Being profitable even in normal times is a difficult proposition for most airlines. The pandemic and its consequent devastating impact on air travel have only made matters more worse. Net industry losses in 2020 were $137.7 billion and the 2021 losses are estimated at $51.8 billion, according to industry body IATA.
The question of how rapidly can the Tatas, the new owners of Air India, make the airline profitable needs to be viewed in this context besides the additional domestic factors such as excessive price sensitivity of Indian passengers and high operational costs—ATF and airport charges. The challenging Indian business environment for airlines can best be judged by simply looking at the long list of airlines, including Kingfisher Airlines and Jet Airways, which have collapsed since the skies were opened up in early 1990s for private airlines.
The task is indubitably a daunting one particularly when it concerns Air India, which has traditionally had a high cost platform, unmindful of the fear of collapse because the government as its owner had always been willing to infuse more and more funds. Department of Investment and Public Asset Management (DIPAM) secretary Tuhin Kanta Pandey said at his press conference on October 8 that Rs 1,10,000 crore, an astronomical sum, had been injected since 2009. Notwithstanding this huge infusion of funds, Air India continued to face survival threat and had to be eventually disinvested.
Two-pronged action needed
Any hope of profitability will therefore have to be preceded by several drastic measures by the new owners, in a fire fighting mission mode, as time will be of the essence. The realistic approach for the new management, if one can recommend, should be to devise a two-pronged strategy. First, how to reduce losses and enhance revenues in the shortest possible time. Considering that Air India has a high-cost platform, and has been losing heavily on a daily basis, even a 25% reduction in losses and increase in revenues initially would translate into substantial improvement in financial health.
Scope for big savings
The numerous potential areas, akin to low hanging fruits, that need to be looked at should include curtailment of all wasteful expenses. There are plenty of such areas; make employees productive and efficient by ensuring that they are actually at work, curb unwarranted financial leakages, renegotiate high cost agreements, etc.
Much of the savings will come without much ado once able leadership and professional management with accountability is in place. It should come as no surprise that even identified areas of savings have not been acted upon by successive indifferent managements of Air India in recent years.
Unions shouldn’t be allowed to quote obsolete agreements signed during the monopoly era while work practices are being reengineered to make employees more productive and efficient or the changes impact them. If cabin crew complement on a flight needs to be reduced and brought on a par with industry standards, it should be done with haste.
This is just an illustrative example because instances of two employees performing a task where only one is needed exists across almost all departments. There are also certain departments —vigilance, hindi implementation, parliament cell, etc. that will require shutting down as Air India transits from a govt to a private entity. Manpower rendered surplus will need to be redeployed more gainfully.
If all employees work (there are many who don’t) and are made accountable, manpower cost will reduce considerably. Likewise, revenues will be on the upswing if the sales team instead of being allowed to while away their time in office and doing mundane jobs actively chase customers, particularly those flying premium classes, who have ditched the Sarkari Air India in the recent past for whatever reasons.
Aircraft maintenance cost is another huge area that needs immediate attention. Comparison with other airlines having similar aircraft will show the extent of unwarranted expenditure that Air India has been incurring on aircraft maintenance, how long aircraft have been on ground for want of spare parts, etc?
The prevailing myth, allowed to be perpetuated, that aircraft utilisation at present is of world standard must be busted even at the cost of upsetting engineers who have for far too long been allowed to stay in their comfort zones. Improving the financial health of the airline must be accorded primacy.
Get the passengers back
Once costs have been significantly reduced and utilisation of men and machines have been enhanced, the second phase of making Air India profitable should be embarked upon in earnest. This will admittedly take time as aircraft interiors will need to be refurbished, customer-interfacing employees are made to go through refresher courses after more customer-oriented work practices are devised and implemented for enhanced customer experience.
This will enable Air India in its new avatar to charge a premium on fares, rather than the current practice of discounting, particularly on long haul international routes.
These changes are also a prerequisite for attracting more passengers in First and Business class, which do not currently get adequate number of paid passengers. A quantum jump will considerably boost revenues as Air India’s current load factor is 8-10 percentage points less than other airlines.
Gains are a given
Passengers must be enticed to travel on Air India on the basis of product quality rather than offers like lucrative (read low) fares or giving baggage entitlements far in excess of industry standard. There is a cost attached to these offers for the airline and it cannot be allowed to be a substitute for lack of marketing efforts any longer.
Air India also has very limited non-aeronautical revenues. Monetising every customer-interfacing object, as most airlines do, will add to revenues.
Once the initial phases of cost reduction and enhancing revenues are over and the Tatas move to the next phase of fleet expansion, which should be a priority, the real gains will emerge. The new owners will be able to operate additional flights without having the need to induct more operating crew or aircraft maintenance engineers because rationalisation of manpower and higher productivity through reengineered work practices will generate surplus manpower to meet the future needs.
Once Air India’s current inherent weaknesses largely stemming from govt ownership, inability to exploit full potential due inertia, adverse impact on morale of employees due uninspiring, indifferent and frequent change of leadership are made a thing of the past on Tatas taking control, positive all-round results will be there for all to see. Turning around Air India by making it profitable once again after several years will be a daunting but achievable task.
It will also be a long-haul flight for the Tatas and one should make no mistake about it by being over optimistic because the ground realities of the Indian market can’t be simply wished away.