Indian Aviation - Air India - Global Outlook 2009-19


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That's my uni presentation for Global Issues in Aviation module. I'm yet to hand it in & would appreciate feedback!

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  • Within a year since the last economic downturn started, the way to full recovery is still long. Other factors excluded, air traffic growth usually follows the growth pattern of real GDP. Because the latest turmoil hit worldwide economies really hard, it is expected that air traffic also will take longer to rebound. It should be also noticed that premium traffic has suffered the most with companies switching to low-cost travel providers. Business customers may be unlikely to pay an extra even when the economy will have fully recovered.
  • Although first signs of recovery have been spotted in increasing passenger numbers, this may be a completely wrong assumption. In an attempt to stimulate the market, airlines engaged in an across-the-board cost-cutting activity which improved the load factors but at the same time jeopardized the margins resulting in an average 2-5% lower revenues on 5-15% higher load factors.Cost-slashing might have seemed necessary especially for legacy carriers that found their customer base fleeing away to low-cost competition. However, where LCC is possibly still making money, the full-service carrier is already incurring a loss.In India, major domestic airlines engaged in price wars that led to average fare being cut by up to 85%.
  • Over the years, airline industry proved its resilience and continued growing even after the 9/11.
  • Asian markets remain the growth leaders with a huge backlog of tapped demand.
  • The so-called propensity to fly factor for India is nowadays very low with less that 10% of Indian population undertaking air travel. Although it is already a huge market, the potential is enormous both on domestic and international routes. This is the perfect time for investments and network development in India with the result of being an established and renown operation in long-term.
  • On the domestic market Air India has been consequently losing its market share and now occupies 3rd position (since Jet Airways & JetLite are effectively the same company). All these airlines have plenty of common features which Air India has not: Young, privately owned companies low-cost base attractive networks good value-for-money innovative and with “modern feel” strong brands new fleet no problems with unions
  • Other Indian: Jet Airways, KingfisherOther Gulf: Air Arabia, Qatar Airways, Saudi Arabian Airlines, OmanAir, Gulf Air, Etihad and Kuwait AirwaysSouth-East Asia: Singapore Airlines, Cathay Pacific, Thai, Sri Lankan and MalaysianEurope: Lufthansa, British Airways, Air France, KLMAir India remains the No.1 international carrier in India despite of its huge losses. However, this is likely to change in the near future due to the Gulf carriers literally marching through Indian skies. Having very limited home customer bases, Emirates & the likes quickly realized India’s potential. Having achieved a foothold especially in regional airports, they are now trying to drive the competition out by capacity increases (but are yet to fly A380s on Indian routes). Air India is not able to compete here in short-term given the Gulf carriers’ service proposition is out of Air India’s reach.
  • Indian Aviation - Air India - Global Outlook 2009-19

    1. 1. Global Outlook 2009 - 2019<br />Magdalena Anna Fas<br />No. 07023514<br />
    2. 2. KEY TAKE AWAYS:<br /><ul><li>Air India in the global marketplace
    3. 3. Main threats to the business
    4. 4. Possible implications over next 10 yrs
    5. 5. Call to action</li></li></ul><li>Ready?<br />
    6. 6. DIFFICULT TIMES FOR THE INDUSTRY WORLDWIDE<br />Source: Global Market Forecast 2009 – 2028, Airbus Industrie<br />
    7. 7. VOLUME DOES NOT TRANSLATE INTO VALUE<br />Source: Global Market Forecast 2009 – 2028, Airbus Industrie<br />
    8. 8. Nevertheless<br />
    9. 9. THE INDUSTRY HAS PROVEN ITS RESILIENCE BEFORE<br />Source: Global Market Forecast 2009 – 2028, Airbus Industrie<br />
    10. 10. AND THE FORECASTS REMAIN OPTIMISTIC<br />Source: Global Market Forecast 2009 – 2028, Airbus Industrie<br />
    11. 11. ASIA-PACIFIC WILL LEAD THE GROWTH<br />Source: Current Market Outlook 2009 – 2028, Boeing Co.<br />
    12. 12. LESS THAN 10% OF INDIAN POPULATION IS FLYING TODAY<br /> - WHICH ITSELF GIVES A MARKET OF AROUND 100M!!<br />INDIA<br />Source: Global Market Forecast 2009 – 2028, Airbus Industrie<br />
    13. 13. In a nutshell<br />
    14. 14. ONE OF MAIN PLAYERS DOMESTICALLY<br />Source:;<br />
    15. 15. AND IN THE INTERNATIONAL MARKET, TOO<br />Source: Airports Authority of India <br />
    16. 16. Looks good.<br />So where’s the catch?<br />
    17. 17. Air India contributes <br />10% of global airline losses <br />with just 0.35% of global traffic<br />
    18. 18. In-house issues<br />
    19. 19. <ul><li> Lack of accountability:
    20. 20. state-owned = nobody’s
    21. 21. no incentives for profitability
    22. 22. Escalating costs:
    23. 23. employee to A/C ratio 200:1
    24. 24. fleet and network inefficiencies
    25. 25. accumulated loss of $3.2bn (over $1bn annually)
    26. 26. Declining revenues:
    27. 27. manual (!) yield management
    28. 28. price wars in domestic markets
    29. 29. more attractive market proposition of competitors (dom. & intl.)
    30. 30. Strategic inefficiencies
    31. 31. no strategic vision at executive level
    32. 32. lethargic execution</li></li></ul><li>Major threats<br />until 2019<br />
    33. 33. ABSENCE OF POLITICAL GOODWILL<br /><ul><li>AI as a source of personal and politic benefits
    34. 34. Major one-off cause of AI’s misfortunes</li></ul>Immediate solutions are needed:<br /><ul><li>financial life-support for the airline as a critical but short-term solution
    35. 35. increased political pressure on AI’s comeback to profitability
    36. 36. focus on transparency
    37. 37. introduction of accountability measures (i.e. external audits)</li></ul>Goodwill at governmental level is critical if AI is to survive <br />& be able to compete in the volatile market<br />
    38. 38. FORMIDABLE COMPETITION<br /><ul><li> Offers a more attractive customer proposition
    39. 39. Targets AI’s markets – domestic (LCCs) & international (global airlines)
    40. 40. Results in substantial loss of RPKs & decreased margins</li></ul>Solution is not straightforward:<br /><ul><li> AI lacks the edge to win
    41. 41. “You can’t please everyone”
    42. 42. A mix of short-term operational decisions & long-term strategies</li></ul>The longer restructuring is postponed,<br />the more market share AI loses to the benefit of its competitors.<br />
    43. 43. GROWTH OF BRANDS<br /><ul><li> Powerful brand as a success factor
    44. 44. Entry of strongly brand-focused competitors
    45. 45. The Maharajah - example of cognitive dissonance</li></ul>Brand rebuilding as a mid-term strategy:<br /><ul><li> Necessary to attract and retain large customer base
    46. 46. Brand expectations must be materialized in brand execution
    47. 47. Fostering close bonds with Star Alliance partners</li></ul>Brand restoration is a clue to AI’s future in the face of current brand perceptions:<br />“Why Indians need to get over Air India & recognize Emirates as a national carrier?” <br />(<br />
    48. 48. SUBOPTIMAL INFRASTRUCTURE<br /><ul><li>Infrastructure inefficiencies in India
    49. 49. Increases operational costs
    50. 50. Negatively affects customer experience</li></ul>Solutions call forcooperation:<br /><ul><li> Infrastructure development in hands of the government
    51. 51. Teaming-up with competition to accelerate changes
    52. 52. Possible synergies in joint Star Alliance terminal use</li></li></ul><li>ENVIRONMENTAL LEGISLATION<br /><ul><li> Growth of environmental consciousness
    53. 53. Upcoming “green” legislation
    54. 54. No action taken @ AI so far</li></ul>Environmental issues as part of overall strategy:<br /><ul><li>Solutions to operational inefficiencies
    55. 55. Operational restructuring as a starting point
    56. 56. On-going revision of processes</li></ul>Lack of investment in fleet and of pro-environment modification of processes<br />means AI stayed behind technologically & will not be able to cope with <br />costly adjustments should environmental legislation be severed.<br />
    57. 57. What next?<br />
    58. 58. RESCUE PLAN FOR AIR INDIA 2010 - 2012<br />
    59. 59. THE BOTTOM LINE FOR AIR INDIA:<br /><ul><li> coherent but flexible strategy
    60. 60. persistent execution
    61. 61. introduction of global standards of corporate governance
    62. 62. making the change start happening now</li></ul>Without an immediate implementation of comprehensive modernization <br />and restructuring plans, Air India will slide deeper into unprofitability and<br />stands a good chance of not making it into 2019.<br />
    63. 63. Thank you <br />for your attention<br />Q & A<br />