Tuesday, June 23, 2009

Air India: The journey ahead

Through all these years the Maharaja was a symbol of royalty and luxury. Air India in the past had done well to use this as its mascot and has had some wonderful times up there in the sky. But almost a decade after the Open skies agreement and many other ups and downs in the global aviation industry, Air India now finds itself at the brink of bankruptcy. What could be the reasons? Let's see.

During the early days Air India had a monopoly over Indian Aviation. Though the govt was giving little support financially this indirect support led to the building of Brand Air India throughout the country as well as outside. So the market for Air India was high. Then as the domestic skies opened up, it saw the entry of private players into the arena. Initially Air India continued to dominate the Indian Aviation scene due to its wide network and experience. But soon as more and more domestic carriers especially
LCCs came to the front it started losing. While Air India continued its age old model with its ageing flights the new carriers sporting a modern look and new aeroplanes attracted everybody. Right from customers to pilots and air hostesses and other staffs. The momentum was gone. The enthusiastic Air India's staff were no more, as either they moved to other airlines or were downtrodden at the benefits their counterparts were enjoying in other airlines. This brought down the operational efficiency as well as the services of the National carrier.

Also Air India failed to evolve with the changing market and economy. Before 1991
Mumbai and Delhi were the places were international traffic originated or ended. But then southern states opened up to brace the IT and manufacturing revolution that is still continuing. The private and foreign carriers grabbed the opportunity and built their brand value. Air India lost the race in the south. When Thai Airways, Singapore Airlines , Malaysian Airlines Cathay Pacific, Lufthansa, Air France and British Airways started direct services to Chennai from their hubs back home the south could not have asked for more. Air India continued expanding from its traditional hubs at Mumbai and to a lesser extent New Delhi. For an international airline, to expand services at its primary hub makes sense only if it caters to a large number of international transit passengers. But Air India serves basically for its nation and never had a thought of becoming an airline as British Airways or Singapore Airlines is. So it must have concentrated on other cities of India also.

This led to a cash crunch and it couldn't modernise its fleet as it was trying to realise its mistakes slowly. The only positive thing about Air India is it started the highly profitable Air India
Express that has established its brand well in the region. Though it might be facing tough competition from emerging rivals I am sure it will continue to grow.

On the whole the govt and the management of Air India must realise that the carrier is not a charity service for the country as it could not live if it continues to do so. Air India is not like other
PSUs. In other industries some kind of a law protecting the PSU could be made to increase the business of PSU. But the aviation sector is different. The people must be satisfied with the service to choose the airline. So a different kind of push is needed to revive the airline. These are:

1. Excess staff is a major problem with AI. One cannot easily give them a pink slip. The only way is to expand the Air India Express network to untapped markets from tier 2 cities like
Trichy, Madurai, Jaipur etc. Let AI expand with its established brand initially. Then we can think of the main carrier.

2. Route
rationalisation must be done to cash in on profitable routes and remove non profit making routes.

3. Throw away the old A300s and 310s or convert them to freighters and
Cash in on an untapped high potential sector when it is in its nascent stage. Build Air India Cargo and expand it and modernise the passenger fleet.

4. Build the brand value of Air India in the domestic arena first. A good image in the domestic sector would
automatically lead to a better position in the international market. Jet and Kingfisher have banked on their excellent domestic service when they started their international operations. If your own country people don't prefer you who else are you going to carry.

5. Last, after the above said points are
accomplished there is a need to build a strong and dynamic management group that reacts to different market scenarios and thinks out of the box to grow.

So the current bailout is definitely needed from the govt but the management must ensure that these are utilised properly.

Saturday, June 20, 2009

Going International: The Paramount way

With Paramount Airways at last announcing the purchase of ten A321s, we can see Chennai emerging as a hub for business class travellers in South Asia. This takes away people from the busy and congested hubs of Bombay, New Delhi and Colombo. 'Hassle free transfers through Chennai'. That might be the tag line for Paramount. Think of Paramount advertising "Fly to the Far East and Europe seamlessly through our hub at Chennai". Paramount has carefully examined and chosen its possible destinations. Untapped markets of Central Europe and Far East are being considered. That is a gutsy move. While most of the Indian carriers started their international services on traditional routes which has led to over capacity, Paramount wants to cater to the niche market. People from central Europe may transfer through Chennai for Far East destinations like Seoul, Shanghai, etc.

If things continue on a sound note one may expect a Paramount flight on the Kangaroo route via Chennai. Chennai being right on the middle of the Sydney-London route could provide a hassle free alternative from the traditional hubs at Dubai and Singapore. In future Paramount can think of its own terminal in Chennai on the lines of T3 at Dubai or T5 at LHR. Paramount's mantra of growing slow but steady is perfect for an all business class airline.

Being an all business airline has its own advantages and disadvantages. Since you will be catering to a small but regular traffic your customer base is steady but low. At times of turbulence this is useful. One can look at markets which do not have much of economy travellers.
Paramount has withstood the economic crisis in the domestic arena, while other carriers were struggling to survive. The U.S market has been shrewdly avoided for the time being considering the fact that it has still a long way to go before it recovers from the crisis. So it is those markets which are on the verge of recovering that Paramount is looking at. Lets wait and see how Paramount's Thiagarajan makes his international debut.