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    • October 10Term Paper(Air India) 2011 StrategicBy Shannon Fernandez (Roll No. 18) Management (10MBA31)
    • Introduction ........................................................................................................................................ 3 1.1 History: ...................................................................................................................................... 3 1.2 Present status in the Industry: .................................................................................................. 4 1.3 Business areas and services: ..................................................................................................... 4 1.4 Organization structure: ............................................................................................................. 5 1.5 Overview of the Aviation Sector: .............................................................................................. 5Strategy of Air India ........................................................................................................................... 6 2.1 Vision and Mission statements: ................................................................................................ 6 2.2 Current Objectives: ................................................................................................................... 6 2.3 Current Strategies: .................................................................................................................... 7 2.4Corporate Governance: ............................................................................................................. 7External Environment of Air India ..................................................................................................... 7 3.1 Industry Driving forces: ............................................................................................................. 7 3.2 Analysis of the competitive environment (Porter’s 5 Forces model): ...................................... 8 3.3 Performance against the Key Success Factors: ......................................................................... 9The Resource Based Analysis of the company .................................................................................. 10 4.1 Short term SWOT analysis of Air India: ................................................................................... 10 4.2 The Value Chain: ..................................................................................................................... 11Competitive Strategy Analysis .......................................................................................................... 12 5.1Generic Strategies: ................................................................................................................... 12 5.2 Strategic alliances: .................................................................................................................. 13 5.3 Mergers & Acquisitions: .......................................................................................................... 14 5.4 Outsourcing Strategies: ........................................................................................................... 15Long Term Strategy Analysis ............................................................................................................. 15 6.1 Probable Grand Strategies: ..................................................................................................... 15 6.2 Innovation strategies: ............................................................................................................. 16 6.3 BCG Matrix: ............................................................................................................................. 17Strategy Implementation .................................................................................................................. 17 7.1 Analysis of Leadership............................................................................................................. 17 7.2 Company Culture: ................................................................................................................... 18 7.3 Ethics and Corporate Social Responsibility: ............................................................................ 18Strategic Control Issues .................................................................................................................... 20 8.1 Control systems in the company:............................................................................................ 20 8.2 Effectiveness of Control: ......................................................................................................... 21
    • Long term SWOT summary of Air India .......................................................................................... 21 9.1 Strengths: ................................................................................................................................ 21 9.2 Weaknesses: ........................................................................................................................... 22 9.3 Opportunities: ......................................................................................................................... 23 9.4 Threats: ................................................................................................................................... 24 Conclusion ........................................................................................................................................ 24 Recommendations ............................................................................................................................. 24 References: ................................................................................................................................... 25Introduction1.1 History: Air India was founded by J.R. D. Tata in July 1932 as Tata Airlines, a division of Tata Sons Ltd. (now Tata Group). On 15 October 1932, J. R. D. Tata flew a single- engined De Havilland Pus Moth carrying air mail (postal mail of Imperial Airways) from Karachis Drigh Road Aerodrome to Bombays Juhu Airstrip via Ahmedabad. The aircraft continued to Madras via Bellary piloted by former Royal Air Force Pilot Neville Vincent. In 1932 Air India was based out of a hut with a palm thatched roof at Juhu Aerodrome and had 1 pilot and 2 apprentice mechanics along with 2 piston- engined aircraft, one Pus Moth and one Leopard Moth aircraft. Following the end of World war II, regular commercial service was restored in India and Tata Airlines became a public limited company on 29 July 1946 under the name Air India. In 1948, after the independence of India, 49% of the airline was acquired by the Government of India, with an option to purchase an additional 2%. In return, the airline was granted status to operate international services from India as the designated flag carrier under the name Air India International. On 25 August 1953, the Government of India exercised its option to purchase a majority stake in the carrier and Air India International Limited was born as one of the fruits of the Air Corporations Act that nationalized the air transportation industry. At the same time all domestic services were transferred to Indian Airlines (now renamed as Indian). In 1954, the airline took delivery of its first L-1049 Super Constellations and inaugurated services to Bangkok, Hong Kong, Singapore and Tokyo. Air India International entered the jet age in 1960 when its first Boeing 707- 420, named Gauri Shankar, was delivered. Jet services to New York City via London were inaugurated that same year on 14 May 1960. On 8 June 1962, the airlines name was officially truncated to Air India. On 11 June 1962, Air India became the worlds first all-jet airline. In 1993, Air India made history by operating the first non-stop flight between New York City and Delhi.
    • In May 2004, Air India launched a wholly owned low cost airline called Air India Express. In 2001, Air India was put up for sale by the then NDA Government. One of the bids was by a consortium of Tata Group: Singapore Airlines. However the re-privatization plans were shelved after Singapore Airlines pulled out and the global economy slumped. In 2007, the Government of India announced that Air India would be merged with Indian Airlines. As part of the merger process, a new company called the National Aviation Company of India Limited (NACIL) was established, into which both Air India (along with Air India Express) and Indian Airlines (along with Alliance Air) will be merged. On 27 February 2011, Air India and Indian Airlines merged along with their subsidiaries to form Air India Limited.1.2 Present status in the Industry: Air India is flag carrier airline of India. It is part of the Government of India ownedAir India Limited (AIL). The airline operates a fleet of Airbus and Boeing aircraft servingAsia, Australia, Europe and North America. Its corporate office is located at the Air IndiaBuilding at Nariman Point in South Mumbai. Air India has two major domestic hubs at IndiraGandhi International Airport and Chhatrapathi Shivaji International Airport. An internationalhub at Dubai International Airport is currently being planned. Air India has the fourth largest share in Indias domestic air travel market, behind JetAirways, Kingfisher and Indigo. Following its merger with Indian, Air India has facedmultiple problems, including escalating financial losses and discontent among employees.Between September 2007 and May 2011, Air Indias domestic market share declined from19.2% to 14%, primarily due to stiff competition from private Indian carriers. In August2011, Air Indias invitation to join Star Alliance was suspended due to its failure to meet theminimum standards for the membership. AI serves 49 domestic destinations and 26 international destinations in 19 countriesacross Asia, Europe and North America., and has a fleet of 103 aircrafts +30 orders.1.3 Business areas and services: Air India main business is in the area of air transport. They focuses on quality andpremium traffic airline customers, although they also have economy/ low price servicesthrough their subsidy Air India express in the passenger segment. Air India also operates in the air cargo segment (freight), although this area is not partof their main focus. Other services provided by Air India include online booking, E-ticketing, engineeringservices, Charter services and Hospitality services.
    • Air India also owns the Hotel Corporation of India (HCI) which includes the CentaurGroup of Hotels (Luxury hotels that are strategically located near International and othermajor airports in India).1.4 Organization structure: Chairman and Managing Director (Rohit Nandhan) Directors: Chief Vigilance officer (Urmilla Subbarao) Engineering (VK Sharma) Commercial Executive Directors (ED) under Commercial: Related business (Anmod Sharma) Customer service (Anup Srivastava) Headquarters (GD Brara) Finance/ Legal (SK Kundra) Integration/ Industrial relations (Vineetha Bhandari) Training (Rakesh Ananad) Operations (AS Soman) Medical (LP Naklwa) Personnel (Deepa Mahajan) Flight safety (Subodh Nigam) Sales & Marketing (S Rotkar) Engineering (RR Rao) Regional EDs: Western Region (AK Sharma) Eastern (R Dayal) Southern (Sunil Kishen) Northern (Vijay Paul) Marketing India Region (KD Row) Piloting Crew In flight Services Technicians Ground Staff1.5 Overview of the Aviation Sector: Global Aviation Industry is currently going through the most difficult phase. Airlineshave collectively lost over US $10.4 billion last year, and are estimated to lose a further US$9 billion this year, of which US $2 billion (Rs 10,000 crores) will be the share of IndianCarriers. With Air India operating in a global environment, the national carrier has beenimpacted as adversely as other airlines the world over. The existing downturn is expected tocontinue.
    • In spite of the current global scenario, the Indian aviation sector is one of the fastest growingaviation industries in the world, based on growth patterns observed over the last few years.The government‟s OPEN SKY POLICY has lead to many overseas players entering themarket and the industry has been growing in terms of customers and in number of aircrafts. Private sector accounts for around75% of the domestic market share. India is the 9thlargest aviation market in the world according to the Ministry of Civil Aviation. It can easilyinch up to 3rd position by 2020 if it continues to grow as it is. It is predicted that passengers in the international segment will grow up to 15 million by2015. Some 10 years ago, there were just 2 airline operating in India- Indian Airlines in thedomestic scene and Air India on the international scene. Today, there are many moreprominent domestic players on the scene.Some of the main issues affecting the sector currently are: • Spotlight on Oil Prices that have been continually and rapidly rising as of late. • The growth of business travel over that of leisure travel. • "Unbundling" of costs usually bundled in ticket prices, i.e. in order attract customers with lower prices, carriers are charging only for basic services and facilities and for services that were normally offered like on flight food, extra baggage space etc. would be charged extra. • Air Traffic Management Issues are plaguing the sector like norms over the routing followed by the carriers. • History of Airline Bankruptcies Raises Risk Concerns For Investors.Strategy of Air India2.1 Vision and Mission statements: A thorough online scan reveals no recorded references to vision or mission statementsfor Air India as such. However, Gustav Baldauf, Air India‟s new Chief Operating Officer hasstarted the Herculean task of the white elephant direction. Air India is yet to spell out itsmission statement, the implementation of which will set the ball rolling in reducing themassive debt that the airlines is sitting on. There is a need to realign the company and give Air India a new vision, which the COOstates that when released, will make everybody, including the Government happy. The visionwould focus on making the company a stronger player in the domestic market.2.2 Current Objectives: Focus on execution, accountability, cost reduction and revenue generation. Adopt international best practices in airline operations, MRO activity, airline terminal services, cargo, aviation skills development, corporate governance and HR.
    • Be accountable to the stakeholders. Manpower rationalization to achieve industry benchmarks. Utilization of assets and operating/ technical crew as per DGCA (Directorate General of Civil Aviation). To adopt a robust Enterprise Risk Management framework to eliminate redundancies and minimize dilution of revenues.2.3 Current Strategies:• Operational restructuring– Cost Reduction– Revenue Enhancement• Financial Restructuring– Focus on „Survival‟ – Focus on reducing losses – Healthy operating margins– Deliver the „future‟ Air India• Additional Public Offer• Public• Indian FinancialInstitutions• QIPs• Business restructuring– low cost model,– Subsidiaries for Cargo, MRO etc.• Brand building &Makeover• Preparation for IPO• Adopt a robust Enterprise Risk Management framework to eliminate redundancies andminimize dilution of revenues2.4Corporate Governance: As a government owned firm, Air India has a very high level of corporate governance, transparency and accountability. There are checks and balances in place on all the activities carried out by the organisation through government bodies like the Comptroller and Auditor General of India (CAGI), Chief Vigilance Commission (CVC), the Ministry of Civil Aviation (MCA), regulatory authorities and the government.External Environment of Air India3.1 Industry Driving forces: • Changes in cost and efficiency: Rising ATF prices- Fuel prices account for over 40% of the total operating costs of any airline and constitute the major chunk in the costs. Rapid increase of fuel costs has raised a major concern.
    • • Regulatory policies / government legislation: Open Sky Policy allows private and international players to enter the domestic markets. • Changes in who buys the product and how they use it: Evolution of travelers from leisure to business. • Changes in long-term industry growth rate: Passenger traffic is expected to grow by 9%, while cargo traffic is expected to grow by 26%.3.2 Analysis of the competitive environment (Porter’s 5 Forces model):For the effective analysis of the competitive environment, the threats posed by each of theforces are rated on a 5-point Likert scale, 1-being the weakest and 5-being the strongest. 1. Rivalry (4/5): This appears to be the strongest amongst the other forces as there is intense competition that Air India faces in the domestic market from competitors like Jet Airways, Kingfisher, Indigo, Go Air and Spice Jet in terms of pricing, on board service, on time performance etc. The competitors are actively involved in making fresh moves to improve their market standing. Strategies to improve the branding are also in place.However, the only competition Air India faces in the international market is from JetAirways. Apart from Jet, they are virtually untouchable and have a majority share in thismarket. 2. Suppliers (3/5): The force exerted by suppliers is relatively moderate as the main suppliers are the aircraft manufacturers (Airbus and Boeing), who are in stiff competition between themselves and therefore would not be able as such to dominate its airline customers.Other than aircraft manufacturers, suppliers of ATF (Air Turbine Fuel) are the other membersof the supplier group.Also, neither the aircraft manufacturers nor the ATF suppliers appear to be capable orinterested in integrating forward. 3. Threat from substitutes (3/5): This force is moderate as well because even though there appears to be substitutes for the domestic segment through the railways and luxury roadways, they cannot compete with the benefit of time saving that travelling by air provides. Also, they do not serve as a substitute to airways in terms of international travel.Having said that, advancement in technology, especially in the field of communicationstechnology like satellite conferencing and other such methods does eliminate the need totravel considerably.
    • 4. Buyers (3/5): Again, the threat posed by the bargaining power of the buyers can be rated as moderate because although customers are very price sensitive and would definitely consider switching brands when there is a price change, the prices set by carriers are practically similar for similar routes and customers would not be able to bargain on routes that are not being offered by other airlines. Also, there is obviously no threat of customers integrating backwards, hence they would not have a much of a bargaining leverage. 5. Threat of new entrants (1/5): Although most of the barriers have been removed through the adoption of the „Open Sky Policy‟, this force is by far the weakest and is almost non-existent as a high level of competition already exists, the industry doesn‟t seem lucrative enough as capital requirements are high as it includes buying aircraft, leasing them and paying heavy airport fees, ATF prices are constantly rising, important players in the industry have been posting losses and brand image would play a critical role in attracting customers.3.3 Performance against the Key Success Factors: • Excellent in flight service- According to renowned Skytrax International rating, AI has got a 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. • 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 ratingin check in checkout, arrival assistance, consistency in staff and baggage delivery etc makescustomer 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 andinternational airlines. • Value for money- AI being a full service airline in a monopoly situation in India chargeshigh money, but as compared to international airlines it does charge right kind of rates butdue to the poor quality of services it offers customers forget about its rate and choose otherairlines. 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, 2006Source: DGCA, 2006 • Control on Debt- Looking into debt equity ratio which according to industry average is 3.08 but AI‟s is 7.35 and has always been high since 2002 except for 2005. This can affect the thinking process of shareholders and lenders. Jet‟s was only 2.0 in 2006, which is very good.
    • • 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.The Resource Based Analysis of the company4.1 Short term SWOT analysis of Air India:Strengths: Air India has been the largest air carrier in India in terms of traffic volume andcompany assets. Air India owns the most updated fleet and competent repairs and maintenance expertise. Its information systems are advanced and compatible with its operations and service. They have financial backing from the government.Weaknesses: They are operating across broad international and domestic markets competingwith world leading giant airlines as well as local small operators. Low profitability and utilization of capacity. The airline‟s high cost structure and the compulsion of being a public sector unit are the reasons it has been making losses and will continue to do so in the near future.Opportunities: The Indian airline industry is growing rapidly and will continue to do so asthe GDP increases and is predicted to continue once the slowdown recedes. World wide deregulations make the skies more accessible. The number of foreign visitors and investors to India is increasing rapidly. The aviation ministry‟s strong regulation and protection provides opportunities for consolidation and optimization. Customers are getting wealthier and tend to be less price conscious.Threats: Air India faces imminent aggressive competition from world leading airlines andprice wars triggered by domestic players.
    • 4.2 The Value Chain: Firm infrastructure Human resource management Margin Technology development Procurement Margin Inbound Operations Outbound Sales Service logistics Logistics &MarketingThe main areas of value addition of Air India are in the inbound logistics that consist of theaircrafts being supplied, operations and service. The most value would be added in theservice area of the chain. Value is added in terms of in flight services, online booking, groundstaff attitude etc.Operations: Air India must operate ticket counters to get their passengers onto their airplanes.Some passengers may find at the counter that they cant get on the flight as the airlinesoversell tickets for full capacity utilization.Stock control: must store and handle fuel, food, and drinks. Stock is managed to ensurereductions in stock turnover, thus reducing costs and wastage.• Route selection: must choose their flight routes. These will be selected upon desired routes,and deals negotiated with the airports. Airports are selected for their prime location, to allowconsumers to get to their desired location. This then entails the scheduling of flights andcrew.• Passenger services system : software which allows the airlines to function "comprehensivepassenger reservations, inventory control, fares, ticketing, and departure control functions .
    • This allows airlines to reduce their costs of wages and paper transactions, and maximizeutilization.• Yield management: this allows the airlines to compare their available seats against demandfor particular flights to price the tickets accordingly. This has been particularly prevalent inrecent years for airlines, particularly low cost carriers such as Ryanair whose prices for aflight vary greatly.• Aircraft acquisition: airlines must negotiate deals with aircraft manufacturers to acquireplanes. For instance Ryanair use a standardized airplane which allows them to reduce theirstaff training costs, as well as their maintenance costs.Value in Support activities:Firm infrastructure: budgets, accounting, regulatory compliance, legal issues, public relations. Human resources: flight, route and yield analyst training.Technology development: computer reservation systems, in-flight systems, flight schedulingsystems, yield management systems.Procurement: information technology communicationsOperations:• Ticket counters – airlines must operate ticket counters to get their passengers onto theirairplanes. Some passengers may find at the counter that they cant get on the flight as theairlines oversell tickets forOne thing to consider is that the value chain is in some circles giving way to the value webwhere customers can use alternative pathways to get what they want. Airlines are good examples of this effect where travel can be put through many categorieswhich are sometimes interchangeable. Ex: there airlines, buses, boats, cars to get people towhere they want. There airlines reservations systems, travel agencies, online booking systemsto obtain travel. There are also alternatives to location such as cruise ships where travel is thelocation! These are also connected in sometime non-intuitive ways and the success or failureif indirect services can impact the value of the main industry. All this can an effect on the onthe value of an organization and its ability to grow and take advantage of change.Understanding this interconnectedness can make or break a strategy.Competitive Strategy Analysis5.1Generic Strategies: According to Porter‟s generic strategies, AI comes under the differentiation and focusedcost 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)5.2 Strategic alliances: • Air India‟s Engine Overhaul Facility, Mumbai, and Aerostar Asset Management, Sharjah, UAE have created an Engine MRO brand called “The A Team”. Directed initially for the Middle East Market, this strategic alliance will provide engine repair and management solutions to all airline operators of the region. “A Team” will utilize the existing engine overhaul facilities of Air India at Mumbai and marketing set up of Aerostar in the Middle East .This alliance will sell repair services for jet engines such as GE CF6-50 & 80 series, P&W 4000 series, GE- 90 series and CFM56-7 series and will also cover CFM56-5 series engine in the near future. A marketing agreement was recently executed between the two companies and the brand will be formally launched at the Dubai Air show to be held during November, 15 – 19, 2009. Air India‟s Engine Overhaul facility, established in 1966, has been catering to third party MRO services since 1999. The facility is approved by Director General of Civil Aviation, India, Federal Aviation Administration, USA, and European Aviation Safety Agency. It is also an ISO rated facility. Aerostar Asset Management is a company promoted by the ETA Star Group which has a strong presence in the Middle East. Aerostar has been involved in jet engine management for various customers since 2005. The above alliance will provide practical and cost effective solutions for engine repair management which will result in reduced cost of ownership for engines operators. Air India‟s technical expertise in the field of engine overhaul and its elaborate facilities coupled with Aerostar‟s capabilities in MRO marketing and material sourcing will be an ideal combination for high level of customer care, lower repair cost & tighter TAT and assured quality that will ensure longer engine time on wing. The arrangement will also result in additional revenue earnings for Air India. • With a quantum jump in product profile resulting from induction of new aircraft and consequent expansion of network, Air India will be all set to join the Star Alliance by
    • middle of 2010. Star Alliance, is a leading global airline alliance of 21 top international carriers. Once Air India becomes a member, passengers will enjoy enormous benefits, including seamless transfers while travelling across the world, more frequent flyer mileage points, code-sharing leading to a wider choice of flights and access to lounge facilities worldwide. The Star Alliance network offers more than 17,000 daily flights to 916 destinations in 160 countries.5.3 Mergers & Acquisitions: The main merger in Air India‟s history is the merger between Air India and Indian(formerly known as Indian Airlines) to form AIL or Air India Limited which took placeearlier this year (February). Indian Airlines was formed by merging 8 domestic airlines and was meant to operate inthe domestic market while Air India was meant to operate in the overseas market. Prior to themerger, in 2005 Indian Airlines was re-branded as Indian. It was given a complete makeoverwhich included redesigning its logo and crew uniform. The idea to merge the 2 government owned airlines was first proposed over 20 yearsago. In 2007, a group of ministers approved the merger of the 2 carriers to improveoperational synergy and increase productivity. It had created the largest airline in the countrywith a combined turnover of over Rs.150 billion and fleet size 150. The entity arising out ofthe merger was called National Aviation Company of India Limited and its brand name wasAir India. The Maharaja was retained as the mascot, while the logo of the new airline was that of aswan with a Konark Chakra placed inside it. The merger also brought a debt of Rs.440million. The factors that influenced the merger were: 6. The merger was the new equity to compete with large global airlines and set the ball rolling for further consolidation and mergers & acquisitions. 7. The merger was viewed as a step in the right direction because it positioned Air India well with respect to rivals Jet and Kingfisher. 8. Brand building became important as most players were offering similar fares on the same sectors. 9. The AI-IA merger was expected to create one of the biggest airlines in the world in terms of the fleet size. 10. The combined fleet size placed the merged entity among the top 10 airlines in Asia and the top 30 in the world. It would also become India‟s first airline with more than 130 aircraft. 11. The increasingly intense competition faced by AI & IA from private and international competitors was another reason for the merger. 12. Accenture had identified significant potential synergies between the two in the area of sales and distribution network, fuel procurement, materials procurement, passenger amenities etc.
    • 13. According to a report by Accenture in 2006, the merger could bring in a cost reduction of 3-4% and lead to revenue increase of Rs. 6 billion initially.5.4 Outsourcing Strategies: With a view to cut down its operational costs, national air-carrier Air India today said itis planning to outsource some of its functions such as Information Technology in the nearfuture. Outsourcing is common in financial sector, where companies award projects to otherfirms in the domestic or international geographies.Air India has around 42,000 employees on roll and its annual salary expense amounts to Rs3,100-crore. Salary payment is the second largest component in AIs operating cost after thefuel bill. The proposed move to outsource some of its functions will help the airline, which isincurring huge losses, to reduce its costs and is part of the ongoing turnaround plan. Themove will help the airline to concentrate more on its core business--aviation.Citing examples of Citi Bank and State Bank of India, which have successfully outsourcedfunctions such as technology, this can be replicated in Air India as well.Institutions like SBI, Citi Bank stick to the core business and the IT solution is outsourced.Similarly, AI can also look at this option. Moreover, a company whose core business isaviation cannot do justice to an IT professional when it comes to the employees careerprogress.For example, IT itself is one issue. In the aviation business, they may not be able to givecareer progress to an IT person. So the best thing is to identify and make good service-levelagreement.AI has also plans to spin-off its Maintenance Repair and Overhaul engineering operationsbusiness by April this year. This will help the airline to achieve optimum utilisation of itsengineers, besides boosting revenue, he said.They can earn about Rs 3,000 crore annually (by spinning off the MRO business). Also, theirengineers will be better utilised through in the MROThe airline has already tied up with Sharjah-based Aerostar Asset Management for marketingengine overhaul facility for sale and repair services for Boeing and Airbus jet engines to othercompanies.The Nagpur MRO, which the national air carrier is setting up with Boeing in Nagpur at anestimated investment of Rs. 4.5 Billion (from Boeing), will be a part of the spun off unit.Long Term Strategy Analysis6.1 Probable Grand Strategies:Stability strategy: Even though Air India has an enormous workforce, they do not see theneed to downsize their workforce and this is playing a critical role in their huge losses assalaries account for the second highest cost after ATF for the company. This is mainlybecause of it being a government owned carrier.
    • Since their focus is on maintaining the huge force, their objective should be to increaseefficiency and productivity, there by raising the revenues considerably. Competitive tactics:better customer service, cost cutting and priceslashingExpansion strategy: Since AI already has a large enough fleet, they should focus on otherareas of growth, like targeting other segments and expanding their hold in the economysegment with Air India Express, expansion of their MRO facilities. Diversification strategiesmay not seem feasible, at least not in the near future.Retrenchment strategy: Air India has secured a US$173m bailout from the IndianGovernment, which will be paid out in two phases.The cash injection, which forms one part of an expected US$432m bailout , is aimed ateasing the carrier‟s cash-flow problems and allowing it to avoid borrowing from the market ata high cost, India‟s Ministry of Civil Aviation said in a statement.Strict cost-cutting forms a key condition to the granting of the aid package.Under the terms of the deal, Air India will have to cut its fleet from 146 to 105 airplanes byMarch 2011, and will have to aim for cost cuts of US$425m during its current fiscal year,which runs until March.Synergy of strategies and the strategy of differentiation-basedCompetition: The airline industry is an unique and complex industry. Besides the operators ofairlines and airports, the key industry players also include governments. In this regard,Singapore provides an interesting case study. The Singapore government not only is an activenegotiator for favourable air agreements and arrangements with other countries, but alsoplays an important role in the development of Singapore Airlines and Singapores ChangiAirport, both arguably the worlds best airline and airport, respectively. The Singaporegovernment also watches with a keen eye management-labour relations in SIA and ChangiAirport, and has played an important arbitration role in the past.This tripartite arrangement, involving government, management and labour, has distinctstrategic competitive advantage and has resulted and helped boost Singapores lead in theworld of international aviation. This has led to an industry view that ``Singapores excellencein the world of international aviation is now so unquestioned that it has become an article offaith, Air India should try to mirror this.6.2 Innovation strategies: Air India will now save close to Rs. 700 million on their flights by implementing innovative alternatives to traditional air travel. According to fast company, the airline
    • has cut contingency fuel from 5% to 3% and decreased aircraft weight by reducing the amount of water, the weight of food carts and the magazines on board. Also, air India has adopted new methods of flight, such as flying at a straight line at optimal altitudes and speed, practicing a continuous descent approach during landing and using a single engine during taxing, and also deriving pre-flight power from sources on the ground. Money saving and environmentally friendly- now that‟s innovation! • 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.6.3 BCG Matrix:Air India has 6 main SBUs: low cost airline (Air India Express); Cargo; Maintenance, Repair andOverhaul (MRO), grounding handling; engineering and related business Relative market share High Low Stars ?????? High (Air India Express) (Air Cargo, MRO)Market growth rate Cash cows Dogs Low (MRO, engineering services) (Ground handling)Strategy Implementation7.1 Analysis of Leadership According to COO Baldauf, people manning positions of importance may not be theright people for those positions. There are said to be power centres within Air India that willnot let the airline progress as these power centres have selfish interests.
    • MD & Chairman Jadhavs lack of success is amply visible on the human resources front.Baldauf says Air India is a huge "man management" problem. "Air Indias problems are notresolving as the human resource issue have not been tackled," he adds. For instance,employee concerns arising out of the merger of Air India and Indian airlines have been dealtwith insensitively without any dialogue, says the former COO. Those who have observed the CMDs style of functioning point out that he belongs tothe old school of bureaucrats who thinks that most of the woes in organisations areadministrative problems and not people-centric issues. However, at Air India, a workforce ofall of 42,000+ is its core. It is also the airlines bane, what with Air India having 300+employees per aircraft as against the industry norm of 125 employees per aircraft. Whatworks in Jadhavs favour are his oratory skills, which indicate a sense of purpose - andwillingness to change and give Air India a contemporary and relevant look. But it is observedthat getting through to the man is indeed difficult as trying to reach him for a comment. Thereis ring fencing done by his advisors, wrongly or rightly that time will only tell.And the AirIndia employees no wonder feel marginalised because of his attitude to just clamp down. Civil aviation minister Vayalar Ravi today refused to back the top management of AirIndia and instead sought to evade questions when asked about the leadership of the ailingnational carrier. Ravi was speaking to the media on the second day of his visit to Mumbai,after meeting with all the union representatives of Air India.“Well, they are still there,” Ravi said when asked if he was happy with the top managementof the airline. Only last week, Ravi sacked Air India Express COO Pawan Arora, two monthsafter the independent board of directors called for his removal.7.2 Company Culture:As mentioned earlier, according to renowned Skytrax International rating, AI has got a 3starrating, due to its inefficient in flight service, low rating in service efficiency, in flightentertainment, unenthusiastic and poor attitude of staff, low on problem solving, low in seatcomfort in economy and average rating on cleanliness, quality of meals, food served.This is a mere reflection of how laid back and carefree the employees are, just as withemployees of most other government owned entities. The employees are looked down upon due to their services and this has had an impact on thereputation of the company, Air India has become synonymous with bad service and lateperformance. This is a major concern as AI caters to upper class customers who are chargedhuge sums of money in exchange for better services.7.3 Ethics and Corporate Social Responsibility:Air India, one of the largest developing-country airlines, has become a forerunner in takingup the cause of environmental protection.
    • On the occasion of the 20th Anniversary of the Montreal Protocol, Air India had beenselected to receive the prestigious Montreal Protocol Public Awareness Award. The awardwhich was presented by the United Nations Environmental Programme (UNEP) was inrecognition of Air India‟s efforts in protection of the ozone layer and was given in thepresence of Nobel Prize Winners who postulated the depletion of ozone layer and other highlevel dignitaries in Montreal on 16 September 2007.Later Air India spread the activities to Global Reporting Initiative and also hosted discussionson climate change related issues.The airline industry is not a significant contributor to the two most important globalenvironmental issues: ozone layer protection and climate change. However, Air India wouldlike to be in the forefront to utilize its infrastructure to spread awareness on these issues, aswell as to take action within its business operations to improve energy and efficiency. As anext step, Air India is planning to launch the Air Lines Forum in India for collective action toprotect the environment.Air India has won the following environmental and social responsibility awards.Golden Peacock Award” – for corporate innovation for protection of environment 2007.Gallileo Express Travel World Award” – for Corporate Social responsibility for 2006.As a Corporate Social Responsibility initiative, Air India launched its Reaching out Project in2002-2003. Under this umbrella, Air India recognizes students and teachers across India.Governors and Vice-Chancellors have given away these awards at State level. HisExcellency, the President of India presented the National awards in New Delhi on 18 July2007.Air India has produced environment films with the help of The Energy & Resources Institute(TERI), with part funding by UNEP Air India‟s In-flight magazine “Namaskaar” devoted its September 2005 issue toenvironmental and ozone layer preservation issues featuring various articles authored byeminent environmentalists and scientists.Air India‟s 2006 calendar was fully dedicated to environment and ozone protection, withimages from the 1998 United Nations Environment Programme children‟s paintingcompetition. This calendar had both Air India and UNEP logos.A short cartoon film “Ozzy Ozone” produced by UNEP was screened on Air India‟s flights.Air India conducted a painting competition for children on “Ozzy-Ozone” during the monthof September 2006 on board its flights. Air India‟s In-flight magazine “Namaskaar” devoted its September 2005 issue toenvironmental and ozone layer preservation issues featuring various articles authored byeminent environmentalists and scientists.Air India‟s 2006 calendar was fully dedicated to environment and ozone protection, withimages from the 1998 United Nations Environment Programme children‟s paintingcompetition. This calendar had both Air India and UNEP logos.A short cartoon film “Ozzy Ozone” produced by UNEP was screened on Air India‟s flights.Air India conducted a painting competition for children on “Ozzy-Ozone” during the monthof September 2006 on board its flights. The winner and the parents were given tickets by AirIndia to receive the award in Delhi in December 2006.
    • As part of the initiative taken by Air India from 2004 onwards on environmental issues, theairline hosted a conference on “Sustainable Consumption and Production” under the auspicesof EU.Air India hosted a three-day meet on UNEP – Global Report Initiative (GRI) meeting forIndia.In order to institutionalize the environmental initiative in the airline, Mr. Thulasidas, CMD,Air India constituted an Environmental Core Group in Air India in June 2005 to act as a focalpoint for identification and assimilation of technologies and for cooperation with the potentialpartners. The core group is headed by Mr. K. M. Unni, Director-Engineering, Air India.Air India is also taking various additional measures to conserve energy and help in savingenvironment. As part of this programme, initially a project is being undertaken to save energyand conserve water in Air India Building at Nariman Point. This Building is proposed to beconverted into a Green Building with the help of the Ministry of Environment & Forests andTERI.Air India has been following a close collaborative agenda on environmental issues withTERI. Air India has become a member of the Business Council for Social Development. Mr.Thulasidas, CMD, Air India has been appointed as the Chairman of the Council.Hosted international Ozone Day celebrations with press conference along with the Ministryof Environment and Forest of India.Halon banking for Airlines – participated in UNEP Ozone Action meeting Airline forum fordeveloping country airlines (proposed).Air India has placed order for GEnx Engines for its fleet of B787 Aircraft. These Engines areexpected to be 20-25% more fuel-efficient. This is a major step not only for conservation offuel but also makes business sense for the Airline. As a follow up Air India has signed anMOU with GE as part of the Eco Imagination Programme of GE.Strategic Control Issues8.1 Control systems in the company: • Route rationalization and route profitability: NACIL focuses on LCC for high density domestic/international routes and will undertake an aggressive route restructuring for seamless connectivity facilitated by 6th freedom traffic rights, Star Alliance network and other code shares with Airlines for routes where NACIL has nil or insignificant operations. • Revenue generation through better revenue and yield management, greater customer segmentation and adoption of more effective CRM practices. • Creation of subsidiaries for Maintenance, Repair & Overhaul (MRO) , Ground Handling and Cargo to fully leverage existing capabilities, reduce overheads on airline operations and create new sources of long term revenue generation. • Manpower rationalization to achieve industry benchmarks. Utilization of assets and operating/ technical crew as per DGCA /FAA. • Monitor Operational Quality and Efficiency by initiating business process, inventory and IT audits through independent agencies.
    • 8.2 Effectiveness of Control: Even though suitable control systems have been established, Air India has not been able to exercise effective control in most areas of their operations. The main area where this occurs is in the manpower division. Air India has a massive workforce of over 300 employees per aircraft which is very high compared to industry standards and other competitors who achieve less than half of this figure. This leads to higher costs and when combined with ATF prices, account for more than 60% of the carriers operating costs as compared to about 40% for competitors. There are many problems with Air Indias HR policies -- some of these are unavoidable due to its public sector character. But the productivity-linked scheme, introduced in the 1990s, was perhaps the most ridiculous scheme ever introduced by a company. So much so that one former MP famously described the scheme as nothing but legalised bribe. Another area for concern is with maintenance of the aircrafts. The aircrafts are not maintained well enough and have been found to be in pitiable conditions in the past.Long term SWOT summary of Air India Indias aviation industry presents some considerable opportunity, but has been draggeddown by red tape and, more recently, excessive airline capacities amid the downturn in theglobal economy. Steps are being taken to address the shortcomings, but the industry does facea considerable test over the next 12-18 months.9.1 Strengths: • Liberal Environment: Indias airlines operate in a liberal environment in both the domestic and international spheres. With three major airline groups and four smaller carriers all operating domestic routes, there is no shortage of competition, although this factor combined with excess capacity has tended to depress yields. Nevertheless, carriers are free to operate any domestic routes without seeking permission from the government, and without restriction on pricing. One condition that airlines find onerous however, is the requirement to operate a proportion of ASKs to remote and underdeveloped regions of the country. On the international front, the Indian government has pursued an increasingly liberalapproach to bilateral air services agreements with key overseas markets, resulting in greateraccess for foreign carriers. Emirates for example, the largest foreign carrier by capacity intoIndia, will operate 185 weekly frequencies to ten cities across the country by the end of 2009.Indias carriers have a combined international capacity share of just over 36% but face strongcompetition from foreign carriers, both full service and low cost.
    • • Modern Fleet: In light of the fact that much of the growth in Indian aviation has occurred in the last five years, the countrys airlines operate a relatively young and modern fleet, ensuring a high quality passenger experience, improved safety and good operational reliability. • High Quality: Indias airlines offer a good quality product in each of the operating models in existence. Jet Airways and Kingfisher Airlines are competitive in terms of their in flight service against the leading carriers in the world. Kingfisher for example is one just half a dozen global carriers such as Singapore Airlines and Cathay Pacific, with a Skytrax 5 star rating. In fact it could be argued that the full service product on domestic routes is excessive for the sector lengths involved and results in a higher cost structure, which the passenger does not necessarily see value in paying for. The LCCs too, by and large, offer a comfortable, efficient and reliable service. Until a couple of years ago, Air Deccan was one carrier that had developed a reputation for poor on-time performance, flight cancellations and overbooking, however since being acquired by Kingfisher, most of these operational issues appear to have been resolved. • Economic Growth: Economic growth has historically been the primary driver of air traffic, and the relationship has generally been even stronger in developing countries. Between 2004 and 2007, India enjoyed four years averaging 9% per annum GDP growth. This slowed to 6.5% in 2008, however against the background of a global economic recession, this was a creditable performance. The increased business confidence following the general election result in May 2009 has eased concerns that growth may slow further. The stock market has soared 25% in the last month and the outlook for growth and consumption has improved, which is a positive for the aviation industry. • Political Stability: The re-election of the Congress Party, with a stronger majority is expected to allow the new administration to push ahead with further economic reforms, which had to date been blocked by coalition partners. The prospect of a government which has the ability to last its full term and pursue its agenda is extremely encouraging. In addition, Minister Praful Patel, who was the architect of the dramatic transformation of the aviation sector, has retained the portfolio, which brings experience and stability to the aviation industry.9.2 Weaknesses: • Airport Infrastructure: The rapid growth in air traffic over the last few years exposed the deficiencies of airport infrastructure across the country. After decades of neglect, many of Indias airports were forced to operate well above design capacity. The resulting congestion in the terminals and on the runways delivered a poor experience for the passenger and a costly, inefficient operating environment for the airlines. However, although a weakness today, it is also fair to say that it is becoming less so, as the airport modernisation program starts to deliver results, with new airports in Bangalore and Hyderabad, and improving facilities at Delhi and Mumbai. The upgrade of non-metro airports remains behind schedule so it may be another 3-4 years before we see good quality facilities across the country, but there are tangible signs of improvement. • Airways Infrastructure: Although congestion on the ground is relatively visible, another current area of weakness is the limited investment that has taken place in improving infrastructure for air traffic management. This too results in expensive aircraft holding patterns, indirect flight paths and sub-optimal use of runways.
    • • National Carrier: The state-owned carrier, Air India, is in a dire situation. The carrier is estimated to have posted losses of close to USD1 billion in 2008/09, and morale within the bloated workforce is at a low. With no clear direction, management instability at the top and continuing issues with the integration of Air India and Indian Airlines, the carrier is in need of radical restructuring. It is imperative that the government develops a turnaround strategy for Air India as an urgent priority. • Deep Pockets: Over the last three years, Indias carriers have accumulated billions of dollars in losses and debt. Ironically, a characteristic that would normally be considered a strength - namely deep pockets - has resulted in carriers remaining afloat that would perhaps in other circumstances have failed. With the backing of either the government or large corporations, several carriers have been able to access funding that they might have been denied on a strictly commercial basis as standalone airlines. As a result of the intense competition which has been perpetuated, airlines have struggled to raise fares to breakeven levels. • High Cost Structure: Indias airlines operate in a relatively high cost environment, primarily due to the punitive taxation structure. The greatest impact is felt in the area of sales taxation on fuel, which can increase the cost to 60% above the international benchmark. The limitations of airport infrastructure also increase costs due to the fact that carriers are unable to schedule fast turnarounds, resulting in reduced aircraft utilisation. In addition, the fact that high quality ancillary services such as MRO and training are not currently available in India, means that aircraft and personnel have to be sent overseas. • Skilled Resources: Domestic air traffic in India tripled in the five years to 2008, while international passengers doubled. This rate of growth far outstripped the capacity to develop skilled technical and management personnel. The gap was partly addressed by employing expatriates, particularly as pilots, and by learning on the fly. This means there is a lack of in-depth experience and knowledge at all levels. Furthermore, there is an absence of high quality training infrastructure in-country to deliver the resources to support future growth. This lack of personnel affects the government as well and the FAA has expressed its concern at the shortage of qualified safety inspectors within the Directorate General of Civil Aviation (DGCA). India has been put on notice that unless this issue is addressed, it may be relegated to a Category II nation, which would mean that Indian carriers would not be permitted to increase services to the US.9.3 Opportunities: • Market Growth: Despite the rapid expansion of recent years, India has only just scratched the surface of the potential for the aviation sector. Trips per capita remain low even by the standards of other developing countries. Chinas domestic market is more than four times the size of Indias 40 million passengers. Even, Australia, a country with a population of just 21 million, compared with Indias 1.1 billion, has a market 25% larger. Similarly on the international front, less than 1% of Indians travel overseas each year. Inbound visitor numbers at 5.4 million in 2008 for the entire country, were less than for Dubai or Singapore. It is not difficult to see the expansion potential from such a low base as economic growth continues apace. • Geographic Location: India is ideally positioned as a major aviation hub at the crossroads between Europe, the Middle East and Asia Pacific. The fact that aviation was a neglected sector for so long has allowed airports such as Dubai and Singapore to effectively establish themselves as offshore hubs for Indian passengers, and they
    • now have a significant head start. However, as Indias airports improve, and its airlines receive international awards for their service, there may be an opportunity to leverage its huge home market to compete with these longer established hubs. • Lower Costs, Higher Quality: India has already managed to develop a dynamic aviation sector despite, and not because of, its environment. The improvements in airport and airspace infrastructure, the development of indigenous training and maintenance facilities and the potential for fiscal reform, all point to the potential for Indian aviation to increasingly operate in a lower cost, higher quality and more efficient manner. This could in due course lead to an opportunity for India to develop as a global outsourcing hub in areas such as aerospace manufacturing, MRO and training.9.4 Threats: • Middle East Aviation: The carriers of the Gulf are aggressively expanding in India, with high frequencies from multiple destinations to their hubs, from where passengers can access extensive global networks. The ability for a passenger for example to travel one-stop from Ahmedabad to Hamburg, or multiple daily frequencies from Mumbai to London, connecting at an attractive hub, is a strength which Indian carriers simply cannot match at present. It will take time and the question is how far ahead will the Middle East carriers be by that stage. • Terrorism: India has seen frequent terrorist activity in recent years. The country has shown great resilience in bouncing back after each attack, however inbound international traffic in particular is sensitive to such events. Similarly the potential for India to develop as a global traffic and services hub is contingent upon it being seen as a safe and attractive destination.Conclusion While some public enterprises like BHEL, ONGC, and Indian Oil have becomeinternationally competitive, Air India has failed to become an efficient organization. AirIndias problems are well known. The airline is highly over-staffed, and has strong unionsthat fight to protect their own interests. The airline is not run on commercial lines and it suitspoliticians and bureaucrats to have it that way. The management is not given the authorityand support to take tough decisions. Over and above all this, the airline industry is a brutalindustry and airlines all over the world have lost money in recent years.Recommendations • Change the way their services are looked at as their reputation has been taking a beating due to impoliteness and unprofessional attitude of the employees in customer
    • contact. In today‟s world, while competitors are concentrating on building customer relationships and loyalty, Air India seems to be regressing • Increase the fleet size further and invest in aircraft maintenance. • Reduce the number of employees per aircraft. The current figure of 400+ employees per aircraft is simply too high and takes its toll on the overall costs. When the number of employees is excessive, they become lazy and unproductive, jobs are taken for granted. • Come up with new strategic mission and vision as there is an absence. • Adopt strict cost control measures. • Air India should promote the cause of diversity. Air India should be seen as the United Nations of the sky. Diversity is a unique position for airlines. It is memorable and relevant to a world that is forced to fit in. • It should seize the opportunity of a rising number of business travellers and create an identity of being the preferred airline for business travellers. • Limit government control and policies for AI and its staff.References: • airindia.in (official website) • dgca.nic.in • http://www.wikinvest.com/industry/Airlines • http://www.marketing91.com/positioning-strategies/ • http://www.ehow.com/facts_5242839_airline-industry-key-success-factors.html • http://www.investopedia.com/features/industryhandbook/airline.asp#axzz1XHyCnBq K • http://w303.com/495/u-s-airline-industry-case-study/ • http://www.docstoc.com/docs/14534885/AIRLINE-INDUSTRY • http://www.slideshare.net/jignesh145/marketing-mix-6501824 • http://www.staralliance.com/assets/doc/en/press/media- library/pdf/General_Presentation_APR09.pdf • http://tejas-iimb.org/interactions/03.php • http://www.scribd.com/doc/13366134/Air-India-Analyst-Report • http://www.marketing91.com/value-chain-porter/ • http://www.fastcompany.com/articles/2007/09/buckman.html • http://www.frontendofinnovationblog.com/2009/04/air-india-uses-innovation-to-save- 16m.html • http://business.rediff.com/column/2009/jun/25/how-air-india-dug-its-own-grave.htm • http://articles.economictimes.indiatimes.com/2011-05-09/news/29525220_1_india- chairman-arvind-jadhav-air-india-airline/2