Air India is one of the oldest and India’s national flag carrier; it was set up on October 15 th 1932

by its founder JRD Tata who is also the father of civil aviation in India. He ran AI successfully

until it got nationalized in 1953. In the 1960s the “Maharaja”, as the national flag-carrier was

affectionately known, was flying to 32 destinations and making profits. For many years in India

air travel was perceived to be an elitist activity. This view arose from the Maharajah syndrome

where, due to the high-priced cost of air travel, the only people who could afford it were the rich

and powerful. There was a monopoly in the past but in recent years however the image has been

drastically changed, now there are many players. Presently AI is flying 146 destinations,

internationally well known and growing day by day and fighting for market share along with

many competitors. The following analyst report analyses and recommends on AI only in the

Indian Aviation context and till the year 2005-06 as the financials of 2006-07 are not available.

(http://home.airindia.in)

Competitive Positioning

Sahara Airlines Air India Jet Airways0

5

10

15

20

0.9

16.83

2.15

Market Share In International Passenger Traffic (%)

Source: DGCA, 2006

Air India

Jet Airw

ays

Sahara

Airlines

Air Decc

an

Spice

Jet

Kingfish

er Airli

nes0

10203040

3.57

36.03

11 12.034.4 4.9

Market Share In Domestic Passenger Traffic(%)

Source: DGCA, 2006

The market share in 2005-06 of AI in the domestic market is very less and on comparison jet

airways has the largest; however in the international market AI has the highest market share of

16.83% and the second being jet airways having 2.5%. This shows its monopoly in the

international market as compared to Indian players.

Performance in relation to key success factors

Excellent in flight service- According to renowned skytrax international rating, AI has got

3star rating, due to its inefficient in flight service, low rating in service efficiency, in

flight entertainment, unenthusiastic and poor attitude of staff, low on problem solving,

low in seat comfort in economy and average rating on cleanliness, quality of meals, food

served. www.airlinequality.com

Commitment to customer service/Reliability- The AI staff is not professional being a

government employee, there are so many delays in flights at regular basis, low rating in

check in checkout, arrival assistance, consistency in staff and baggage delivery etc makes

customer rethink about their reliability and commitment. (Satish& Bharathi, 2007)

Reputation- Inefficient in flight service, and lack of reliability its reputation is on stake.

The aircrafts are not maintained properly, staff not good as compared to private and

international airlines. www.airlinequality.com

Value for money- AI being a full service airline in a monopoly situation in India charges

high money, but as compared to international airlines it does charge right kind of rates

but due to the poor quality of services it offers customers forget about its rate and choose

other airlines. Tourism India, 2007

Cost Control- This aspect being a major issue for AI as its costs are way too high, being a

full service airline and due to major other reasons like number of staff this airline is

amusing as compared to other airlines like seen in the chart, other reason is common with

other airline which is ATF a major cause for concern. DGCA, 2006

Source: DGCA, 2006

Control on Debt- Looking into debt equity ratio which according to industry average is

3.08 but air India’s ratio is 7.35 in 2006 and was always high since 2002 except 2005.

This can affect the thinking process of lenders and shareholders, if compared with jet

their ratio in 2006 is only 2.0 which is very good. Refer Appendix 1.

2006 2005 2004 2003 20020123456789

10

7.35

4.8

9.13 9.327.95

Debt Equity Ratio Air India

People- This aspect can make an airline become the best than its competitors but AI lacks

in this majorly detailed information in the human resource section.

Air India

Jet Airways

Sahara Airlines

Air Deccan

Spice Jet

Kingfisher Airlines

0 50 100 150 200 250 300 350 400 450

418

167

156

93

213

158

No. Of Employees Per Aircraft

Organizational strategies

Porter generic strategies

According to Porter (1980) generic strategies (Lynch, 2003), AI comes under differentiation and

focused cost leadership due to the following reasons:

AI along with jet airways has the monopoly in Indian international market as they are the

only ones who fly international routes.AI is differentiated as it offers expanded network,

for example gulf regions are still not open for Jet Airways but AI has a monopoly there.

(Ministry of civil aviation reports, 2006)

AI is the national flag carrier of India. It has brand name which is represented by its

mascot called Maharajah which impersonates India and its culture. This feature really

differentiates it from other industry players.

AI last point of differentiation is it being the oldest airline as per the year 2006 it’s

seventy four years old. It really makes it a well known brand, creates trust in the minds of

its customers due to its long operation and its service to its customers. (Tourism India,

2007)

Air India’s has new subsidiary AI Express being the country’s only international low cost

carrier which also operates in domestic market. This strategy of AI can be called as

focused cost leadership as they are marketing middle class passengers who want to travel

internationally at a low cost. (Tourism India, 2007)

Bowman’s Strategy clock

According to Bowman’s Clock AI lies between 4th point which is Differentiation and 5 th point

which is focused Differentiation as already seen above in porter’s strategies it has many

differentiated aspects like being a national carrier, oldest airline and its monopoly in Indian

international market and AI can be also called focused differentiation as it majorly focuses on

international travel market instead of domestic. Since AI follows part of both strategies it lays

between 4 and 5 point. Refer Appendix 6

Ansoff Matrix

Market Penetration

Companion free scheme- To promoting high yield traffic, AI has re-launched this scheme

between India- USA/Canada/UK/Europe. This scheme is valid on IATA published fares

in all classes for both one way and round trip.

Student fares- Passengers on student visa can avail special discounted fares for travel like

from India to many destinations for travel. Students can also avail discounts on excess

baggage.

Auction through IndiaTimes.com- AI auctioned seats of economy class through

indiatimes.com a leading internet portal, this scheme has also been used for some

domestic sectors as well.

Flying Returns Program- The flying returns is a frequent flyer program. This program is

spread across 19 countries, it is designed to recognize and reward frequent flyers. Various

benefits and privileges are provided to the members.

Aircraft Cabin Up gradation- The up gradation of its old carrier like A310-300 by

painting, seat refurbishment and upgrading entertainment system to solid state digital

audio system which provides improved sound quality and other features.

Market Extension

Medical Tourism- AI has tied up with M/s Vedic India to tap growing medical tourism

market, Medical packages including airfares are offered to all those who are willing to

undergo treatment in India.

New Product Development

The Maharajah Club (TMC) and The Leading Edge Club (LEC) - TMC and LEC are two

elite clubs of air India. Membership to both the clubs is by invitation only with certain

criteria laid down. Members enjoy exclusive value added benefits and of value added

partnership alliances.

E-Marketing- As Iata wants to discontinue conventional paper ticketing, AI is working on

it and according to project it will also invest in E-Marketing.

Wi-Fi Internet Access- In the mumbai maharaja lounge and the transit lounge wifi

internet access is provided along with network printing facility.

SMS Alert in case of Rescheduling of Flights- Arrangements have been made to generate

SMS messages automatically to all Indian mobile numbers indicated in PNRs to alert

passengers in case of rescheduling of flights.

Wholesale Travel Discounts- A special scheme is their for passengers travelling

frequently to south east Asia by offering them substantial saving on bulk purchase of

tickets for travel.

ATC Mode-S Elementary Surveillance and Enhanced Surveillance Functionality- AI on

installing these to ground station, which will enhance better control of aircraft navigation.

Diversification

AI Express of AI is for new market that is the middle class who wants to travel

internationally and is definitely a new product as it is a low cost, low fare and no frill

carrier.

AI besides AI Express has more fully owned subsidiaries which offer other services such

as Hotel Corporation of India, AI Air Transport Services Limited and AI Engineering

Service Ltd.

(Ministry of civil aviation reports, 2006)

Growth Methods/ Operations - The fleet size of AI in 2001-02 was 29 which have grown up to

30 in 2005-06 which shows growth from previous years and AI has future plans to expand their

fleet size drastically. However in the present scenario on comparisons with its full service

players like jet, the fleet size is less.

Air India

Jet Airw

ays

Sahara

Airlines

Air Decc

an

Spice

Jet

Kingfish

er Airli

nes0

204060 38

5329 29

5 11

Fleet Size (2005-06)

Source: DGCA, 2006

The number of flights per day operated by AI in international routes is 64 which is the highest

among its competitors and domestic is 30 per day which is relatively low.

Air India Jet Airways Sahara Airlines0

50

100

150

200

250

300

64

11 530

276

111

No. of flights operated per day

InternationalDomestic

Source: DGCA, 2006

However we can also see the growth in the passenger traffic and passenger load factor on all

routes and services over past five years which has gone up to 43.62 lakh. The destinations which

AI flies have increased from 32 to 46 presently.

2001-02 2002-03 2003-04 2004-05 2005-060

10

20

30

40

50

31.26 33.94 37.7243.91 43.62

Passenger traffic and Passenger load Factor on all scheduled services of AI for last five years

Year

Pas

seng

er C

arri

ed (I

n La

kh)

(Source: Ministry of civil aviation reports, 2006)

Source: DGCA, 2006

Human Resource

AI needs to reconsider at its HR policies. The numbers of employees per aircraft in AI are 418

which are way too high as compared to others industry players. According to Startrax rating (

www.airlinequality.com) the staff is really unprofessional and even blogs state that staffs are

rude, non consistent, poor check in etc. Since it’s a government organization staff is too laid

back not being afraid of losing their jobs, they ask for commissions from passengers which are

not acceptable at all. (IndiaToday, 2000)

Air India

Jet Airways

Sahara Airlines

Air Deccan

Spice Jet

Kingfisher Airlines

0 50 100 150 200 250 300 350 400 450

418

167

156

93

213

158

No. Of Employees Per Aircraft

Source: DGCA, 2006

43813

2335

2797

3236

7065

AIR INDIA

Pilots and Co-Pi-lotsOther Cockpit PersonnelCabin At-tendantsMaintenance and Overhaul Ticketing and SalesAll other personnel

616217

1481

1356

1213

3974

Jet Airways 2005-06

Pilots and Co-Pi-lotsOther Cockpit PersonnelCabin At-tendantsMaintenance and Overhaul Ticketing and SalesAll other personnel

Source: DGCA, 2006

In the second chart distribution of personnel of AI and Jet Airways is clearly shown, it can be

seen that AI staff is more in comparison in almost all the departments even though Jet Airways

fleet size is higher.

On having a look at the revenues and expenses of AI staff, it can be clearly analyzed from the

chart that expenses per employee are more than revenue which is really a bad situation. But if

seen over the last ten years in appendix 7 there’s growth. (DGCA, 2006)

Air India

Jet Airw

ays

Sahara

Airlines

Air Decc

an

Spice

Jet

Kingfish

er Airli

nes01234567

66

5 5

32

6 65

6

4 4

Operating Revenue, Expenses per Employee (2005-06)

RevenueExpenses

Airlines

Reve

nue,

Exp

ense

(in

mill

ions

)

The attrition among pilots and cabin crew is as high as 46 per cent. Moreover, maximum attrition

is observed in employees in age group of 26 to 30 years with experience of two to four years.

In employees view, AI according to naukrihub survey of aviation sector’s best employers has

ranked it at second position after Jet airways, with a balance scorecard having all the aspects

rated, details in appendix 5. This position is because of staff having security of job in AI, salaries

in line with the industry, government job facilities and other reasons clearly mentioned in

appendices 5,7,8,9. (www.naukrihub.com)

Marketing

After analyzing Ansoff it is clearly visible that AI is using all forms of strategy to sell. On

comparing its strategies with the other players, it can be said that they are update with the market

and are marketing the product well by giving good packages and deals to the customers; however

all this is started when other airlines have already implemented them, AI just follows.

Finance- Operating revenue in 2005-06 is Rs 8833.70 crores which has increased from Rs.

4751.36 crores in 2001-02 which is almost double the amount; however the reported net profit

has fallen from previous year from Rs. 96.54 cr. in 2005 to Rs. 14.94 cr. which is a drastic

downfall the reasons could be

Air India

Spice Jet

Jet Airways

Air Deccan

Indian Airlines

-400 -300 -200 -100 0 100 200 300 400 500

14.94

-41.42

452.04

-340.55

49.5

Profit After Tax

Profit/Loss (in Millions)

Airli

nes

Source: Capitaline

Operating expenses has increased from Rs. 4805.89 crores in 2001-02 to Rs. 9233.30

crores majorly due to selling and administration expenses.

Tax has increased from Rs. 0.18 cr. in 2005 to Rs 3.56 cr. in 2006,

Total Debt has increased from Rs. 1261.96 cr. in 2005 to Rs. 3622.82 cr. in 2006,

Interest has been so unstable, it was Rs. 157.62 cr. in 2002, and it decreased to Rs. 32.38

cr. in 2005 but again increased up to Rs. 83.88 cr. in 2006,

Loans and Advances has increased from Rs. 483.48 cr. in 2005 to Rs. 1064.81 cr. in

2006,

Investments have increased from Rs. 62.53 cr. in 2002 to Rs. 87.02 cr. in 2006.

The EPS of Air India compared to other companies is very less but there are differences in their

capital structure except Jet Airways which is similar. Air India’s EPS over the years has

decreased as well. This will really make is shareholders avoid investing in this company.

Air India Spice Jet Jet Airways Air Deccan Indian Airlines0

102030405060

0.970000000000001 0

51.52

01.14999999

999999

Earnings per Share

Airlines

Rs.

2002 2003 2004 2005 20060

2

4

6

8

10

1

8.71

6.01 6.16

0.970000000000001

Air India EPS (2002-06)

AI gave dividends in 2005 of 10%, but in the year 2006 dividends was nil similar to its previous

years from 2002 to 2004 it was nil. This instability in dividends and decrease in EPS and

profitability can affect the markets investments decision about AI in a negative manner. On

comparing AI with its competitors in the market its only Jet airways which are paying dividends

up to 60%, which is really good, but others are in line with AI. Refer Appendix 1 for details.

Air India Spice Jet Jet Airways Air Deccan Indian Airlines0

10203040506070

0 0

60

0 0

Dividend (annualised %)

Airlines

%

Source: Capitaline

S.W.O.T of Air India

Strengths

1. Strong brand name

2. Oldest Airline

3. Monopoly in certain international routes

4. Government backup

5. Rights to travel 96 destinations.

6. Established infrastructure

7. It has prime parking space/slots.

Weaknesses

1. Poor HR Strategies

2. High Competition, Loss of market share

3. High cost , poor cost control

4. Inefficient usage of resources

5. Bad Reputation, Poor Services

6. Poor Aircraft maintenance

7. Highest manpower ratio to aircraft

8. Low feet size

9. Poor reservation services

10. Named as Indo Gulf Airline

11. Corruption in company

(India Today, 2000), Refer Appendix 4.

Recommendation, Implementation and Monitoring

Adopt strict cost control measures

AI should improve their overall efficiency and try to cut costs in all their operations, being a full

service airline it has huge scope to cut costs compared to LCC’s. There are costs that are

external, which AI cannot do much about, however there are internal costs that can be dealt. AI

needs to revise wages and implement multi-skill environment, cut on excess staff by

implementing a policy where staff are fired if they lack performance (refer appendix 9) and a

strict check on corruption needs to be there where some secret staff can be given the

responsibility of checking and giving them benefits, all requisite clearances for fuel hedging

should be taken and use it to save costs due to ATF, AI should focus on online ticketing and

remove travel agents to cut on commissions. Instead of hiring expatriate’s pilots AI should make

its own flight training schools and making the students have bonds with the company. Their will

be basic resources needed, it’s just the management needs to plan and implement these strictly,

and it should be started as soon as possible.

Limit government control and policies for AI and its staff

AI is in such bad condition as the government barely allows management of AI to make any

important decisions. Political leaders still control critical issues like appointing managers,

deploying aircraft and deciding routes. It can be suggested that government can offer portions of

AI equity to the public while retaining the full management control; it can also divest 20 percent

of AI by next year. This little mixture of public and private function will really help AI develop.

Better services will motivate staff, but it needs to be regularly followed and monitored to prove

to the government that it working better without their full control.

Fleet size increase and invest in aircraft maintenance

AI is in a vacuum, the market is growing, its fleet is aging, and other airlines have started

flowing into India, it desperately needs to acquire more fleet which should be a mix of wide and

narrow body planes, and other updated versions should be purchased. The ageing fleet needs to

be maintained by combining it to first class catering which will help in image building . AI

should propose a float for MRO i.e. Maintenance, Repair and Overhaul to maintain its old fleet.

This can be immediately started by firstly focusing on maintenance, and then purchasing in

future.

Refresh and Rebrand the company

AI and IA should get merged as; it will help it in expanding the fleet, rebranding the airline.

They should redesign crew uniforms and retrain their employees. As AI really needs a fresh start,

all the old methods needs to be changed or removed specially in area of HR policies with the

help of this merger. They should be saving millions of dollars by creating operational synergies

in network integration, information technology integration, improvement in schedules, the

passenger loyalty program, marketing, ground handling and purchasing aircraft, and by getting

rid of half of their employees. It can effectively deliver the classic hub and spoke system done by

successful airlines. They will also help in saving costs by choosing better contracts for insurance,

oil contracts etc. It will also bring in new product and new environment in AI. The only caution

AI and IA needs to take are at the time of rationalization of staff and while changing the HR

policy which needs to be done very importantly, if they do it well, the merged entity will bring in

huge success.

Follow differentiation

AI needs to differentiate its product, as there is so much competition in the market. It can

differentiate by serving non stop flights to routes which are not provided by others, flights to

wide range of destinations as AI has the rights to follow so many destinations, it needs to use it

to its benefit. They should be able to attract passengers from SAARC, Africa and Central Asia to

fly them to other parts, instead of being just an Indo gulf airline as it is also leading to inefficient

usage of resources, by expanding fleet and destination by more code share arrangements and by

joining Star alliance which is already under process. They need to highlight customer service as

their USPs by provide best catering and good maintenance of rest room which will help go a

long way in attracting customers; they need to give dual importance to domestic and

international routes and combine both of their strengths. They need better trained staff to ensure

better results through excellent customer service, punctuality, making the staff more accountable

by rewarding points, etc. Air India needs to do innovative marketing, competitive pricing instead

of just following marketing tactics of other players, the decision making needs to be quicker.

Examine each and every aspect of its functioning

AI is known for indifferent passenger handling over years; it should set up a strategic business

unit (SBU) for ground handling at airports. All airport functions that Air India used to perform

like security and baggage handling would be done by this SBU and its focus would be on

customer care and it can help them build the long lost trust in the eyes of customers. A-I should

also reform its notorious reservation system and analyze its yield planning which should

eliminate the scope of overpriced commission to travel agents as it would stop fictitious block

bookings which lead to an artificial overbooking of AI flights, even though there aren't enough

passengers. It needs to be regularly monitored by specific staff whose job description includes

monitoring as their primary job; they should have processes to monitor each and every staff’s

productivity as the services provided by AI staff is non tolerable. They should be better

utilization level of its fleet, their ROCE % is also gone down and it is causing major loss in

market share.

Conclusion

AI’s objective should be “to create world class airline in public sector in close cooperation with

all its employees”. With its mostly obsolete fleet, large work forces and managements whose

decision-making is entangled with that of the government, Air India, the flagship overseas

carrier, and its domestic counterpart, Indian Airlines, are rapidly losing market share to new

competitors. Therefore AI needs to strictly follow the above recommendations to enhance its

reputation and achieve its objectives and success of these will automatically help in monitoring.