AIR INDIA

The Indian aviation sector consists of many players which are divided into Low-cost
carriers.

and Full-service

Jet Airways, Kingfisher(closed now), Air India are some examples of Full-service carriers and IndiGo,
Spicejet, GoAir are some of the leaders in Low-cost carriers segment.

Recently the Indian Airline Industry is witnessing a series of disastrous events which are a cause for the
significant loss in profit and reputation of the individual airlines .
The only way for airline companies to defeat the competitors and stay profitable is to provide better
service than that of their competitors.
Customers evaluate their experience of the flight based on the variety of services delivered by the
carrier. Currently low-cost carriers are offering variety of services to attract new customers and retain
the existing ones.
Air India is desperately trying to gain its lost market share by lowering down its fares and offering
better service to its customer

HISTORY OF AIRLINES

 Air-India was a small, private, domestic carrier which began its operations in 1932 as
Tata Airlines, named after J. R. D. Tata, its founder but it is now government owned.
The company was formerly known as National Aviation Company of India that was
established to facilitate the merger of the two main state-owned airlines in India: Air
India, with its subsidiary Air-India Express and Indian, together with its subsidiary
Alliance Air
It was the first to provide commercial Airline services.
After World War II in 1946, Tata Airlines became a public limited company under
the name of Air India.
Under the Air Corporations Act of 1953, the Government nationalized the Air
transportation industry and Air India International Limited was born.
In 1960, Air India flew its first international flight to New York via London.

HISTORY OF AIR INDIA

 The logo of the new airline is a red coloured flying swan with the `Konark
Chakra' in orange, placed inside it.
The new logo would feature notably on the tail of the aircraft. While the aircraft
will be ivory in colour, the base will retain the red streak of Air India.
The painted on red palace style carvings on the outside of the windows refer to
their slogan "your palace in the sky" which is written on the back of the aircraft.

LOGO

 Bargaining power of Buyers

Bargaining power of buyers is high
Customers can easily switch between airlines
High disposable income, Emerging economy and high price
sensitivity
Substitutes like rail and road transport are used if air fares
are too high

Porters Five Forces

Analysis

 Industry Rivalry
The industry is highly competitive
Many emerging low cost airlines
There is always a price war in the industry and
customers shift to the airline which offers service at
the cheapest cost

Porters Five Forces

Analysis

 Threat of New Entrants

Threat of new entrants is low
Initial investment required is huge and profits can only be
achieved by providing excellent service at low cost
All the existing companies have build their brand equity
Poor infrastructure and unfavourable government
regualtions

Porters Five Forces

Analysis

 Substitutes
Threat of substitutes is medium
Road and Rail transport are alternatives
Although time required by air is far less than the time
required to reach the destination by rail or road

Porters Five Forces

Analysis

 Strengths

Weaknesses

Strong backing by the government

India carrier with the largest number
of fleet and most of them providing
in-flight entertainment

Growing labour problems

Weak Management resulting in huge
losses
Excess staff

Oldest and has developed a strong

brand over a period of time
It has the first right of refusal for
any new route that is initiated by the
government

Inefficient operations resulting in

flight delays
Tarnished brand image

SWOT Analysis

 Opportunities

Threats

India airline industry is growing at a

CAGR of 20%
Customers are getting wealthier, tend
to be less price-conscious and prefer to
choose quality service over cost.

Air India faces aggressive competition

from world leading airlines and price
wars triggered by domestic players.

Approval of FDI by foreign airlines in

the domestic carriers

The Indian Railway Ministry has

improved the speed and services in
their medium/long distant routes,
attracting passengers away from air
service

The number of foreign visitors and

investors to India is increasing rapidly.

Rising ATF (Airline turbine fuel) and

labour cost

SWOT Analysis

 Economies Of Scale
In case of Air India, economies of scale can be utilized by targeting
maximum occupation of in-flight seating. The two prime requirements
for this are low fares and on-time departures
Air India recently reduced its fares to undercut competition and regain
market share that it possessed prior to its employee strikes in May.
However, after attaining its 15-16% market share target (this was its
share prior to the May 2011 employee strike), it raised its fares so that
competitors could price their tickets rationally.

Functional Level
Strategy

 Air India is also constantly working towards improving its on-time

performance (OTP) which is being monitored at the highest level. The
executive directors of the region have been made responsible for
monitoring, analysing the causes of the delay and taking adequate
measures to resolve the same

Functional Level
Strategy

 AIL carriers connect 93 destinations (60 domestic and 33 international) in 24

countries as of February 2011.
The main bases of operation of the airline are Mumbai's Chhatrapati Shivaji
International Airport and Delhi's Indira Gandhi International Airport.
Air India Ltd. was a pioneer in the aviation industry before the independence of
the country which after its merger with Indian Airlines attained the status of
being the biggest South Asian airline.
In addition, it has code-sharing arrangements with other international carriers to
various destinations in Europe, the Asia Pacific, the U.S. and Canada, the Asia
Pacific region, south Asia, the Gulf and Middle East region, Africa, and Australia

CASE POINTS

 In 2007, the Government of India announced that Air India

would be merged with Indian Airlines.
As part of the merger process, a new company called the
National Aviation Company of India Limited (NACIL) was
established.
Around 2006-2007, the airlines began showing signs of
financial distress. The combined losses for Air India and
Indian Airlines in 2006-07 were 770 crores (7.7 billion).
On 27 February 2011, Air India and Indian Airlines merged
along with their subsidiaries to form Air India Limited.

Case Points

The merger was to be the starting point of all the trouble and distress of the new Air
India Limited
The combined losses for Air India and Indian Airlines in 200607 were 7.7
billion (US$120 million). After the merger of the airlines, it went up to 72
billion (US$1.1 billion) by March 2009
By March 2011, Air India had accumulated a debt of 425.7 million(US$6.8 billion)
and an operating loss of 220 billion (US$3.5 billion), and was seeking 429.2
billion (US$6.8 billion) crore from the government
A report by the Comptroller and Auditor General (CAG) blamed the decision to buy
111 new planes as one of the major causes of the debt troubles in Air India; in
addition, it blamed on the ill timed merger with Indian Airlines as well

Case Points

 Government of India has taken several steps to tide over the crisis,"
the statement said mentioning that the government in the federal
budget 2011-12 had allocated Rs 2,000 crore for the airline and that
another Rs 1,200 crore was expected to be infused this year".

Currently the airline, which is laden with a cumulative debt of Rs

40,000 crore it incurred over aircraft acquisition and as short-term
loans to maintain its operations, expects a fresh equity infusion of Rs
1,200 crore in July. The cash-strapped carrier is also seeking a total
infusion of Rs 17,000 crore, which includes Rs 5,000 crore for this
fiscal year alone, the report pointed out

Budget
Allocation To
Airline Industry

On May 8, 2012 about 100 pilots went on medical leave as a mark of protest.
Later, the same day it sacked ten agitating pilots and de-recognized their
union after 160 pilots failed to join duty by the given deadline.
After putting forth an original list of 14 demands, the aviators are now
asking for reinstatement of their 101 sacked colleagues
On the 15th of May, the Union Civil Aviation Minister Ajit Singh stated that
the Government was giving Air India one last chance and that it must
perform in order to qualify for a bailout.
on 4 July 2012 AI management gave an assurance to Delhi High Court that
it would look into the hardships of the pilots sympathetically, the striking
pilots have decided to end the 58 day old strike immediately.
Due to pilots' strike Air India suffered a loss of 500 crores (US$90.5 million)

THE CHRONOLOGY OF THE

AIR INDIA STRIKE MAY
2012

 Efforts are being made to resolve the situation.

Appeal to the pilots that they should think about the
passengers.
As per Rule 42 (2) of the Aircraft Rules, 1937: Pilots who
have claimed sickness for two months have been asked to
submit medical reports. But verification of the two-month
long sickness and related tests and reports may catch
pilots on the wrong foot

Managements view over The

Strike Issue

 The 58-day protracted strike by Air India pilots was called

off on 4th July after the Delhi high court asked them to
join duty within 48 hours and the management to
sympathetically consider their grievances.
"The AI management shall sympathetically consider the
grievances of the pilots including the aspect of
reinstatement of those pilots whose services were
terminated as a consequence to their strike," Justice
Khetrapal said while disposing of the pilots' plea for a
direction to the AI management to take back the 101
sacked pilots, including 10 IPG office bearers

How The Strike Ended?

Air India has huge financial burdens

The new government has been mounting pressure on the Air India management to
turnaround the loss-making airline and it has initiated steps to cut costs but the lossmaking airline appears to be falling behind the target that was set as part of its
turnaround plan.

The airline has been losing money on international routes and the Dreamliner fleet that
had been inducted at a huge cost is flying at a loss on several international routes.

Financial Issues

Total Revenue increased from Rs.140,620.1 million in 2010-11 to Rs.147,138.1

million (an increase of Rs.6,518.0 million) during 2011-12.

Operating Revenue was Rs.146,753.0 million as against previous years revenue of

Rs.139,760.3 million (increase of Rs.6,992.7 million).

Passenger Revenue increased from Rs.104,438.2 million last year to Rs.114,236.9

million (an increase of Rs.9,798.7 million) which was mainly due to increase in yield
per PKM from 3.46 to 3.74 and increase in Passenger Load Factor from 66.1 to 67.9

Revenue

 The total expenditure incurred during the year was Rs.234,594.8

million as compared to the previous years figure of Rs.213,215.9
million (an increase of Rs.21,378.9 million).
Operating Expenses increased from Rs.180,808.0 million to
Rs.198,139.9 million (an increase of Rs.17,331.9 million) mainly
due to the following :
Increase in fuel price by Rs.23,996.1 million i.e. 39.3%;
Increase in interest on working capital loans by Rs.4,533.1 million

Revenue

 The company plans to reduce the pay roll by $40 million by closing some unprofitable
routes and reducing the employment, which leads to a strike by the employees and the
pilots.
The national carrier has also decided to discontinue loss-making routes, among others
steps, to rein in the spending and return to break-even.
The use of expensive hotels or five-star hotels for stay during the travel or holding events
has been restricted unless it is unavoidable and the budget for such activities has been
reduced by 10 percent as part of the measures by AI.
After a long spell of losses, Air India had recorded a net profit of Rs 14.6 crore in
December last on account of a healthy growth in both passengers and cargo revenues.
Air India's total revenue rose by 6.5 percent to Rs 2070 crore during December 2014 as
compared to Rs 1,944 crore in the same period in 2013.

To Cover Up
Losses

 The state-run airline has reduced both its operational and net loss over
the last two fiscals. Its net loss came down to Rs 5,389 crore in the last
fiscal compared with a net loss of Rs 5,490 crore in financial year 2013
and Rs 7,559.74 crores in FY12
The management has also directed that all routes should be critically
reviewed and routes which are not covering fuel cost or variable costs,
removed from the network after studying the historical trends.
The management has also emphasised to all its employees that the
targets set under the turnaround plan and the budgets should be achieved
for this fiscal on a "war footing" and there can be no compromise on
these.

To Cover Up
Losses

 On the operational front, the measures are aimed at

improving aircraft utilisation by cutting down the
turnaround time at transit stations, reducing duty travel of
crew to the minimum to increase their productivity, close
monitoring of occupancy ratios on various flights,
bringing down expenditure on entertainment at foreign
stations,

To Cover Up
Losses

 The national carrier has also decided to discontinue loss-making routes, among others
steps, to rein in the spending and return to break-even.
The use of expensive hotels or five-star hotels for stay during the travel or holding
events has been restricted unless it is unavoidable and the budget for such activities has
been reduced by 10 percent as part of the measures by AI.
After a long spell of losses, Air India had recorded a net profit of Rs 14.6 crore in
December last on account of a healthy growth in both passengers and cargo revenues.
Air India's total revenue rose by 6.5 percent to Rs 2070 crore during December 2014 as
compared to Rs 1,944 crore in the same period in 2013.
The state-run airline has reduced both its operational and net loss over the last two
fiscals. Its net loss came down to Rs 5,389 crore in the last fiscal compared with a net
loss of Rs 5,490 crore in financial year 2013 and Rs 7,559.74 crore in FY12.

Some Major Steps Taken

 AI has a cost base of nearly Rs 24,000 crore out of which nearly Rs

14,000 crore is variable and this includes fuel cost of Rs 9,500
crore."With the decline in fuel prices, the company plans to achieve at
least a 20-25 percent reduction in its fuel bills in the next fiscal, which
will be a substantial saving for the carrier.
The management has also directed that all routes should be critically
reviewed and routes which are not covering fuel cost or variable costs,
removed from the network after studying the historical trends.
The management has also emphasised to all its employees that the targets
set under the turnaround plan and the budgets should be achieved for this
fiscal on a "war footing" and there can be no compromise on these.

Some Major Steps Taken

 On the operational front, the measures are aimed at improving aircraft

utilisation by cutting down the turnaround time at transit stations, reducing
duty travel of crew to the minimum to increase their productivity, close
monitoring of occupancy ratios on various flights, bringing down
expenditure on entertainment at foreign stations

Some Major Steps Taken

 There is a need for Air-India to establish a new fleet with mid and small sized aircrafts, to
serve the less busy routes
Air-India has to appoint, highly skilled managers from private sector, in order to turn over
the situation
Instability in the management has to be eliminated, by appointing a firm and constant
management and director, as government is changing the management frequently.
Ratio of manpower to number of aircrafts has to be reduced, in order to reduce the staff
costs
The unnecessary aircrafts have to be rented or they can sell those aircrafts. For example,
half of Air-Indias Boeing 747 aircrafts are remaining in the hangers, without regular
usage. The company have to gave them for rent or have to sold them, in order to generate
some revenues and to reduce the maintenance costs

Recommendations

 Quality of service and aircraft maintenance have to be improved

The organization has to encourage the private investments, in order to recover
some costs
Collaboration with major international air line companies will be helpful
The pace of decision making process has to be improved

Recommendations