July 1946 under the name Air India.

• In 1948, after the Independence of India, 49% of the airline was acquired by the Government of India, with an option to purchase an additional 2%.

• In return, the airline was granted status to operate international services from India as the designated flag carrier under the name Air India International.

• On 8 June 1948, a Lockheed Constellation L-749A named Malabar Princess and registered VT-CQP took off from Bombay bound for London via Cairo and Geneva.

• This marked the airline's first long-haul international flight, soon followed by service in 1950 to Nairobi via Aden.

• On 1 August 1953, the Government of India exercised its option to purchase a majority stake in the carrier and Air India International Limited was born as one of the fruits of the Air Corporations Act that nationalised the air transportation industry.

• At the same time all domestic services were transferred to Indian Airlines. In 1954, the airline took delivery of its first L-1049 Super Constellations and inaugurated services to Bangkok, Hong Kong, Tokyo and Singapore.

• Air India International entered the jet age in 1960 when its first Boeing 707-420, named Nandadevi and registered VT-DJJ, was delivered. Jet services to New York City via London were inaugurated that same year on 14th May 1960.

• On 8 June 1962, the airline's name was officially truncated to Air India. On 11 June 1962, Air India became the world's first all-jet airline.

EXPANSION PLAN OF AIR INDIA• Air India Headquarters at Nariman Point in Mumbai.• In 1970, Air India moved its offices to downtown Bombay.• The next year, the airline took delivery of its first Boeing

747-200B named Emperor Ashoka (registered VT- EBD). • This coincided with the introduction of the 'Palace In The

Sky' livery and branding.• A distinctive feature of this livery is the paintwork around

each aircraft window, in the cusped arch style of windows in Indian palaces.

• In 1986 Air India took delivery of the Airbus A310-300; the airline is the largest operator of this type in passenger service.

CONTD….• In 1988, Air India also took delivery of two Boeing

747-300Ms in mixed passenger-cargo configuration.

• In 1989, to supplement its "Flying Palace" livery, Air India introduced a new "sun" livery that was mostly white but had a golden sun on a red tail.

• Only applied to around a half of Air India's fleet, the new livery did not succeed, as the Indian flying public complained about the phasing out of the classic colours. The new livery was dropped after two years and the old scheme was returned.

CONTD…

• In 1993, Air India took delivery of the flagship of its fleet when the first Boeing 747- 400 named Konark and registered VT-ESM made history by operating the first non- stop flight between New York City and Delhi.

• In 1994 the airline was registered as Air India Ltd.• In 1996, the airline inaugurated service to its second

US gateway at O'Hare International Airport in Chicago. • In 1999, the airline opened its dedicated Terminal 2-C

at the newly renamed Chhatrapati Shivaji International Airport in Mumbai.

CONTD….

• In 2000, Air India introduced services to Shanghai, as well as to Los Angeles and Newark.

• On May 2004, Air India launched a wholly-owned low cost airline called Air India Express.

• Air India Express connecting cities in India with the Middle East, Southeast Asia and the Subcontinent.

• Air India expanded its international routes include non-stop flights from Ahmedabad and also expanded its international operations from Bangalore and Hyderabad.

CONTD….• On 8 March 2004, International Women's Day, the airline

operated an "All Women Flight" from Mumbai to Singapore.

• Captain Rashmi Miranda, who became Air- India's first female Commander in November 2003 and Captain Kshmata Bajpai piloted the flight, an Airbus A310-300 aircraft.

• The flight dispatch activities relating to this flight were also coordinated by a female Flight Dispatcher, Vasanti Kolnad.

• The Safety Audit on board was also conducted by another woman, Harpreet D Singh.

• The airline has seventeen female pilots, including five trainee pilots.

CONTD…

• In 2007, the Government announced that Air India would be merged with Indian Airlines.

• As part of the merger process, a new company called the National Aviation Company of India Limited (or NACIL) was established, into which both Air India (along with Air India Express) and Indian Airlines (along with Alliance Air) have been merged.

CONTD…

• Once the merger is complete, the airline - which will continue to be called Air India - will continue to be headquartered in Mumbai.

• It will be India's largest airline after the merger, with 100 aircraft,along with 59 orders and 89 destinations(including 50 domestic destinations and 39 international routes)excluding its and Indian Airlines' subsidiaries.

CONTD….• Star Alliance announced on 13 December 2007 that it had

invited Air India to join as a member.• Air India is set to become a full Star Alliance member in

2010.• India has the world's fastest growing airline industry.• However, increasing fuel prices resulted in a 4% decline in

air traffic in June 2008.• Increasing competition of other major Indian carriers like

Jet Airways and Kingfisher Airlines has pushed Air India to third place in India in terms of market share.

• In July 2008, it was reported that Air India was seeking US$534 million in aid from the Indian government to cover its losses.In the wake of rising fuel prices, the airline decided to hike its air fare in June 2008.

CONTD…

• Air India plans to open up new/resume routes to Africa (Dar es Salaam, Mauritius, Johannesburg, Lagos), Asia (Beijing, Taipei), Europe (Birmingham, Geneva/Zürich, Moscow, Rome/Milan), North America (Boston, Dallas/Houston, San Francisco, Vancouver, Washington, D.C.) and Oceania (Melbourne, Sydney).

• On 1 March 2009 Air India made Frankfurt Airport its European Hub for its North American Operations.

Financial Crisis

• Around 2006-07, the airlines began showing signs of financial distress.

• The combined losses for Air India and Indian Airlines in 2006-07 was Rs 771 crores.

• After the merger of the airlines, this went up to Rs 7200 crores by March 2009.

• This was followed by restructuring plans which are still in progress.

• In July 2009, SBI Capital Markets Ltd was appointed to prepare a road map for the recovery of the airline.

LIVERY OF AIR INDIA

• Air India's current livery was unveiled in May 2007.

• It is a cross between Air India's old predominately red and white livery and Indian Airlines's livery.

• The new livery was first seen in July 2007 on a new Boeing 777-200LR when Air India and Indian Airlines formally became one airline.

• The fleets of both airlines will be painted in the new livery.

CONTD….

• The logo of the combined airline is a Flying Swan with the Konark Chakra placed inside it.

• The Flying Swan has been adapted from Air India’s characteristic logo, ‘The Centaur’ whereas the Konark Chakra is reminiscent of the Indian Airlines logo.

• The logo is featured on the tail of the aircraft and the Konark Chakra is on the engines. Colours are red for “Flying Swan” and orange for “Konark Chakra".

CONTD….

• While the base colour for the new livery is ivory, Air India's characteristic red has been retained.

• Running parallel to each other are orange and red speed lines from the front door to the rear door.

• The brand name ‘Air India’ runs across the tail of the aircraft.

PROBLEMS

Civil Aviation Ministry:- Interference in decision making. Increased in subsidized fares.

Union:- 8 unions strikes, go-slow agitation, wage

negotiations. 13 agitations – 1989 – 92.

CONTD….Pilots:- 1993 - 46 days strike. 1994 – Nov., in 1995 – Apr. faced an

evident agitation. 1996 – demands for high wages. 1997 – strike for foreign allowances, fixed

flying hours, free meals & wage parity.Engineers:- Apr. 2000 - go –slow agitation demands for pay revision & change in

career b progression

Actions TakenRussy Mody:- 1994 – chairman of IA. Committee under chairmanship under Vijay

Kelkar. Recommendations for financial aid by the

Govt. Equalization of salary with Air India. Proposal for increase in age of retirement. Evaluation by P.S. Brar: IA would “go down the drain” & massive

cost cutting & HR management. Received severe criticism.

Probir Sen:- He brought pilot emoluments on par

with other airlines. Creation of Alliance Air, a subsidiary

airline company for re-employment Substantial wage hike for employees by

10%.

Year Staff costing Rs. Bn)

No. of employee

Per Employee costing mn)

Total Expenditure in Rs. Bn)

Staff cost as percentage of total operational exp)

Effective Fleet Size.

1993-94 2.85 22182 0.13 20.75 15% 54

1994-95 3.74(31.18 %)

22683 0.16 22.59 19% 58

1995-96 5.71(52.59%)

22582 0.25 26 25% 55

1996-97 7.10(24.35%)

22153 0.32 29.29 26% 40

1997-98 8.17(15.03%)

21990 0.37 32.21 27% 40

1998-99 8.75(7.12%)

21922 0.39 34.31 28% 41

Comparison of Various Airlines

Name Of Airlines

No. 0f aircraft in fleet

No. of Employees

AT Km( in Million)

AT Km per Employee

Employees per aircraft

Singapore Airlines

84 13549 14418.324

1064161 161

Thai Airways International

76 24186 6546.627 270678 318

Indian Airlines

51 21990 2113.671 398204 431

Gulf Air 30 5308 1416.235 245831 177

Kuwait Airways

22 5761 345.599 92853 261

Jet Airways

19 3722 1094.132 49756 196

AWARDS AND RECOGNITIONS• Preferred International Airline award for travel and

hospitality from Awaz Consumer Awards 2006 • Best International West Bound Airline out of India for

three successive years by Galileo Express TravelWorld Award

• Best Corporate Social Responsibility Initiative. by Galileo Express TravelWorld Award

• Best Short-Haul International Airline by Galileo Express TravelWorld Award 2008

• The Mercury Award for the years 1994 and 2003, from the International Flight Catering Association, for finest in-flight catering services.

CONTD….

• Amity Corporate Excellence Award instituted by the Amity International Business School, Noida, Uttar Pradesh to honour Corporates with distinct vision, innovation, competitiveness and sustenance.

•Reader’s Digest Trusted Brand Award•Dun and Bradstreet Award(D&B)- first in terms of

revenue out of the topairline companies out of India. •Best South Asian Airline award by readers of TTG Asia,

TTG China, TTGMice and TTG-BT Mice China, all renowned Mice and business travelpublications.

CONTD….

• Cargo Airline of the Year at the 26th Cargo Airline of the Year Awards

• The airline entered the Guinness Book of World Records for the largest evacuation by a civil airliner.

• Over 111,000 people were evacuated from Amman to Mumbai – a distance of 4,117 km, by operating 488 flights in association with Indian Airlines, from 13 August to 11 October, 1990 – lasting 59 days.

• The operation was carried out during Persian Gulf War in 1990 to evacuate Indian expatriates from Kuwait and Iraq

CONTD….• The Montreal Protocol Public Awareness Award was

awarded to Air India by the United Nations for environmental protection, especially in the ozone layer.

• World's First All-Jet Airline- June 1962 • World's Largest Operator of Airbus A310-300• Air India's security department became the first

aviation security organisation in the world to acquire ISO 9002 certification (31 January 31 2001).

• Air India's Department of Engineering has obtained the ISO 9002 for its Engineering facilities for meeting international standards

TOP AIR INDIA COMPETITORSCOMPANY LOCATION

CATHY PACIFIC LANTAU,HONG KONG

JET AIRWAYS MUMBAI,INDIA

SINGAPORE AIRLINES SINGAPORE

KINGFISHER USA

JETAIR WAY MUMBAI

MARKETING INITIATIVES

• Numerous initiatives have been taken place on the Flying Returns, Frequent Flyer Programme, the Maharajah Club and Leading Edge Club recognition programme.

• Enhanced the effectiveness of the distribution network by increasing thenumber of agent connected to SITAR;

CONTD…• A system has been set up with Route Managers

monitoring the performance and advance booking of various routes and suggesting tactical initiatives;

• Providing the reservation facility on fax. • Providing interactive access to the Air India

Reservations System through Internet with an eventual upgrade to e-Commerce;

• Providing efficient assisted inter-terminal Transfer• A flexible pricing policy has been established to meet

the challenge of improving market share, the fares mix as also the yield in each classes.

CONTD….

• Increasing market penetration through focusing on corporate houses, incentives travel groups, outbound package tours and students;

• Air India has devised new promotional packages for First and Executive Class passengers who can look forward to all expenses paid holiday package for two to destination in India and Abroad. The scheme provides for air tickets, and hotel.

FUTURE PLANS OF AIRINDIA

• Invite First and Executive Class passengers to participate in the forthcoming Food Presentation, prior to menu change;

• Plan to observe Customer Care week in the beginning of 2001;

• Introduction of grooming checks for Cabin Crew;

• Greater efforts to reduce distribution costs and Augment revenue;

• Reviewing relevance of GSAs w.r.t. today's global alliances;

• Market tie-ups inter-carrier agreements such as code share etc.

• To cater to Haj traffic demand, AI is planning to re-route 33 flights in each Phase-Iand Phase-II to Jeddah.

• Keeping check and control on repetitive complaints and radically improving passenger’s service.

NEWSPAPER HEADLINES

Air India to get Rs 5,000 cr equity infusion in 3 years

CONTD…

• NEW DELHI: Cash-strapped Air India may get a fresh lease of life with the government agreeing to infuse a performance-linked equity of Rs 5,000 crore over the next three years into the state-owned airline.A committee of secretaries (CoS) headed by Cabinet secretary KM Chandrasekhar considered Air India’s proposal on Saturday to inject capital and provide soft loan, a person close to the development said.

CONTD….• “The government would support the airline in meeting its

short- and medium-term capital requirements. The CoS has agreed to increase the equity base of the company and take it above Rs 5,000 crore over the next three years,” the official said. He also said the government would help the airline in getting loan from banks if required. The airline is comfortable with what the committee has proposed. The airline’s cost-cutting exercise so far undertaken was not satisfactory. They need to do a lot more,” another government official said on condition of anonymity. Hit by the worst financial crisis in its history, Air India had earlier sought over Rs 15,000 crore from the government to tide over the crisis. Air India had an accumulated loss of over Rs 7,200 crore as on March 2009.

CONTD….• The high-level committee has, however, made it clear

that the financial help would be linked with the money saved by the airline. Air India expects to cut its operational cost by about Rs 2,000 crore per annum besides enhancing its cash flow by 10-15%. The airline aims at saving about Rs 750 crore by rationalising productivity-linked incentives of its 31,000 staff. It has targeted to reduce its cost by Rs 500 crore by rationalising its network. On the revenue enhancement front, Air India has decided to unlock the value of its real estate properties. It will also expand its customer base. The airline is all set to launch its low-cost airline Air India Express on domestic routes.

CONTD….

• Accenture has given a cost-cutting plan. It has said that the company would save over Rs 4,000 crore annually by cutting cost and enhancing revenue. The company chief has asked all concerned functional directors to act and produce desired results,” a senior Air India official said on the condition of anonymity.

CONTD…• He said the cost-cutting measures suggested by

Accenture have been presented to the CoS. Air India had submitted a turnaround plan, prepared by merchant banking firm SBI Caps, to the panel last month.Loan liabilities of Air India currently stands at nearly Rs 16,000 crore. The company owes about Rs 600 crore to Airports Authority of India (AAI) over and above the dues of private airport operators such as Delhi International Airport (DIAL) and Mumbai International Airport (MIAL).

CONTD…

• “The company has to make principal and interest repayment of about Rs 9,000 crore over the next three years, mainly on account of fleet acquisition,” an official said. Meanwhile, the CoS has directed the ministry of civil aviation to move a proposal to the Cabinet in consultation with finance ministry for the financial assistance to beleaguered carrier

AIR INDIA PILOTS GO ON STRIKES-2009

• A section of Air India pilots went on a strike in September 2009 to protest reduction in their productivity-linked incentives but operations of the national carrier were unaffected as only some flights were cancelled.

• Besides a Kabul-bound international flight from New Delhi, two domestic flights to Mumbai and Lucknow from the national capital were cancelled.

• In Chennai, operations were normal while in Kolkata a flight to Aizwal was cancelled as the pilot reported sick.

• The remaining 13 AI flights from Kolkata, however, took off as per schedule.Air India spokesperson Jitendra Bhargava said, "The agitation had no impact on the operations of the airline other than Delhi where pilots have reported sick.

• Only three flights have been cancelled whereas more than 40 have taken off since morning.

CONTD…• "A section of the Executive pilots are protesting the upto 50 per

cent reduction in their productivity-linked incentives (PLIs).• Representative of the agitating Executive pilots, Captain R K Bhalla

said, "All our pilots are not going to work and we have support of the 700 line pilots and they may also join us soon.

• The impact of our strike will start showing up in a short while," he added.

• Meanwhile, the pilots associated with Indian Commercial Pilots' Association (ICPA) are holding meetings in the capital and other stations to decide whether to join the agitation.

• "We are in-principle with them (executive pilots) but whether we will join or not, will be decided after the meetings," an ICPA source said.

• "We may also proceed on strike," he added. For the passengers of the cancelled flights, Air India is making alternative arrangements in their own on other airlines' flights.

CONTD….• Passengers going to Mumbai have been accommodated in the next

flight while those going to Kabul have been lodged in a hotel.• Some of the passengers of the Lucknow flight, who could not be

accommodated in other flights protested at the Airlines' counter.• We were asked to board the flight but after sitting there for a long

time, we were informed that the flight would not go," a passenger said.

• Official sources said the Executive pilots were taken on board over the PLI reduction and their move was surprising.

• There are around 300 Executive pilots in the national carrier and since they are part of the airlines management, they cannot form a union and also cannot go on strike, official sources said.

AGAIN STRIKE BY THE PILOTS IN 2011

• Air India pilots demanding more pay continued their strike in May 2011, defying a court order to return to work and forcing the beleaguered national carrier to cancel three-fourths of its scheduled flights.

• The airline says the strike that started Wednesday is costing it around 12 million rupees ($2.7 million) a day.

• Air India canceled all but 40 of its 165 scheduled flights Sunday, leaving thousands more passengers stranded around the country after similar cancellations each day since Wednesday.

• The airline is hiring chartered flights for some routes.

CONTD….• Last week, the Delhi High Court ordered the 800

striking pilots to call off their action, saying it was "brazen and smacking of sheer arrogance," and launched contempt of court proceedings Saturday when they refused to go back to work.

• The pilots are demanding higher pay, an investigation into alleged mismanagement leading to losses of over 160 billion rupees ($3.6 billion), and removal of Arvind Jadhav as the airline's managing director.

• The Indian Commercial Pilot Association said Saturday it had no choice but to continue its strike since neither the government nor Air India's management had invited the pilots for talks.

CONTD….• The airline, however, has threatened to fire the striking

pilots. Nine already have been let go and six suspended.• Other carriers were reportedly increasing fares as

desperate Air India passengers looked for alternatives.• India's once-proud national carrier has been losing about a

billion dollars a year as it struggles with the legacy of a poorly executed 2007 merger, debt costs, a swollen staff and a toxic gulf between management and powerful unions.

• The government extended hundreds of millions in bailout funds last year to help the company weather the global economic slowdown and compete with international rivals.

Air India pilots' strike ends: Why hopes of turnaround for the airline

are almost over

CONTD…• For nearly sixty years since it took to the skies as government

property, it has been hung out to dry, or as some would say these days, given India's fiercely competitive aviation market, hung out to die. Thanks to a 10-day pilot strike that ended on Friday and hurled Air India into another crisis—daily losses of Rs 15 crore since April 27—the spotlight is back on a question that that has long dogged the airline. Does India need a national carrier? Experts say India can do without one as it has a vibrant aviation market. Nimbler rivals from the private sector have grown in strength as Air India sinks deeper into a morass of troubles. "Air India is not the country's only carrier and thank god for that," says Captain GR Gopinath, who owns cargo carrier Deccan Aviation.

CONTD…• In recent days, politicians, economists and analysts have taken aim

at the carrier's protracted agony since an ill-fated merger with Indian Airlines in 2007. They have all used oft-cited statistics, particularly total losses at Rs 13,000 crore in 2009-10, to hone the argument that the carrier is beyond help. Truth is it is worse than what they think. A new study by Air India's top managers to assess its state, the first comprehensive exercise of its kind since Vayalar Ravi took charge as civil aviation minister this January, says the airline is left with a pitiful sum, by airline standards, of Rs 4.5 crore a day to meet its expenses. The amount is all that India's national carrier has to pay for spares, maintenance, landing charges and catering, among other expenses.

Failed Merger • The merger itself has been a half-baked operation,

completed in areas such as higher levels of management, common fuel distribution and accounting, but neglected in key sections such as the mapping of HR and salary issues, says the study.

• The main grouse of the striking pilots was pay disparity with colleagues.

• "The airlines should not have been merged without sorting out the HR issues," says former Air India chief operating officer Gustav Baldauf. Air India saw a combined profit of more than Rs 75 crore in 2005-06, but has been in a tailspin ever since. The merger was aimed at creating a monolith.

CONTD…• Instead, it has wrought havoc, with losses of Rs

5,000 crore each in the past two years alone. Air India's interest payments have climbed to nearly Rs 2,100 crore.

• This figure puts in perspective Air India chairman and managing director Arvind Jhadav's widely-cited statement that the airline is borrowing to pay interest.

• A new report by the Comptroller and Auditor General, the national auditor, too has criticised the merger.

CONT…• The CAG estimates the airline's annual losses at Rs

14,000 crore.• In contrast, US-based Delta Air Lines, which bought

Northwest in 2008, and United and Continental that combined last year, not only made profits but doled out $313 million and $224 million to employees this year.

• Former civil aviation minister Praful Patel under whose aegis the merger was effected declined comment. "Air India was not the best airline around, but its finances were alright (before the merger)," says former civil aviation secretary Sanat Kaul.

HR ISSUES

• Indian Airlines (IA) – the name of India's national carrier conjured up an image of a monopoly gone berserk with the absolute power it had over the market.

• Continual losses over the years, frequent human resource problems and gross mismanagement were just some of the few problems plagued the company.

• Widespread media coverage regarding the frequent strikes by IA pilots not only reflected the adamant attitude of the pilots, but also resulted in increased public resentment towards the airline.

CONTD…

• IA's recurring human resource problems were attributed to its lack of proper manpower planning and underutilisation of existing manpower.

• The recruitment and creation of posts in IA was done without proper scientific analysis of the manpower requirements of the organization.

• IA's employee unions were rather infamous for resorting to industrial action on the slightest pretext and their arm-twisting tactics to get their demands accepted by the management.

CONTD…

• During the 1990s, the Government took various steps to turn around IA and initiated talks for its disinvestment.

• Amidst strong opposition by the employees, the disinvestment plans dragged on endlessly well into mid 2001.

• The IA story shows how poor management, especially in the human resources area, could spell doom even for a Rs 40 bn monopoly.

Questions

• Was the workforce of Air India Pampered?• Do you think there was need for the pilots to

create troubled strikes?• Analyze on the following grounds:1)Merger Issues2)Losses incurred

THANK YOU

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