Sunday, 19 July 2009

Maharajah begs for its survival

The last time I flew on India’s national carrier – Air India – was in August 2000. I was returning from India when my flight was delayed almost a full twenty four hours. My plane, an ageing Boeing 747-200, over twenty years old, developed a technical snag in Dubai which meant it couldn’t make the journey across the Arabian Sea until engineers from Bombay flew out spares there. I was used to the customary one or two hours delay with Air India, but this was extraordinary. My father wrote a letter of complaint to the airline after returning to UK, but he needn’t have bothered. There was no reply, except to say the airline would look into his complaint, but in all likelihood the letter probably just ended up in the waste bin with all the other letters of complaint at the Air India office.

I have never experienced such appalling customer service on an airline as Air India. So it comes as no surprise that I learn today that Air India is on the brink of collapse. Most airlines around the world, including British Airways, are struggling to cope with the current economic downturn, but Air India’s problems have been brewing for over fifteen years due to neglect. Today it neither has enough money to pay its daily operating costs nor the salaries of its bloated workforce of 31,000 employees. Last month, Prime Minister Manmohan Singh had asked Civil Aviation Minister Praful Patel to prepare a restructuring plan by the month-end.

The restructuring plan will be presented to a committee on 25 July, and it is likely to include a number of changes in return for equity infusion from the government and other financial support. It is not easy to downsize Air India’s powerful unionized workforce, so Praful Patel is trying to involve them in the restructuring process. Measures are likely to include a recruitment freeze for the next three years, cut loss making routes, return leased planes to lessors, and defer deliveries of some new planes. Already Praful Patel has sought to change the management board within thirty days, bringing in top executives with proven track record from elsewhere.

It remains to be seen how successful this restructuring plan is going to be, but one thing for sure is that without a radical overhaul the airline is bound to fail. A few tweaks here and there is simply not going to be enough, for Air India has been steadily losing market share since the Indian civil aviation sector was liberalised in the early 1990s to both foreign and domestic operators. “Instead of meeting competition head on though, Air India allowed its decades of problems to pile up and up,” said Peter Morris, chief economist of Ascend, the London-based global air transport industry consultancy firm.

After years of pampering as India’s national carrier, the root of Air India’s problem was simply its inability to perform in a competitive market. “While every airline in the country calibrated their business model with appropriate cost and revenues structure to meet competition, Air India failed to capitalize on its dominant position, a position any airline would give anything to have,” said Morris. Air India also suffered from political interference, under investment in its fleet, and a weak management.

“I think the only way to make Air India viable again is privatization,” said Vivek Gupta, senior consultant with the Hyderabad-based ICMR Center for Management Research. “That is the key because AI’s management has never been serious about running AI as a competitive business. Privatization will allow AI to shed its national carrier tag, which looks imminent anyway, and will make it easier for the airline to focus on customer service and competition.”

Affectionately known as the “Maharajah” after its mascot for many years, Air India has unfortunately suffered the fate of many maharajahs since Indira Gandhi abolished the privy purse in 1971, and been reduced to the begging bowl. To survive in the fiercely competitive civil aviation market an airline has to be very nimble. Air India’s future seems far from rosy as it fights for its survival. The best thing the Indian government can do is bail it out one last time and privatise it. Then if it goes to the wall, let it go to the wall.


Winnowed said...

Why bail it out and then privatise? Why not privatise on an 'as is where is' basis?

JI said...

Air India is deep in the red. Only a bail-out can keep it afloat for the time being, otherwise its certain bankruptcy. I don't think it simply would be possible to privatise it in these market conditions. The only option is to restructure the airline and try and make it profitable again. That may be a tough task but that is the only way out. It should’ve been private a long time ago.