Air India has returned to the house of Tatas. She was snatched by the government through nationalisation in 1953, when Jawaharlal Nehru was Prime Minister. Then, she had allure, glamour, and was profitable. Now she is back home, dowdy, decrepit, and moth-eaten with a mountain of debt. It is overstaffed, beset with trade union problems, aircraft need re-engineering, re-furbishing, and upgrades. Fixing Air India is a daunting challenge.
The first communication from the Tatas is indicative of their priorities, and concern. Meals will be enhanced on Air India’s prime routes to start with, and progressively on other routes. Emphasis and focus will be on grooming, appearance of cabin crew, customer service, and on-time performance. These are all glaringly missing in Air India. The Tata management is right in laying stress on the above as they are all ‘moments of truth’ for the passenger.
To achieve excellence in the above, and exceed customer expectations, you need to achieve at the backend — top-notch engineering, cabin upkeep, good logistics and maintenance, inventory planning, thorough training, flawless flight operations, revenue management, network planning, innovative, and an acumen in aviation finance. All these the Tatas are more than capable of achieving. They have access to in-house management pool, they can recruit outstanding professionals from around the world, and they have a war chest to fund Air India. Moreover, the government is proactively facilitating a smooth handover.
But fixing Air India is not enough.
Three’s A Crowd
There are larger strategic and structural issues staring in their face. Tatas now have three airlines under their management control — Air India, Air Asia, and Vistara. Probably the only country in the world where one promoter owns three airlines, and all under heavy losses. Three disparate entities which need desperate remedies — and no time to lose.
Oscar Wilde in his inimitable style said: “In this world there are only two tragedies. One is not getting what one wants, and the other is getting it. The last is much the worst, the last is a real tragedy!” How wonderful and simple it would have been if the Tatas’ wish to acquire Air India had materialised before they started Air Asia and Vistara? If they had lost the bid wouldn’t it have been a blessing in disguise, though tinged with disappointment? Having realised that successive governments were unable to muster enough political will to privatise Air India, the Tatas still being emotional about Air India, ventured to set up not one but two airlines. That was itself imprudent. Why would an economy passenger choose Vistara over Air Asia when the fares in the latter are cheaper, when they both have identical, brand new aircraft with smart, well-groomed cabin crew, and both are well-run airlines?
A Complex Web
Now, to add to their woes, they will have three airlines, each fighting over their turf and competing with each other for market share; with different ethos and culture fit; multiple models of aircraft; three setups of engineering, logistics, inventory, operations, marketing, finance, and so forth, and on top of that three CEOs, and three boards. One cannot create anything more complex, or costly. It would be presumptuous on anyone’s part to counsel so eminent, respected, and successful a group as the Tatas who have weathered and overcome many a storm over more than a century.
They are probably seized of these issues, and they are not easy to solve. They have a partnership with Air Asia, led by the maverick Tony Fernandes. He is not in a position nor keen to inject anymore funds with his airline group company in severe distress since the onset of COVID-19, nor eager to exit, making any kind of merger of Air India with all entities difficult. Vistara has a formidable shareholder in the iconic Singapore Airlines, but there’s dissonance there as well as they were not on board to bid for Air India through Vistara. There are reports that Air India Express, a subsidiary of Air India, could be merged with Air Asia into one low cost airline. That will still leave the Tatas with three airlines that will cannibalise each other’s passengers instead of competing as one national carrier against Indigo, SpiceJet and SIA, Emirates and others in both the domestic and international markets.
‘More Sexy And Vibrant’
An intense debate with Vijay Mallya, when Air Deccan and Kingfisher were merged, over which discord we fell out, may be pertinent to recall here. At the time of the merger, we had agreed in principle that all domestic routes of both our airlines would be under the Air Deccan brand, and in the ultra-low cost model, and Kingfisher full service would operate international routes with business and economy classes.
Air Deccan was a much-loved brand, and a household name. Mallya’s Kingfisher was a great brand, with a distinct identity, and was an endearing airline that was praised for its quality of service and pampering of customers matching Singapore Airlines. But after the merger Mallya convinced the board and created two airlines: Kingfisher Airlines a full service plus model, and converted Air Deccan to Kingfisher Red, making it, to use his words “more sexy and vibrant” throwing in a lot of freebies like catering.
Airlines And Whiskey Don’t Go Together
Cost-conscious economy passengers migrated from Kingfisher Airlines to Kingfisher Red. Those who found Kingfisher Red exorbitant moved to Indigo and SpiceJet. Both the airlines went into the ‘red’, and bled to death. He argued that he was familiar with low cost. He sold the largest quantities of the cheap Bagpiper whiskey in the world.
I countered it was a skewed analogy, and that in the domestic market the full service carrier model is inherently flawed because the business class is bundled along with economy in the same aircraft creating complexity and increasing costs for the economy passengers who also bear the costs of empty business class seats, and the associated and assorted expenses of a full service carrier, unlike a Bagpiper whiskey that can be bought off the shelf separately from the liquor store.
I pointed out to Mallya but in vain that the customer pipeline in India is inexhaustible at the bottom of the pyramid. I said we were essentially in the transportation business of taking people from Point A to B safely, at the lowest cost, in clean aircraft, and on time. We were not in the gourmet cuisine, fine dining, or high fashion modelling business.
I told him about the low cost South West Airlines that was consistently in profit for four decades. I cited the examples of British Airways, Air France, and Lufthansa who have business class and economy on their international routes, but only all economy within Europe. Our arguments went nowhere, and I lost the battle in the board.
The Way Forward
What is the way forward for Tatas? They should leave no stone unturned to find a way to merge all the three airlines. Just as in the early Air India days in ’40s and ’50s during JRD Tata’s time, they should have a single airline brand to avoid brand confusion among consumers. One, domestic Air India that is low cost, and the other Air India international with dual class seating, and full service. The times have changed. There was no low cost airline during JRDs time. The Indian domestic market was very small and he had no competition. Today there are Indigo, SpiceJet, Go First, all well-run airlines, and Akasa is waiting in the wings.
Air India must succeed and soar, and regain its lost glory. It will be good for the customers, the employees, the economy, and India.
Air India is dead, long live Air India!
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
