Now OR Never

For The
Maharaja!
By:-
Vidhita Shetty Nidhi Shah
Tatsavi Vanzara Karbi Chaturvedi
What’s the Airline
Industry all about ?
•A broad variety of companies are involved in the airline industry,
called airlines, which provide air transport services to paying
customers or business partners.

•These air transport services are provided both for passengers

and for freight and are most frequently offered by jets, although
helicopters are still used by some airlines.

•Airlines may provide scheduled and/or chartered services, and a

key component of the wider travel industry is the airline industry,
which provides passengers with the opportunity to buy seats on
flights and travel to various parts of the world.

•A variety of career options are provided by the airline industry,

including pilots, flight attendants and ground crew.
Types of Airlines :-
• Airlines are also divided into various groups, and in different
parts of the world, accurate definitions can vary.
• 1.International Airlines: A category of the highest, most
high-profile and most profitable airlines are international
airlines.
• 2.National Airlines: The next move down from the biggest
foreign airlines is represented by national airlines. It is still
likely that a national airline will employ thousands of
people but will have a smaller fleet size.
• 3.Regional Airlines: Finally, regional airlines are the smallest
of the three major groups, as the name implies, and
concentrate on providing services within particular regions.
 Introduction Of Air India
(& Story Behind Its Mascot "Maharaja") :-

 Air India is the flag carrier airline of India and the third largest airline in India
in terms of passengers carried, after IndiGo and Jet Airways.
 J. R. D. Tata, an Indian aviator and business magnate, founded Air India.
 It is owned by Air India Limited, a Government of India enterprise and
operates a fleet of Airbus and Boeing aircraft serving various domestic and
international destinations.
 It's headquartered in New Delhi.
 Air India has major domestic hubs at Indira Gandhi International Airport,
New Delhi and Chhatrapati Shivaji International Airport, Mumbai and
secondary hubs at Netaji Subhas Chandra Bose International Airport, Kolkata
and Chennai International Airport.
 Air India became the 27th member of Star Alliance on 11 July 2014.
 The Maharajah is Air India's mascot (Emperor).
 Bobby Kooka, the then-commercial director of Air India, and Umesh Rao, a J.
Walter Thompson Limited artist, created it in 1946.
 According to Kooka, "For lack of a better term, we refer to him as a
Maharajah. His blood, though, isn't blue. He may appear to be royalty, but
he isn't ".. In 1946, Air India made the Maharajah its mascot.
History Of Air India :-

Disinvestment was expected, but it

The Company's Past JRD Tata First Boeing 707-420 is purchased, fell through due to a Air India was on the verge of being
founded Tata Air Service in 1932. ushering in the jet age. global recession. privatised in 2017.

1932 1953 1960 1994 2001 2011 2017

Major stakes were purchased by the The airline was renamed Air India Air India and Indian Airlines merged
Indian government in 1953. Ltd in 1994. in 2011 to create Air India Limited,
which included their subsidiaries.
Competitive Landscape :-
• By concentrating on pricing and expanding its corporate
travel business to prepare for the competition, Air India
has stepped up its sales and marketing. As a result, load
factors and yield metrics, which denote the earning
efficiency of an airline, have increased. Although 700,000
seats were put up for sale by Jet Airways, GoAir provided
fares that were up to 50 percent below normal rates.
• By as many as 50 percent. Historically slow to respond to
such fare wars, this time, Air India was pro-active with its
pricing. We had advance purchase fares for 14, 30 and 60
days before the date of travel, but none closer to the day
of travel, explains an AI executive. We recently introduced
special fares that can be booked three days before the
travel date.
• The tariffs were introduced to fill light load flights and will
assist us to compete with other low-cost airlines. While
several of Air India's foreign routes continue to lose money,
due to a mix of pricing and incentives for agents, there has
been an upswing in the company. The flights from Chicago
and New York are now generating a cash profit.
"We have been able to charge a slightly
higher economy-class fare than the
competition on the US routes because we
have non-stop flights and we have a nine-seat
configuration in the economy class, as
compared to 10 seats in a row in some other
airlines. This has given us the advantage,"
adds another AI official.

The airline has also been introducing plans to

increase its business travel share. Through tie-
ups with banks and hotels, it has begun by
making its frequent-flyer program more
attractive. In collaboration with MakeMyTrip,
it has also started providing holiday packages.
Downfall :-
• Until the 1990s, the airline enjoyed a large market share,
after which the government opened the market to private
players when the brand began to unravel and cracks began
to appear. With this government move, many new players
entered the aviation market.
• The airline had a large market share until the 1990s, after
which, when the brand began to unravel and cracks began
to appear, the government opened the market to private
players. A lot of new players entered the aviation market
with this government move.
• With the competitive pricing by each airline that
aggressively advertised their services, travelers got a new
choice. Air India was unable to keep up with the growing
competition, gradually losing its market share and losses.
• Michael Mascarenhas, the company's managing director,
was charged with corruption in 2001 for losing Rs.57
crores to Air India. By then, the airline was already making
heavy losses. Air India Also operated 370 Routes, Out
of Which Only 9 were Profitable!
• The Naresh Chandra Committee was established the same year by the Atal Bihari Vajpayee
government to recommend a solution. The committee reports strongly indicated that the airline
had to be sold off, but the study and the issue of privatization were swept under the rug with the
advent of the new government.
• After a few years, however, Praful Patel, the then minister of aviation, suggested purchasing more
aircraft to solve the problem. However, instead of the initial plan of 28 aircraft at an inflated price
of Rs. 50,000 crore, he purchased 68 aircraft. This was done in order to pay off the loans with the
income generated from the new aircraft.
• This was done in order to pay off the loans with the income generated from the new aircraft. The
situation did not change, however, and the losses continued to rise.
• The then UPA government agreed in 2007 to merge Air India and Indian Airlines together. This
was accomplished with the premise that Air India's losses could be offset by Indian Airlines'
earnings, creating a "synergy." But the exact opposite of what was supposed to happen and the
airlines' accrued losses rose, which in 2002-03 was stated to be Rs. 63 crore to a whopping Rs.
7000 crore in 2010-11.
• Another Explaination for the Airline's Collapse is that Govt. Officials can Travel Via Air
India for Free, Adding More to the Looses.
Introduction of Privatization
• The government is selling its entire ownership
stake in Air India. The national carrier has suffered
losses following its merger with domestic operator
Indian Airlines in 2007.
• The deadline for sending preliminary bids for Air
India has already been extended by the
government five times. The airline will have
control of approximately 4,400 domestic and 1,800
international landing and parking slots at domestic
airports, as well as 900 overseas airport slots, to
the successful bidder.
• The winning bidder would also get 100% of Air
India Express, the airline's low-cost subsidiary, and
50% of Air India SATS Airport Services (AISATS),
which provides ground handling and freight
services at major domestic airports.
• This time, after previous attempts since 2017 failed to generate adequate interest, the
government has sweetened the bid by allowing prospective suitors to choose how much
of the debt of the airline they want to take on as part of the contract. The bidders were
previously supposed to take out Rs 60,074 crore of the entire debt sum.
• In the current fiscal year, the government has set a disinvestment goal of Rs 2.10 lakh
crore, which includes Rs 1.20 lakh crore from the sale of CPSE shares and Rs 90,000 crore
from the sale of shares in PSBs and financial institutions, including the listing of insurance
behemoth LIC. In this fiscal year, Rs 11,006 crore has so far been mopped up by minority
stake sales in CPSEs.
• We have come to the same conclusion, despite the government's best efforts to sell the
firm, after incurring an additional Rs 50,000 crore in losses (at an average of over Rs
6,000 crore per year; Air India's net loss in 2018-19 was a whopping Rs 8,556 crore).
Why Privatization Is Bad ?
• Air India had the second highest loss among Central Public Sector
Enterprises (CPSEs) according to the Public Enterprises Survey
2018-19 and accounted for more than a quarter of the losses (26.8
percent) of all loss-making CPSEs in that year. With the high level
of losses, the business can only continue to operate because of
government doles, which are extremely inefficient.
• This is highly inefficient, given the other high priority demands on
government resources. In fact, the NITI Aayog, in its
recommendations on strategic disinvestment of CPSEs in May
2017, while referring to the fragile finances of Air India, had stated
that further financial support in a mature and competitive aviation
market would not be the best use of scarce financial resources of
the government (Rajya Sabha 2020).
• The strategic divestiture of Air India to a private corporation has
enough theoretical justification. The theory of welfare suggests
that privatisation appears to have the greatest positive effect in
situations where the government's position in minimising market
failures is the lowest, i.e. in competitive markets or markets for
state-owned firms that can quickly become competitive
(Megginson et al, in year 2001).
• One such market is airline operations in India. Shleifer and Vishny
(1994) argue that public enterprises follow political goals that can
conflict with profit maximisation, as evidenced by Air India's
results.

This
This Photo
Photo by
by Unknown
Unknown author
author isis licensed
licensed under
under CC
CC BY-NC.
BY-SA.
 Why Privatization Is Good ?

• The Economic Survey 2019-20 is unequivocal in its

recommendation that such loss-making CPSEs be privatised,
basing its recommendation on facts obtained from the before-
and-after results of 11 CPSEs that underwent strategic selling
in India from 1999 to 2004.
• Privatized CPSEs are found to perform better post-privatization
on average than their peers in terms of net worth, net profit,
return on assets, return on equity, gross revenue, net profit
margin, growth in revenues and gross profit per staff. It also
shows that the return on assets and net profit margin turned
from negative to positive, exceeding that of peer companies.
• The study explicitly affirms that strategic disinvestment
enhances the efficiency and competitiveness of companies and
unlocks their wealth-generating capacity. With the distinction
of ownership and management in the organisational structure
of the corporation, whether the 'ownership' is public or private
This Photo by Unknown author is licensed under CC BY-SA-NC.
does not really matter. The above study, on the other hand,
clearly illustrates the value of ownership.

This Photo by Unknown author is licensed under CC BY-NC.

• While high losses, gradually decreasing market share and a large unionized Labour force
are incredibly negative, bilateral landing rights at the world's most famous airports are
among Air India's most valuable assets. In addition, India is the world's third largest civil
aviation market, rising at double-digit rates (up to FY2019).
• However, due to social distancing requirements and compulsory quarantine, the Covid-19
pandemic is a major dampener for the entire aviation market, which has led to supply
instability in terms of the amount of seats on offer as well as the removal of demand. On
balance, however, the business is still attractive and has continued to draw interest from
some of the world's leading airlines.
• This includes Lufthansa of Germany, Etihad of the UAE, Singapore Airlines, and our own
Tatas. To minimize fiscal support to resolve its losses and unlock the company's profitable
potential, the government should swiftly complete the transaction.
Thank You