The Descent of Air India (39 page)

The inability of the airline to rise above its challenges led me to write an article titled, ‘Airline on a free fall’ in the
Hindustan Times
on 12 June 2011, where I asked how much more the airline’s performance would have to slip before the government stepped in. It did not bring about any change in the way things were being managed in the airline.

A couple of months later, on 12 August 2011, Mr Jadhav was shown the door because Rajiv Pratap Rudy of the BJP, through an RTI application, pulled out his recruitment papers. He argued that the appointment was untenable because Mr Jadhav had no domain knowledge—a requisite for being considered for the position. Clearly, the ministry, in its haste to replace Raghu Menon, had overlooked a key criterion for the appointment and, in the process, endangered the future of Air India. But there was none to hold them accountable for their actions. The governmental interference over appointments has not been called to a halt despite the crisis within the airline and that has, in turn, exacerbated the problems. Unsure of their tenure and always fearful of the consequences of their actions, the bureaucrat-chairmen have faltered at every turn, and the airline has continued to slip down the performance charts. Currently, under Chairman Rohit Nandan, despite modest improvements Air India ranks the lowest amongst all the Indian carriers on most parameters—particularly on load factors, aircraft utilisation and customer satisfaction index—and highest in the number of flight cancellations. The point that we need to understand is that chairmen who do not have the support of the ministry or are made to feel insecure in their positions will soft pedal on serious issues and sacrifice long-term strategies at the altar of short-term survival.

As I was aware of the paucity of managerial talent and how the select few who delivered got engaged in various non-operational matters leading to neglect of priorities, I had suggested to rohit Nandan, soon after he had taken over, the need for putting in a team of committed ex–Air Indians who would be willing to give their guidance free of cost. Even though Mr Nandan welcomed the idea, he couldn’t pursue it because the people around him felt that the team would be a threat to their supremacy. It was once again a case of Air India being accorded secondary importance, while employee interests were given primacy.

FALSE HOPES, UNFOUNDED EXPECTATIONS

In recent months, we have read several reports and interviews about how Air India is getting back on its feet. The common perception is that the airline has finally emerged from the rainclouds. The protagonists cite minor increases in market share in a particular month or fleeting improvements in its rankings or a slight reduction in its loss figure to back their prognosis. But all this talk is nothing more than just a pie in the sky. It does not necessarily indicate an improvement in the airline’s fortunes.

If one is not an old industry hand, it is easy to misread the situation— especially when the minister and the chairman of the airline publicly laud the airline’s performance. Minister Ajit Singh, during a recent press conference (10 June 2013) in London, said, ‘The national carrier’s total revenue is expected to go up from
16,130 crore in 2012–13 to
19,393 crore in 2013–14.’He said that these figures implied that Air India had turned around earlier than anticipated. Chairman and managing director Rohit Nandan, in a letter to employees on 10 May 2013, said, “My confidence in our performance emerges from the proven track record in the last financial year 2012–13. During this period the passenger revenue has gone up by 7.3 per cent over the previous year. The increase in revenues was a robust 21.9 per cent on our domestic services. Also, the increase in revenue was despite a reduction in capacity to the tune of 11.9 per cent, as compared to the last fiscal. Passenger load factors as well as yields have improved appreciably during the assessment period. A significant increase in the business class and first class passengers has contributed to increase in yields on both domestic and international networks. Increase in carriage of first class during the last fiscal was higher by 12.3 per cent as compared to the previous fiscal. Similarly, the increase in carriage of passengers in business class went up by 25.6 per cent in the year 2012–13 vis-à-vis 2011–12. In 2012–13, we end with an
EBIDTA
(earnings before interest depreciation, taxes and ammortisation) positive to the tune of
19.45 crore, as compared to a loss of
2,236 crore in the previous fiscal. Every parameter is looking better than the last year. The year 2012–13 would also mark a significant reduction in our net losses, thanks to a robust increase in the revenues to the tune of
1,200 crores.’

Any improvement in performance ought to be welcomed and celebrated, but I would like to put in a word of caution here. We need to understand whether the improvement is real or perceived, whether it is temporary or long-term and whether it is the result of systemic changes or the outcome of changing market dynamics. One factor that has helped Air India boost its revenues, reduce its losses and improve load factors has been the withdrawal of services by Kingfisher Airlines. In fact, all the airlines registered higher revenues and load factors post–November 2011, when Kingfisher Airlines began to scale down operations. In the year 2012–13, when Kingfisher scaled down the capacity to carry only 1.2 million passengers as compared to 9.5 million in 2011–12 ([It ceased operations in October 2012), Indigo registered an increase in the number of passengers by 3.4 million and SpiceJet an increase by 1.8 million. Air India shared the third place with a relatively small airline, GoAir, with an increase of just 0.6 million passengers. However, once capacity augmentation takes place, which will be soon, with the entry of Air Asia India, the favourable market conditions will disappear. And so will the temporary rise in market share and revenue. Unless performance improvement is the result of operational and functional efficiencies and systemic changes, it cannot be deemed as permanent. It is not my intention to undermine Air India’s recent achievements, but one should not ignore the ground realities. Unless the real picture is known, all attempts at course correction would be half-hearted—something we have seen on several occasions in the past. A fair assessment of the airline’s performance during the period would be to see if the increase in the number of passengers carried by Air India was greater than that of other airlines and also whether Air India’s revenue rose by more than those of the rest. But that has not been the case. I would like to reiterate here that, given the market circumstances, being good is not good enough. The challenge lies not in just surpassing one’s own performance but being better than other airlines in a competitive environment.

As any experienced airline hand will vouch for, any airline can raise load factors and thereby market share by offering discounted fares in the garb of promotional schemes. But unless yields go up, it will suffer financially. And yields will rise only if the product commands a fare that at least neutralises the cost of producing a seat, which, however, isn’t the case for Air India. Air India has repeatedly failed to improve its service and product quality because it has focused more on discounts and rate cuts than on increasing its market share by bringing about improvements in the flying experience. Masaru Onishi, who guided Japan Airlines (JAL) out of bankruptcy protection as president before being appointed chairman in early 2012, said he did not want to become embroiled in what he called ‘muddy fighting’ with rivals for market share. ‘We don’t want market share for the sake of market share. I don’t want to be number one in volume. I don’t care about that. I want to focus on profitability, even if the share is small. As long as it is making us money,’ he said. ‘We want to focus on the section of that market that will give us the most yield and profitability,’ he added.

Air India needs to take a leaf out of the JAL experience. In its quest for market share, the airline has been chasing quantity over quality. It has been busy matching low-cost airlines in fares offered to fliers even though its costs are high, thereby adopting a flawed business model for its operations. Air India has in the six years since its merger suffered a cumulative loss of
33,000 crore. (According to CAPA, an aviation industry think tank, it made a loss of
2,226.16 crore in 2007–08,
5,548.26 crore in 2008–09,
5,552.44 crore in 2009–10,
6,865 crore in 2010–11,
7,559 crore in 2011–12 and an estimated loss of
5,198 crore in 2012–13). Any other company with such high losses, a mounting debt of over
45,000 crore, and no solution in sight would have sunk without a trace. But in the case of Air India, the government’s
30,000-crore turnaround plan has handed it a lifeline.