As India’s national carrier flies through stormy turbulence, more recently with the IPL charter plane scandal, the taxpayer wonders how a once profitable set of twin behemoths has now been morphed into a fast-ageing elephant, lumbering along blindly, driven by government diktats and bureaucratic bungling, as private airlines hover on the wings waiting to prey on the pickings.

While the first wave of privatisation in the late 1980s and the early 1990s saw the advent of carriers like Jet, Damania and East West, the licence raj protocols of the times never allowed them to compete on an even keel against Indian Airlines and Air India, leading to an untimely demise of most of them. This in a way led to the survival of Jet Airways as it occupied the vacuum of perishing competitors. It was circa July 2003 that with the launch of Air Deccan true privatisation and competitiveness came in line with the ‘Open Skies’ policy and today we need to give as much credit to Rajiv Pratap Rudy for initiating the set of reforms that revived the sector, just as much as Praful Patel has enabled the aviation industry to break free of its shackles and survive recession without a single airline shutting the shop.

Today Air India finds itself outflanked (it lost its competitive advantage of near monopoly on peak hour traffic and trunk routes), outfoxed (on pricing strategies, customer relations and branding) and fast getting outdated (equipment, technology and innovativeness). The key insights for the same could best be summarised as follows.

Equipment: The combined fleet of Air India certainly looks great in numbers, with a versatile mix of aircraft to be plugged in on any kind of route and load mix. However the business facts state otherwise. Most of the new airlines have learned fast from mistakes and follow these rules:

Operate a mix of best two sets of aircraft – turboprops for short haul and single aisle jets for medium to long haul. This helps deliver greater efficiencies in rationalising on pilot training, maintaining engineering teams, spares and toolkits, cannibalisation potential on cabin equipment, engines etc.

Go new. The newer the equipment, the lower the maintenance and service costs. In addition, operate a selection of aircraft within the same model range, which are in a close manufacturing timeline to ensuregreater homogeneity on structural, engineering and avionics.

Get into a pattern of ownership where a third of the aircraft are on lease-cum-purchase model, another third on dry lease and the rest on wet lease. This stems from a growing realisation that the cost of asset ownership of an aircraft is counterproductive to a profitable balance sheet. The private airlines have oriented their businesses in such a way that they shed the fleet during downturns and ramp up fast when situation improves. Further as the bean counters (accountants  began to take ownership of the process of lease negotiations, over the past year several leading private airlines used the threat of terminating leases as a strong arm tactic for renegotiating leases on more affordable rentals.

Where able, disable. In other words, if you can outsource, do it. While AI continues to maintain huge hangars and maintenance facilities for C and D checks the new-age airlines merely hop across to Singapore, Dubai and more recently Hosur.

Technology: In my opinion, this has been the ‘killer apps’ which will, over time, lead to the irrelevance of Air India in international and domestic skies. Today the concept of 24x7 call centres is passé but in AI’s case, it still is a system filled with glitches. Air Deccan was the first to get into the concept of dynamic fares and e-ticketing; Jet brought in web check-ins, self-selection of seats and selfissuance of boarding passes; Kingfisher brought in SMSes as an eCRM (customer relations management) tool and all the domestic carriers today are on a one-on-one relationship marketing with their frequent flyers. Today private airlines are co-investors, stakeholders as also own and manage their own technology enablement companies, with the express objective of cutting down the time for a customer to access their services, make a booking and ensure attendance on a flight. In fact, as I recall, the chief information officer at Air Deccan was one of the first few appointments made by Captain Gopinath when he started Air Deccan. In the case of three of the leading private airlines the CIO/CTO is a top management position. In AI’s case, as an insider put it, they are yet to articulate a web strategy vision document.

People: There is a very thin line between “a few men and a few good men”. The aircraft is an empty shell. You need people to clean them, repair them, fly them and check in the people who fill them. Private airlines have oriented their recruiting system towards hiring for attitude and cross training for skills. Moreover, being newer entities their employee age profiles and seniority of service are far lower than Air India’s, implying that their employees do not carry cultural baggage, hierarchy-based attitudes and ‘post-merger blues’. In addition, investments on employee training is high and cross skilling has proved a great force multiplier, particularly in recession when recruitments were put on hold, probationers and temporary employees let off, and “the few good men and women” operated at higher than industry levels of operational effectiveness.

Service: The fundamental difference is that private airlines treat service as a competitive advantage and a product differentiator, in an industry where the basic competency is moving people from place A to place B. In Air India’s case, with post-merger employee morale at an all-time low, a greying staff with low technology skills, a new boss on the job who finds himself fast spending more time running around for financing, the service quotient is just not on the radar. Over the past three years, private airlines have moved on from addressing basic issues of on-time performance to creating ‘service bundles’ whether they be frequent flyer programme specific (transit lounges, separate check-in counters, co-branded credit cards) to ‘in-flight experiences’ in terms of cuisine selection – with vegan and diabetic meals – entertainment (Jet still outbeats the rest) etc.

Innovation: Today’s airlines have fast realised that customers are fickle and the cost of retention is high. This has led to most of them directly or indirectly implementing ‘innovation’ strategies as a method of trimming wastelines, reducing inefficiencies as also improving productivity. A classic example was the system of wi-fi enabled roaming checkin staff that Kingfisher deployed at metro airports. The wi-fi handheld devices enabled the airline to operate fewer counters (reducing overheads) but increase the check-in speed of passengers with hand baggage. This was a true lowcost innovation.

Another innovation was the breakthrough achieved by Air Deccan in co-branding its aircraft with Sun Microsystems and over time the ingress of sponsorships onto tickets, boarding passes, seat napkins and so on. This helped private players to subsidise their costs while bringing in a whole lot of interesting revenue streams.

If one were to ask me what is the one key factor for the sad but sure demise of Air India, it will be “Hungry kya?” The current crop of private airlines are hungry to win, knowing that there are no taxpayer bailouts at the end of the line. In the case of Air India, the hunger to win has long gone out of the system.

It is the fear of failure that prompts the private airliner to succeed, while it is the overconfidence of a bailout that will cause Air India to die.
 

This first appeared in the May 1-15 issue of the Governance Now magazine (Vol.01, Issue07).