Air India has revealed its turnaround plan. Much of it will make the airline not Air India but Hot Air India as it looks like someone's pipe dream. Let us take a look at the salient points with my comments in brackets and in italics.
Turn around to be made in 24 to 36 months (Reasonable time frame, especially in view of the economy likely to revive during that period. But we have heard AI turning around and making profit for decades. All those promises have vanished into thin air the moment the airline gets additional tax payers money as subsidy. So why should this be different).
Focus on low-cost carrier for high density ports from September with 70-75% of domestic flights to fly as low cost under the brand Air India Express and the Airline is exprected to earn Rs 180-200 crore through this (Low cost airlines the world over has never been able to sustain profits even in the medium term. This premise of AI that it can successfully run a profit making low cost operation with its huge baggage of ageing aircrafts, highly paid PSU staff and bloated management is someones pipe dream. For any organization to adopt a low cost strategy and succeed it needs to have the following advantages, as per Strategic Guru Michael Porter; Sustained Capital Investment, Intense Supervision of Labour, Process Engineering Skills, Products and services designed for ease of manufacture or use & Low cost distribution system. Our national carried fails to pass muster on even one of these parameter. Then, pray, how will this strategy succeed?)
Plans to create a subsidiary for MRO, ground handling and cargo unit which would lead to almost two-thirds of the 32,000 staff going out of airline operations, thus lowering the aircraft-to-employee ratio to match global standards. Logic being that the ground-handling subsidiaries of Lufthansa and Singapore Airlines account for almost 40 per cent of revenue of the parent company, whereas AI currently earn only two per cent (This is only shifting the problem. The employees will be moved from AI roster to the the subsidiary roster, whose accounts will be reflected on AI balance sheet. It is another matter if AI were to divest this operation fully. The reason why Lufthansa and Singapore Airlines have 40% of its revenue from ground handling and cargo operations is because they have the advantage of having the biggest two hubs in the world -Frankfurt and Singapore. Also, both airlines have clear focus on their cargo operations, whereas Air India scantily pays attention to the cargo division, which is less glamorous but more profitable)
Air India, which has over the year lost its market share, is expected to lose over Rs 7,000 crore this year. The carrier is also overburdened by its working capital borrowings worth Rs 17,000 crore. Airlines is facing a cash-flow problem and is unable to service its interest and debt liabilities with internal resources. The airline also said to go for an IPO in the next 18 months (The question that remains unanswered is why has AI lost its market share. It is understandable during recession for revenues to drop. But to lose market share? AI should explain why NRIs and Indians travelling abroad almost always never opts AI as their first, second or third choice Airline. It has to do with the culture and value system of the organization that treats Indians shabbily. With Indians being so mobile globally and travelling more than ever before in the history, AI has to have a relook at its strategy and focus on Indians rather than foriegners as its prime target segment. If they make a sincere effort in changing their approach to Indian citizens, give them top class service and special offers, be courteous, be more sensitive to their needs and run the operations on schedule, I am sure Indian travellers will reciprocate and start patronizing the Airline. It is not that other airlines are great when it comes to serving the Indian passengers. I have found them to be condescending and at times downright patronizing. If they still fly in those airlines, it is only because Air India is terrible. Improve the service by at least 60% and you will see customers flocking back)
Finally, if AI were to be turned around, it has to be allowed to operate as an independent entity, with the Ministry of Civil Aviation having absolutely no say in its operations for the next 36 months and may be forever. Elect an eminent board, get the best talent in the Airline Industry in the top management, have an intense program for retraining and re orienting the staff, re brand, re package, focus on efficiency, cut down on routes, follow a focussed differentiation strategy of targeting Indian travellers, give them time to turn around and we may yet have an Airline that we Indians can be proud of.
