“AI selects Booz, Rothschild for cost restructuring?, “AI may announce 50% incentive cut?, “Pilots refuse to meet with Air India management?, “AI asks employees to accept salary cuts”. These are the news headlines that have been flooding the media and all major newspapers in the past few days. The oldest and largest airline in India serving Asia, Australia, Europe, and North America, is facing financial crunch and constantly incurring losses. It seems that the MAHARAJA (Mascot of Air India) is losing its shine under the black clouds and unable to control its kingdom.
India is emerging as a global player in the aviation industry. Increasing per capita income, low air fares by different carriers, major business and tourist destination have accelerated the growth of Indian aviation. This kind of a scenario offers ample opportunity to Air India to encash on this opportunity by providing its best services but due to its financial instability, it has not been able to avail these opportunities.
But now the question is how Air India can ensure its survival in such a competitive market where every player in the industry is executing its operations at its best. Before we offer remedies, I think the possible reason for its downturn should be discussed.
REASON FOR DOWNTURN
The foremost reason for its downturn is inefficiency in its operations but the management attributed other reasons for its financial mess. According to them, rising fuel prices, high interest rate for loan payments with low returns are the major reasons for their downfall. Further the fuel suppliers also backed out in supplying oil to AI which lead to the cancellation of many domestic as well as international flights affecting the brand as a whole. From the last few months oil prices have been on rising side affecting the supply of it to AI. It reported a cumulative loss of 22,165 crores and estimating Rs 6,994 crore losses in 2010-11. Moreover the political interference on a daily basis was hampering the growth of AI. Even the bailout packages by the Indian government didn’t make any great difference. As a result the question of its revival becomes the most frequent question asked among the analysts.
IMPACT ON ORGANISATION AS A WHOLE
The impact of being operating in losses could be seen in the form of strikes by employees as it was not able to provide remuneration to its employee on time. There was a lot of hype related to cancellation of flights. It lead to coordination problems with the management as there was 50% cut in PLI (Production Linked Incentive) and three months salary to its employees also remained unpaid. There was no harmony between the employees and the management which further added to the misery of MAHARAJA.
Recently Al was given the opportunity to become a member of star alliance (world’s largest airline) but that could also not be exploited due to non fulfillment of norms which further added to their misery because it could not provide highest industry standards of customer service, security and technical infrastructure.
Since Al represents the nation to the rest of the world, it is the responsibility of the Government of India to take some precautionary measures and help Al to come out from the severe crisis that is currently being faced by MAHARAJA. In time of crisis, people tend to spend less and save more of their money which indirectly affects airline industry. The government is looking for its turnaround and financial restructuring to bring it back on the right track. In the revival plan, the Govt. decided to provide 6600 crore of capital to Al to clear off its dues but Deloitte (consultancy firm) made negative comments about its turn-around strategy and found some flaws in it. According to them, it has overplayed its revenue and growth projections (assumption that fuel price would not raise) are also not justified. So now the onus lies on the management to take it to the skies and make it fly once again.
The company has to take some efforts to overcome the problems. Since the major reason for increasing the cost is Aviation Turbine Fuel (ATF), the focus should be to optimize the fuel cost. For that it has to reduce the number of flights to non profitable routes and combine flights to certain routes like Delhi – Mumbai – Chhattisgarh. Secondly, it should offer superior services to gather more and more traffic and maximize its revenue. Another problem that is being faced by Al in its working is its capital shortage, due to which it is constantly taking funds which increases the interest costs. The aircrafts which are obsolete should be disposed off and replaced it with modern aircrafts to bring efficiency. Another solution could be to follow the norms in order to become a member of star alliance which will drastically reduce their costs and increase the overall efficiency. Airlines such as LUFTHANSA, SCANDINAVIAN have been enjoying this status where these airlines have been recognized as world’s most reputed airlines. Star alliance provides connectivity throughout the world attracting more customers for their member airlines. In the long run, it should optimize its staff by lay off (if necessary). Moreover, it should reduce its debt burden to maintain its credibility and recapture its lost market share and finally the govt. should also extend its support time to time and ensure its survival.
Many domestic flights are planning to go international, even some airline such as INDIGO has started creating tough competition for loss suffering unit and take away its market share. There has to be a collective effort from management as well as employees side to carry forward the legacy which was once started by J.R.D. Tata. If adequate steps are not taken, then we won’t be able to see MAHARJA in the skies again in future.
Guest Article by – Puneet Gupta – IBS, Hyderabad
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