Caselet: Air India

By: Anushka Sinha

Charuvi Ranjan
Kanishk Singh
Prajna Kamra
Rashika Sachdeva
Sharanya Gupta
Vrinda Goel

Introduction 1
Industry Background 2
Company Background 3
Environment 4
Alternatives 5
Conclusion 9
 1

Introduction
India currently has one of the most notable development rates in common avionics
and is among the nations with the most elevated predicted development levels in
both common aeronautics travelers and cargo, taking into account financial
development opportunities.
J.R.D. Tata established Tata Airlines in 1932, offering a weekly airmail service between
Karachi and Madras via Ahmedabad and Bombay.[1] This saw a huge and
unexpected growth as an airline.
In 1953, India nationalized all Indian airlines, forming two corporations: one for
domestic service, called Indian Airlines Corporation (which merged Air-India Limited
with six smaller lines), and one for international service, called Air-India International
Corporation. In 1962, the latter's name was shortened to Air-India.
While Air India continued to provide premium services and controlled the majority of
the country's foreign traffic, it began to lose domestic market share to airlines such
as Jet Airways and Sahara Airlines, who did not provide luxury services but did offer
low-cost domestic flights.
After gathering billions in debt over the subsequent decade, the authorities started
seeking to privatize the enterprise in 2017. After years of little success, the airline was
privatized with the help of the Tata Group in 2021.

[1] https://thewire.in/business/air-india-bid-tata-sons-wins

Industry Background
The aviation industry of India is one of the busiest airline industries in the world
along with being the third-biggest home civil aviation marketplace. About 60 foreign
airlines from 40 countries have been approved to operate 1,783 weekly international
flights from India on the summer 2022 schedule. Meanwhile, Indian airlines are
allowed to operate up to 1,466 international flights per week on summer
schedules[1]. This guarantees that the country is linked well with most of the nations
worldwide. This connectivity, currently, is with 59 nations via 344 routes.
Also, the aviation region of India contributes $72 billion to the Gross Domestic
Product (GDP) of the country currently. This is because of the reality that India has a
total of 464 airports and airstrips, out of which 125 are owned and controlled via
means of the Airport Authority of India (AAI).
 2

The divestment ministry had additionally indicated a choice to divest 49% of the
government's percentage in India Airlines. Indian Airlines had a workforce of around
22,000 employees. Its annual turnover became roughly over ` 4000 crore (around
US$ 1 billion). Indian Airlines flight operations concentrated on its 4 major hubs—the
primary metro towns of Delhi, Mumbai, Kolkata and Chennai. [2]
However, The number of people traveling compared to the number of people
traveling only by air is shocking – Almost 60 million tickets for a population of over a
billion. [3]The reason for this is the skyrocketing air fares and only about 3 percent of
Indians can actually afford air travel. And this is owed to the high taxes and fuel
which constitute upto 45 percent of the ticket. [4]

[1]
https://www.livemint.com/news/india/airlines-from-40-nations-to-operate-as-india
-resumes-international-flights-11648381806973.html
[2] https://faculty.fuqua.duke.edu/~charvey/Cases/C5.pdf
[3]
https://economictimes.indiatimes.com/opinion/et-commentary/indias-aviation-sec
tor-is-choking-on-high-taxes-poor-regulation-bad-airports-g-r-gopinath/articlesho
w/37982404.cms
[4]
https://economictimes.indiatimes.com/opinion/et-commentary/indias-aviation-sec
tor-is-choking-on-high-taxes-poor-regulation-bad-airports-g-r-gopinath/articlesho
w/37982404.cms

Company Background

Air India is the flag carrier airline of India, headquartered at New Delhi. After the sale
was finalised by Air India Limited's previous owner, the Government of India, Talace
Private Limited, a Special-Purpose Vehicle (SPV) of Tata Sons, acquired it. 102 local
and foreign destinations are served by the fleet of Airbus and Boeing aircraft
operated by Air India. The airline's hub and numerous focal cities around India are
located at Indira Gandhi International Airport in New Delhi. With an 18.6% market
share, Air India is the biggest foreign airline operating from India. Air India offers
service to more than 60 overseas locations on four continents. On July 11, 2014, the
airline joined Star Alliance as its 27th member.
 3

History: J. R. D. Tata created the airline in 1932 under the name Tata Airlines. After the
Second World War, it changed its name to Air India and became a public limited
company. It received its first Boeing 707, called Gauri Shankar, on February 21, 1960,
making it the first Asian airline to add a jet to its fleet. There were attempts to
privatise Air India in 2000–2001, and following its merger with Indian Airlines in 2006,
it started to lose money. Another effort at privatisation was made in 2017, and it
resulted in ownership of the airline and associated properties reverting to Tata in
2022.

Vision: To be the leader in Indian aviation and India's Ambassador to the world.

Mission: Leadership

Customer
● Provide safe, reliable and on-time services
● Deliver the highest quality of service around the world
● Be the epitome of Indian hospitality

Processes
● Continuously improve andards of safety and efficiency
● Operate and maintain a young and modem fleet
● Provide the best and most efficient network
● Create economic value

People
● To be the employer of choice
● Build a highly motivated and professional team
● Maintain highest degree of transparency and ethics
● Be a responsible corporate citizen

[1] https://en.wikipedia.org/wiki/Air_India
[2]https://www.airindia.in/writereaddata/Portal/FinancialReport/1_194_1_chairman_
message.pdf
 4

Environment
Until the 1990s, Air India had a monopoly in the Indian aviation market, after which
the public authority opened the market to private players. This is where the downfall
of the company began. Air India was serving more than 370 routes, out of which only
9 were productive. The increasing expense of fuel had added to higher working
costs which negatively impacted the revenues.
Further damage happened when it was consolidated with Indian Airlines in 2007.
This prompted a loss of Rs. 7000 crores in 2010-11. Another significant factor behind
the downfall was the number of staff which was high compared to other airlines. Air
India had 32000 employees when it needed only 12000 workers. [1]

General problems that impacted Air India:

High Costs, Low Yields: Jet fuel prices are costlier in India than anywhere else in the
world. They constitute around 40% of the total costs for any airline. Over the years,
Aviation Turbine Fuel (ATF) prices have risen to almost 9%. This rise in the price of
ATF, combined with low prices of tickets which plays an important role in India,
narrowed down the profit margins considerably.
Government Apathy: For the last 10 years, Indian airlines have been pleading with
the government to lower the taxes on fuel. However, it has not given way to any
solution. Due to relatively higher tax rates, jet fuel in India is 35-40% costlier than
other countries. Aviation industry is already burdened with taxes, over this the
exorbitant tax on fuel cuts down the revenue drastically.
Pilot Shortage: CAPA Center for Aviation, a Sydney-based consultant, estimates the
current number of pilots in India at 7,963 (as per 2020). In the coming 10 years, it is
estimated that the airlines will have to hire 17,164 more. The estimated growth in
capacity of the airlines will result in a shortage in the number of pilots by 14%, which
would have to be fulfilled partly by more expensive expatriates. This will increase the
wage bill.

Specific Problems faced by Air India:

Lack of Funds: Air India has been facing losses for the past decade. This has led to a
huge burden of debt on the management of the airline.
Non-payment of Salaries: Due to the lack of funds and revenue, the airline was
unable to pay its employees. This led to workforce shortage as the airline was forced
to fire some of its employees. Some employees also left on their own as they were
not getting paid.
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Lack of Buyer Interest: The sale of Air India fell in jeopardy due to a lack of interest
in buying the airline. The center had approved the sale of a 76% stake in the air
carrier but even that did not attract buyers. Private carriers like IndiGo and Jet
Airways had shown some interest at a point but they got out of the race pretty soon
given the debt scenario and the poor financial condition. The airline had a debt
burden of around ₹48,781 crore as of March 2017, which posed a huge financial risk
to any buyer.

[1] Privatization Of Air India: It's Legal And Economic Impact (legalserviceindia.com)
[2] SOUTH ASIAN LAW & ECONOMICS REVIEW Annual Volume 5 – ISSN 2581-6535
2020 Edition © thelawbrigade.com

Alternatives

Revenue (in Financial

crores) Year (FY)

19815 2022

12104 2021

1
https://economictimes.indiatimes.com/industry/transportation/airlines-/-aviation/air-india
2
https://economictimes.indiatimes.com/industry/transportation/airlines-/-aviation/air-india
 6

Net losses (in Financial

crores) Year (FY)

9556 2022

7017 2021

The Tatas being the new owner of AirIndia are entitled with the task of making it
profitable despite the huge raft of problems that persist. Considering that AirIndia is
a high cost platform owing to the large operational costs (consisting of ATF and
airport charges) and considering the excessive price sensitivity of Indian passengers,
profitability can come from the adoption of a three-pronged strategy to recuperate
in the shortest possible time:
The Tatas being the new owner of AirIndia are entitled with the task of making it
profitable despite the huge raft of problems that persist. Considering that AirIndia is
a high cost platform owing to the large operational costs (consisting of ATF and
airport charges) and considering the excessive price sensitivity of Indian passengers,
profitability can come from the adoption of a three-pronged strategy to recuperate
in the shortest possible time:
1) Reduce losses:
a) Make employees productive and efficient by ensuring that they are
actually at work.
b) Curb unwarranted financial leakages.
c) Renegotiate high cost agreements.
d) Implementing able leadership and professional management with
accountability.
e) Reducing excess cabin crew to be brought on par with industry
standards.
f) Gainful redeployment of surplus manpower.
Ethics involved:
Type of Ethics Points Justification
 7

Meta a, d Since these points depict the

ideal situation of an
organization

Normative b, c, f These points adhere to a

normal circumstance and what
must be done as a standard
procedure for upholding certain
ethical values.

Applied e Retrenchment of staff might not

always be ethical but in this
case it is best for the company.

2) Enhance revenues:
a) Refurbish aircraft interiors.
b) Introducing refresher courses for customer-interfacing employees.
c) Adoption of more customer-oriented practices to enhance their
experience.
d) Charging a premium on fares and giving up on practices like discounting
to account for the quality experience and attracting more passengers in First
and Business class.
Ethics involved:
Type of Ethics Points Justification

Normative a ,b, c These points adhere to a

normal circumstance and what
must be done as a standard
procedure for upholding certain
ethical values.

Applied d Increment in price points can

be deemed negatively if the
cost cannot account for the
value delivered to the
customer.
 8

3) Fleet expansion:
a) Operating new flights without inducting more operating crew or aircraft
maintenance engineers due to rationalization of manpower.
b) Extending both its domestic and international outreach by connecting
India to every part of the globe.
c) Focus on technological advancement and upgradation as well as
modernization of the fleet.
d) Get real time data using artificial intelligence and machine learning
algorithms to offer more personalized experience to the airline passengers.
Ethics involved:
Type of Ethics Points Justification

Normative a, b, c These points reflect a standard

improvement measure which
can aid in recuperation of
AirIndia

Applied d Monitoring and using the

personal data of the masses for
financial gains is unethical.

Conclusion

Reform is not an event, but a process. It is a task that needs to be completed and
cannot be put off at any cost. Every aspect of society must undergo change.
especially in Asia's developing nations. We can hope that the disinvestment process
this time is deliberate, sought after, and successful since it has the potential to
transform Air India into a robust transporter.

The most recent DGCA data also showed that more people were transported by
duty-ridden aircraft in December 2019 compared to December 2018, which shows
that the market for the aviation industry is growing.
 9

The future of the Indian aviation industry lies in privatization, without a doubt. The
struggling Air India is a good example of this. The performance of commercial
airlines like SpiceJet, IndiGo, Vistara, GoAir, and others pale in comparison to that of
Air India. This is due to the fact that, being a state-owned company, it cannot receive
the required funding from the government, which causes issues with its
administration and operations. Non-payment of employee salaries is one of the
many problems brought on by the severe financial crisis.
The Indian aviation sector has been on the rise with Air India being the lone
exception. The policy of privatization helped introduce foreign competition and also
competition from private players. This helped the economy in many ways as it led to
more foreign investments. Also, regional and international connectivity has increased
for India over the years with private airlines reaching new destinations. Therefore,
privatization is the need of the hour and should be continued with.