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| On a wing and a prayer | | AI's route map is clear; but will it take off? |
| Business Standard / New Delhi Aug 10, 2009, 00:19 IST |
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Air India’s impecunious Maharaja is now going to offer low-cost hospitality. The airline’s chief executive, Arvind Jadhav, has articulated one of the most sweeping turnaround plans that India’s national carrier has ever formulated. But if the Maharaja’s wan smile lacks cheer, it’s because the eight-step path charted by the National Aviation Co of India Ltd (Nacil) is virtually impossible to implement. Though he is barely three months into his job, Mr Jadhav knows this as much as anybody else. That explains his statement that the “painful exercise is going to hurt a lot of people”. The question is whether any of Air India’s 31,500 employees is willing to share that pain. Mr Jadhav is silent on that aspect—which is why what he has spelt out looks like more wish than plan.
Converting a regular airline into a low-cost carrier is fraught with risk. Mr Jadhav wants the airline to return to profits in three years by making an eventual 75 per cent of domestic flights all-economy (27 per cent from September); creating four subsidiaries; replacing high-cost debt of Rs 11,000 crore with low-cost loans; focusing on on-flight performance; introducing single-website booking and joining Star Alliance by June; cutting back productivity-linked incentives; grooming cabin crew; and issuing shares to the public in 2011-12.
Low-cost may be the way to go, because India is after all a low-cost market. But how does Air India reduce costs that today are much higher than others in the category (205 employees per aircraft against the global average of 100-125)? Air India’s yield on such flights would not match its costs and vacating its existing market would only help its competitors, principally Jet and Kingfisher. Also, A-I has decided to hive off its four business units — ground handling, engineering, cargo and aviation training — into joint ventures or subsidiaries by the end of this financial year. But the record on this score has been patchy: Air India already has a ground handling joint venture with Singapore Airport Terminal Services, which is still not operational. Meanwhile, yet another plan is to prematurely return 23 planes to leasing companies. Here again, the runway is foggy. In 1996, Air India terminated the wet lease agreement with Caribjet, saying the company had violated established technical and operating procedures. Caribjet responded swiftly by instituting arbitration proceedings in London and claimed $73 million as damages, excluding interest.
Apart from constant government interference in business decisions, the biggest problem is the mindset of Air India employees, and it is doubtful whether Mr Jadhav’s plan to “groom cabin crew and focus on on-flight performance” will improve a situation where passenger load factors have declined to one of the lowest in the industry. On-time performance too is nothing to write home about. Trying to set all this right when he is cutting productivity-linked incentives — which has been summarily rejected by the airline’s well-entrenched unions in the past — looks like a big leap of faith. Ironically, the only thing going in Mr Jadhav’s favour is that the airline is in a desperate situation, with accumulated losses of Rs 7,200 crore and debt of Rs 15,241 crore that is almost equal to annual revenue. Such desperate situations call for drastic measures. But if these have a poor chance of being implemented, they could end up ringing the once vaunted airline’s death-knell.
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