Air India is one of the oldest and India’s national flag carrier; it was set up on October 15th 1932

by its founder JRD Tata who is also the father of civil aviation in India. He ran AI successfully until it got nationalized in 1953. In the 1960s the “Maharaja”, as the national flag-carrier was affectionately known, was flying to 32 destinations and making profits. For many years in India air travel was perceived to be an elitist activity. This view arose from the Maharajah syndrome where, due to the high-priced cost of air travel, the only people who could afford it were the rich and powerful. There was a monopoly in the past but in recent years however the image has been drastically changed, now there are many players. Presently AI is flying 146 destinations, internationally well known and growing day by day and fighting for market share along with many competitors. The following analyst report analyses and recommends on AI only in the Indian Aviation context and till the year 2005-06 as the financials of 2006-07 are not available. (http://home.airindia.in) Competitive Positioning

Source: DGCA, 2006

Source: DGCA, 2006 The market share in 2005-06 of AI in the domestic market is very less and on comparison jet airways has the largest; however in the international market AI has the highest market share of 16.83% and the second being jet airways having 2.5%. This shows its monopoly in the international market as compared to Indian players. Performance in relation to key success factors

Excellent in flight service- According to renowned skytrax international rating, AI has got 3star rating, due to its inefficient in flight service, low rating in service efficiency, in flight entertainment, unenthusiastic and poor attitude of staff, low on problem solving, low in seat comfort in economy and average rating on cleanliness, quality of meals, food served. www.airlinequality.com

Commitment to customer service/Reliability- The AI staff is not professional being a government employee, there are so many delays in flights at regular basis, low rating in check in checkout, arrival assistance, consistency in staff and baggage delivery etc makes customer rethink about their reliability and commitment. (Satish& Bharathi, 2007)

Reputation- Inefficient in flight service, and lack of reliability its reputation is on stake. The aircrafts are not maintained properly, staff not good as compared to private and international airlines. www.airlinequality.com

Value for money- AI being a full service airline in a monopoly situation in India charges high money, but as compared to international airlines it does charge right kind of rates but due to the poor quality of services it offers customers forget about its rate and choose other airlines. Tourism India, 2007

Cost Control- This aspect being a major issue for AI as its costs are way too high, being a full service airline and due to major other reasons like number of staff this airline is amusing as compared to other airlines like seen in the chart, other reason is common with other airline which is ATF a major cause for concern. DGCA, 2006

Source: DGCA, 2006

Control on Debt- Looking into debt equity ratio which according to industry average is 3.08 but air India’s ratio is 7.35 in 2006 and was always high since 2002 except 2005. This can affect the thinking process of lenders and shareholders, if compared with jet their ratio in 2006 is only 2.0 which is very good. Refer Appendix 1.

People- This aspect can make an airline become the best than its competitors but AI lacks in this majorly detailed information in the human resource section.

Organizational strategies Porter generic strategies According to Porter (1980) generic strategies (Lynch, 2003), AI comes under differentiation and focused cost leadership due to the following reasons:

AI along with jet airways has the monopoly in Indian international market as they are the only ones who fly international routes.AI is differentiated as it offers expanded network, for example gulf regions are still not open for Jet Airways but AI has a monopoly there. (Ministry of civil aviation reports, 2006)

AI is the national flag carrier of India. It has brand name which is represented by its mascot called Maharajah which impersonates India and its culture. This feature really differentiates it from other industry players.

AI last point of differentiation is it being the oldest airline as per the year 2006 it’s seventy four years old. It really makes it a well known brand, creates trust in the minds of its customers due to its long operation and its service to its customers. (Tourism India, 2007)

Air India’s has new subsidiary AI Express being the country’s only international low cost carrier which also operates in domestic market. This strategy of AI can be called as focused cost leadership as they are marketing middle class passengers who want to travel internationally at a low cost. (Tourism India, 2007)

Bowman’s Strategy clock According to Bowman’s Clock AI lies between 4th point which is Differentiation and 5th point which is focused Differentiation as already seen above in porter’s strategies it has many

differentiated aspects like being a national carrier, oldest airline and its monopoly in Indian international market and AI can be also called focused differentiation as it majorly focuses on international travel market instead of domestic. Since AI follows part of both strategies it lays between 4 and 5 point. Refer Appendix 6 Ansoff Matrix Market Penetration

Companion free scheme- To promoting high yield traffic, AI has re-launched this scheme between India- USA/Canada/UK/Europe. This scheme is valid on IATA published fares in all classes for both one way and round trip.

Student fares- Passengers on student visa can avail special discounted fares for travel like from India to many destinations for travel. Students can also avail discounts on excess baggage.

Auction through IndiaTimes.com- AI auctioned seats of economy class through indiatimes.com a leading internet portal, this scheme has also been used for some domestic sectors as well.

Flying Returns Program- The flying returns is a frequent flyer program. This program is spread across 19 countries, it is designed to recognize and reward frequent flyers. Various benefits and privileges are provided to the members.

Aircraft Cabin Up gradation- The up gradation of its old carrier like A310-300 by painting, seat refurbishment and upgrading entertainment system to solid state digital audio system which provides improved sound quality and other features.

Market Extension

Medical Tourism- AI has tied up with M/s Vedic India to tap growing medical tourism market, Medical packages including airfares are offered to all those who are willing to undergo treatment in India.

New Product Development

The Maharajah Club (TMC) and The Leading Edge Club (LEC) - TMC and LEC are two elite clubs of air India. Membership to both the clubs is by invitation only with certain criteria laid down. Members enjoy exclusive value added benefits and of value added partnership alliances.

E-Marketing- As Iata wants to discontinue conventional paper ticketing, AI is working on it and according to project it will also invest in E-Marketing.

Wi-Fi Internet Access- In the mumbai maharaja lounge and the transit lounge wifi internet access is provided along with network printing facility.

SMS Alert in case of Rescheduling of Flights- Arrangements have been made to generate SMS messages automatically to all Indian mobile numbers indicated in PNRs to alert passengers in case of rescheduling of flights.

Wholesale Travel Discounts- A special scheme is their for passengers travelling frequently to south east Asia by offering them substantial saving on bulk purchase of tickets for travel.

ATC Mode-S Elementary Surveillance and Enhanced Surveillance Functionality- AI on installing these to ground station, which will enhance better control of aircraft navigation.

Diversification

AI Express of AI is for new market that is the middle class who wants to travel internationally and is definitely a new product as it is a low cost, low fare and no frill carrier.

AI besides AI Express has more fully owned subsidiaries which offer other services such as Hotel Corporation of India, AI Air Transport Services Limited and AI Engineering Service Ltd. (Ministry of civil aviation reports, 2006)

Growth Methods/ Operations - The fleet size of AI in 2001-02 was 29 which have grown up to 30 in 2005-06 which shows growth from previous years and AI has future plans to expand their fleet size drastically. However in the present scenario on comparisons with its full service players like jet, the fleet size is less.

Source: DGCA, 2006 The number of flights per day operated by AI in international routes is 64 which is the highest among its competitors and domestic is 30 per day which is relatively low.

Source: DGCA, 2006 However we can also see the growth in the passenger traffic and passenger load factor on all routes and services over past five years which has gone up to 43.62 lakh. The destinations which AI flies have increased from 32 to 46 presently.

(Source: Ministry of civil aviation reports, 2006)

Source: DGCA, 2006

Human Resource AI needs to reconsider at its HR policies. The numbers of employees per aircraft in AI are 418 which are way too high as compared to others industry players. According to Startrax rating ( www.airlinequality.com) the staff is really unprofessional and even blogs state that staffs arerude, non consistent, poor check in etc. Since it’s a government organization staff is too laid back not being afraid of losing their jobs, they ask for commissions from passengers which are not acceptable at all. (IndiaToday, 2000)

Source: DGCA, 2006

Source: DGCA, 2006 In the second chart distribution of personnel of AI and Jet Airways is clearly shown, it can be seen that AI staff is more in comparison in almost all the departments even though Jet Airways fleet size is higher. On having a look at the revenues and expenses of AI staff, it can be clearly analyzed from the chart that expenses per employee are more than revenue which is really a bad situation. But if seen over the last ten years in appendix 7 there’s growth. (DGCA, 2006)

The attrition among pilots and cabin crew is as high as 46 per cent. Moreover, maximum attrition is observed in employees in age group of 26 to 30 years with experience of two to four years. In employees view, AI according to naukrihub survey of aviation sector’s best employers has ranked it at second position after Jet airways, with a balance scorecard having all the aspects rated, details in appendix 5. This position is because of staff having security of job in AI, salaries in line with the industry, government job facilities and other reasons clearly mentioned in appendices 5,7,8,9. (www.naukrihub.com) Marketing After analyzing Ansoff it is clearly visible that AI is using all forms of strategy to sell. On comparing its strategies with the other players, it can be said that they are update with the market and are marketing the product well by giving good packages and deals to the customers; however all this is started when other airlines have already implemented them, AI just follows. Finance- Operating revenue in 2005-06 is Rs 8833.70 crores which has increased from Rs. 4751.36 crores in 2001-02 which is almost double the amount; however the reported net profit has fallen from previous year from Rs. 96.54 cr. in 2005 to Rs. 14.94 cr. which is a drastic downfall the reasons could be

Source: Capitaline

Operating expenses has increased from Rs. 4805.89 crores in 2001-02 to Rs. 9233.30 crores majorly due to selling and administration expenses. Tax has increased from Rs. 0.18 cr. in 2005 to Rs 3.56 cr. in 2006, Total Debt has increased from Rs. 1261.96 cr. in 2005 to Rs. 3622.82 cr. in 2006, Interest has been so unstable, it was Rs. 157.62 cr. in 2002, and it decreased to Rs. 32.38 cr. in 2005 but again increased up to Rs. 83.88 cr. in 2006, Loans and Advances has increased from Rs. 483.48 cr. in 2005 to Rs. 1064.81 cr. in 2006, Investments have increased from Rs. 62.53 cr. in 2002 to Rs. 87.02 cr. in 2006.

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The EPS of Air India compared to other companies is very less but there are differences in their capital structure except Jet Airways which is similar. Air India’s EPS over the years has decreased as well. This will really make is shareholders avoid investing in this company.

AI gave dividends in 2005 of 10%, but in the year 2006 dividends was nil similar to its previous years from 2002 to 2004 it was nil. This instability in dividends and decrease in EPS and profitability can affect the markets investments decision about AI in a negative manner. On comparing AI with its competitors in the market its only Jet airways which are paying dividends up to 60%, which is really good, but others are in line with AI. Refer Appendix 1 for details.

Source: Capitaline S.W.O.T of Air India Strengths 1. Strong brand name 2. Oldest Airline
3. Monopoly in certain international routes

4. Government backup 5. Rights to travel 96 destinations. 6. Established infrastructure
7. It has prime parking space/slots.

Weaknesses 1. Poor HR Strategies
2. High Competition, Loss of market share

3. High cost , poor cost control 4. Inefficient usage of resources 5. Bad Reputation, Poor Services 6. Poor Aircraft maintenance
7. Highest manpower ratio to aircraft

8. Low feet size 9. Poor reservation services

10. Named as Indo Gulf Airline 11. Corruption in company (India Today, 2000), Refer Appendix 4. Recommendation, Implementation and Monitoring Adopt strict cost control measures AI should improve their overall efficiency and try to cut costs in all their operations, being a full service airline it has huge scope to cut costs compared to LCC’s. There are costs that are external, which AI cannot do much about, however there are internal costs that can be dealt. AI needs to revise wages and implement multi-skill environment, cut on excess staff by implementing a policy where staff are fired if they lack performance (refer appendix 9) and a strict check on corruption needs to be there where some secret staff can be given the responsibility of checking and giving them benefits, all requisite clearances for fuel hedging should be taken and use it to save costs due to ATF, AI should focus on online ticketing and remove travel agents to cut on commissions. Instead of hiring expatriate’s pilots AI should make its own flight training schools and making the students have bonds with the company. Their will be basic resources needed, it’s just the management needs to plan and implement these strictly, and it should be started as soon as possible. Limit government control and policies for AI and its staff AI is in such bad condition as the government barely allows management of AI to make any important decisions. Political leaders still control critical issues like appointing managers, deploying aircraft and deciding routes. It can be suggested that government can offer portions of AI equity to the public while retaining the full management control; it can also divest 20 percent of AI by next year. This little mixture of public and private function will really help AI develop. Better services will motivate staff, but it needs to be regularly followed and monitored to prove to the government that it working better without their full control. Fleet size increase and invest in aircraft maintenance AI is in a vacuum, the market is growing, its fleet is aging, and other airlines have started flowing into India, it desperately needs to acquire more fleet which should be a mix of wide and

narrow body planes, and other updated versions should be purchased. The ageing fleet needs to be maintained by combining it to first class catering which will help in image building. AI should propose a float for MRO i.e. Maintenance, Repair and Overhaul to maintain its old fleet. This can be immediately started by firstly focusing on maintenance, and then purchasing in future. Refresh and Rebrand the company AI and IA should get merged as; it will help it in expanding the fleet, rebranding the airline. They should redesign crew uniforms and retrain their employees. As AI really needs a fresh start, all the old methods needs to be changed or removed specially in area of HR policies with the help of this merger. They should be saving millions of dollars by creating operational synergies in network integration, information technology integration, improvement in schedules, the passenger loyalty program, marketing, ground handling and purchasing aircraft, and by getting rid of half of their employees. It can effectively deliver the classic hub and spoke system done by successful airlines. They will also help in saving costs by choosing better contracts for insurance, oil contracts etc. It will also bring in new product and new environment in AI. The only caution AI and IA needs to take are at the time of rationalization of staff and while changing the HR policy which needs to be done very importantly, if they do it well, the merged entity will bring in huge success. Follow differentiation AI needs to differentiate its product, as there is so much competition in the market. It can differentiate by serving non stop flights to routes which are not provided by others, flights to wide range of destinations as AI has the rights to follow so many destinations, it needs to use it to its benefit. They should be able to attract passengers from SAARC, Africa and Central Asia to fly them to other parts, instead of being just an Indo gulf airline as it is also leading to inefficient usage of resources, by expanding fleet and destination by more code share arrangements and by joining Star alliance which is already under process. They need to highlight customer service as their USPs by provide best catering and good maintenance of rest room which will help go a long way in attracting customers; they need to give dual importance to domestic and international routes and combine both of their strengths. They need better trained staff to ensure better results through excellent customer service, punctuality, making the staff more accountable

by rewarding points, etc. Air India needs to do innovative marketing, competitive pricing instead of just following marketing tactics of other players, the decision making needs to be quicker.

Examine each and every aspect of its functioning AI is known for indifferent passenger handling over years; it should set up a strategic business unit (SBU) for ground handling at airports. All airport functions that Air India used to perform like security and baggage handling would be done by this SBU and its focus would be on customer care and it can help them build the long lost trust in the eyes of customers. A-I should also reform its notorious reservation system and analyze its yield planning which should eliminate the scope of overpriced commission to travel agents as it would stop fictitious block bookings which lead to an artificial overbooking of AI flights, even though there aren't enough passengers. It needs to be regularly monitored by specific staff whose job description includes monitoring as their primary job; they should have processes to monitor each and every staff’s productivity as the services provided by AI staff is non tolerable. They should be better utilization level of its fleet, their ROCE % is also gone down and it is causing major loss in market share. Conclusion AI’s objective should be “to create world class airline in public sector in close cooperation with all its employees”. With its mostly obsolete fleet, large work forces and managements whose decision-making is entangled with that of the government, Air India, the flagship overseas carrier, and its domestic counterpart, Indian Airlines, are rapidly losing market share to new competitors. Therefore AI needs to strictly follow the above recommendations to enhance its reputation and achieve its objectives and success of these will automatically help in monitoring.

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