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| Surajeet Das Gupta: Young fleet, old marketing |
| Surajeet Das Gupta / New Delhi May 16, 2009, 00:58 IST |
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Poor marketing of the state-owned Nacil's brand-new fleet has exacerbated its problems of excess staff and poor operations.
Raghu Menon may have been removed from the top job at the state-owned National Aviation Company of India Ltd (Nacil is the merger of the erstwhile Air India and Indian Airlines), but he can’t be unhappy. By the same token, Arvind Jadhav who may have pipped others to get Menon’s job can’t be too happy either. For what he has inherited is a behemoth that continues to be plagued with old worries of extremely poor operations (see graphic), an organisation that is yet to come to terms with its merger — and all of this is compounded with extremely poor marketing. So while Jadhav told Nacil’s top brass last week that he wanted them to refocus on the consumer, few had a clue as to how to achieve this. Meanwhile, Nacil which lost Rs 1,500 crore in 2007-08 is believed to have doubled its losses this in 2008-09.
Part of the problem, of course, has little to do with Jadhav, Menon, or any of their predecessors. Thanks to flawed government policies, and some unfortunate court rulings, Nacil has the highest number of employees per aircraft, around 205, as compared to any other airline — global averages range between 100 and 125 staffers per aircraft. There has been some progress here though, as the airline now has 31,500 staffers for its 153 aircraft as compared to 34,000 employees for its 112 aircraft a year ago. A joint venture with Singapore Airport Terminal Services for ground-handling activities will see 5,000 employees (33 employees per aircraft) shift away; another JV for maintenance and overhaul of its fleet will also see employees shift. Nacil also has 2,500 employees for looking after security operations — this clearly cannot be outsourced. Nacil, however, continues to run its canteen and fleet of cars, none of which are functions global majors undertake on their own. Union problems and political interference prevent Air India from being able to do much about this.
There are also the costs imposed upon it by the government’s decision to merge Air India and Indian Airlines. The merger is expected to save around Rs 500 crore a year in terms of lower insurance premium on larger-volume business and discounts on ATF. But the government has not given Nacil the extra funds it needs for getting the salaries of both carriers on a par and for integrating their IT systems (this is supposed to cost Rs 2,000-3,000 crore). As a result, the integration of the two carriers has got delayed further.
Government policies that permitted foreign airlines to increase the number of flights in and out of India, under various bilateral agreements, haven’t helped either. According to experts, the number of flights allowed under bilaterals was doubled under aviation minister Praful Patel’s tenure. “On the one hand, bilaterals were given freely and on the other”, points out an aviation expert, “the government decided to expand Nacil’s fleet like never before.” As a result, according to data from the Centre for Asia Pacific Aviation (Capa), Nacil’s share of international flights emanating out of India is just 23 per cent — rank new-comer Jet Airways share is already half of this, and west and central Asian carriers already have a 31 per cent market share. Air Arabia, a name unheard of a few years ago, is now the fourth-largest airline in terms of ex-India capacity. In sharp contrast, Cathay Pacific which had a 31 per cent share of the ex-Hong Kong market a few years ago, now has a 48-49 per cent share, with the government restricting the number of bilaterals. In India, not only have bilaterals been indiscriminately signed, the government also allows foreign airlines access to non-metro airports. On average, in most markets, the share of the local carrier is typically between 30-35 per cent of the global flights emanating from their shores.
At a time when customers are spoilt for choice and are differentiating between airlines on the basis of their efficiency and service levels, Nacil’s performance continues to be woefully poor. In the last one month, just 73 per cent of its international flights left/landed on time as compared to 85 per cent and more for its competitors like Singapore Airlines, Malaysia Airlines, and so on; it was 42 per cent on domestic routes versus 68 per cent for Jet Airways. As a result, passenger load factors have declined and are among the worst in the industry.
What takes the cake, of course, is Nacil’s old-style discount-marketing. Thanks to its aggressive acquisition of new aircraft, Nacil has added 45 brand-new aircraft in its fleet of 153 (which includes the new ones) aircraft in the last 20 months and plans to add another 30 in the next 12 months. You’d think Nacil would advertise its young fleet and capitalise on the fact that this is probably the youngest in the world — the discounted-airline strategy was perhaps the only one that could have been adopted a few years ago when Nacil had a very old fleet in comparison to its competitors. But instead of trying to upgrade its product offering and getting a premium, Nacil still discounts its fares by 15-20 per cent over fares charged by competing airlines. Emirates’ Mumbai-New York flight costs Rs 30,119 as compared to Air India’s (Nacil’s brand name remains Air India) Rs 27,600 — this is when Air India currently offers a non-stop flight while Emirates’ offers a one-stop flight. British Airways, also a one-stop flight, sells for Rs 31,390; Virgin at Rs 31,568; American Airline at 31,756 and Jet Airways at Rs 29,816 (all these flights are one-stop flights). If this discounting led to better passenger load factors in comparison to its competitors, the strategy may have made sense, but this hasn’t happened either. Indeed, Nacil’s strategy hasn’t even taken into account the new abilities it has. The new 777s and 787s it has bought from Boeing, for instance, allow it to offer non-stop flights between the US and India, a sector where margins are healthy and traffic is growing. Yet, Nacil is looking at setting up a hub in Frankfurt which means that it will add more one stop to its US flights.
Raghu Menon may well be celebrating the day he was dismissed from the job by Praful Patel, and Arvind Jadhav ruing the day he was brought in.
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