For Air India's turnaround strategy to succeed, all measures taken need to work together and be aligned. Air India is losing money due to operational inefficiencies like high turnaround times and flight cancellations. A comprehensive analysis of Air India and the airline industry will be conducted to formulate a turnaround strategy that capitalizes on strengths and opportunities.

1. For a turnaround strategy to work, all
the measures being undertaken need to
work at the same time, and in sync with
each other.
Turnround
Strategy for
Air India
Group 7
E004 Mayank Agrawal
E017 Prakhar Goyal
E019 Satyajit Hoskote
E030 Rahul Mehta
E036 Prasad Nambiar
E050 Tejas Shah

2. 1
TABLE OF CONTENTS
1 Project Description.............................................................................................................. 3
1.1 Background.................................................................................................................. 3
1.2 Current Scenario.......................................................................................................... 3
2 Project Methodology ........................................................................................................... 4
3 Industry Analysis................................................................................................................. 4
3.1 Domestic traffic............................................................................................................ 5
3.2 International Traffic ...................................................................................................... 5
3.3 Freight Traffic............................................................................................................... 5
3.4 Competition.................................................................................................................. 5
4 Data.................................................................................................................................... 7
4.1 Industry Stats............................................................................................................... 7
4.1.1 Domestic Traffic.................................................................................................... 7
4.1.2 International Traffic ............................................................................................... 7
4.2 Financials .................................................................................................................... 7
4.3 Market Share ............................................................................................................... 8
4.4 Fleet Size..................................................................................................................... 9
4.5 Cost Structure of an Airline .......................................................................................... 9
4.6 Driving Factors............................................................................................................. 9
5 Findings .............................................................................................................................10
5.1 SWOT.........................................................................................................................10
5.2 Customer Satisfaction.................................................................................................12
5.3 Operations ..................................................................................................................13
6 Conclusion.........................................................................................................................13
7 Recommendations – Turnaround Plan...............................................................................14
7.1 Crisis Stabilization.......................................................................................................14
7.2 New Leadership..........................................................................................................14
7.3 Stakeholder Management...........................................................................................14
7.4 Strategic Focus...........................................................................................................15
7.5 Critical Process Improvement .....................................................................................16
7.6 Partial/Full disinvestment ............................................................................................16
8 References ........................................................................................................................17
9 Insights ..............................................................................................................................18
9.1 Sri Lankan Airlines......................................................................................................18

3. 2
9.2 South African Airlines..................................................................................................18
9.3 Continental Airlines.....................................................................................................18
9.4 Malaysian Airlines.......................................................................................................18
9.5 From the archives .......................................................................................................19

4. 3
1 PROJECT DESCRIPTION
Formulate a turnaround strategy for the ailing national airline, Air India.
1.1 BACKGROUND
Air India had borrowed some INR 21,412 crore towards acquisition of new
aircraft, another INR 22,368 crore towards working capital and owes around
INR 2,000 crore to oil retailers, besides facing accumulated losses worth INR
22,000 crore.
In April, 2012, the government of India announced a Turnaround plan (TAP)
and a Financial restricting plan (FRA) to revitalize the ailing national airline.
The government granted the state-owned carrier a performance-linked
bailout package of over INR 30,000 crore. The airline was expected to turn
profitable by FY22.
1.2 CURRENT SCENARIO
To fully factor the immediate requirement of Air India, the government has
allocated INR 1,713 crore funding from the Government for FY17, against a
total demand of INR 4,300 crore. The government-run carrier has till date
received INR 22,280 crore as part of the bailout package. The Government
has pegged Air India's losses at INR 3529.80 crore for this fiscal, down from
a net loss of INR 5,859.91 crore in FY 15. Its debt burden stood at INR
51,367.07 crore in the financial year ended March 2015.
While Jet fuel price has declined to a rock bottom, and many airlines
including Jet Airways have become profitable, Air India is still losing money
every second. Most of the losses come from operational inefficiencies
including high turnaround time, flight cancellations, cabin crew delays and
poor fleet planning. Of its 370 daily flights, only nine are profitable, of
these, six are on domestic routes, while three are on overseas sectors. Of
the 20 A320s in Air India's total fleet of 103 aircraft, six are in service since
26 years and seven since 21 years.

5. 4
2 PROJECT METHODOLOGY
We plan to do a comprehensive external and internal analysis of Air India
and the airline industry in general. Building up on the strengths and
capitalizing on the opportunities, we will formulate a turnaround strategy.
3 INDUSTRY ANALYSIS
The Indian aviation was characterized by just two private players and the Air
India group up to 2002-03. The entry of low cost carriers from 2005 to 2007
changed the landscape of the Indian aviation. Companies competed on
prices, resulting in profitability pressures for many airlines. However, with the
industry undergoing consolidation in 2007-08, competitive intensity
moderated, and by 2013-14 just five players were left in the industry following
the exit of Kingfisher Airlines. In 2014-15, competition has again intensified
with new entrants - Air Costa, Air Asia and Vistara.
Fig: Porter’s five forces analysis – Airlines Industry

6. 5
Growth in the Indian economy, low fares and enhanced connectivity are
expected to drive passenger traffic in the near term. Steep decline in crude
oil prices supported by strong demand and high PLF are expected to boost
operating profit of airline companies.
3.1 DOMESTIC TRAFFIC
Strong growth in air passenger traffic in India is expected to be driven by
better economic growth, low air fares and enhanced connectivity to smaller
cities. Plunge in fuel price is expected to keep a check on air fares. Strong
demand growth and a disciplined approach to capacity expansion are
expected to result in healthy passenger load factor (PLF) over the long term.
3.2 INTERNATIONAL TRAFFIC
During 2015-16 to 2020-21, International passenger traffic in India is
expected to improve, thanks to better economic growth and increase in trade.
The UAE-India agreement is likely to boost bilateral trade by 60% over this
period. Indian airlines' share in international passenger traffic is estimated at
33-35% as Indian carriers are likely to focus on short-haul international
routes by operating direct flights and minimizing travel time on routes which
were so far catered to by foreign carriers with layovers.
3.3 FREIGHT TRAFFIC
Domestic air cargo traffic growth is expected to be driven by e-commerce.
Revival in global economies and resultant pick-up in India's exports would
improve international air freight traffic. Efforts to enhance cargo handling
capacity across airports and the new AFS guideline are expected to lend
additional support.
3.4 COMPETITION
Owing to low fuel prices, entry of new airlines and tussle over market share,
the domestic aviation industry has become a fierce battlefield in terms of
fares, quality of service and enhanced connectivity. As a result, flyers are all
set to benefit from varied options at attractive prices.

7. 6

8. 7
4 DATA
4.1 INDUSTRY STATS
4.1.1 Domestic Traffic
In 2014-15, domestic passenger traffic grew strongly by 16 per cent y-o-y on
account of improvement in the economy and discounting on ticket prices.
4.1.2 International Traffic
International passenger traffic reported a steady CAGR of 8 per cent, during
2009-10 to 2014-15. Both domestic and foreign carriers have expanded their
networks to and from India, which has supported growth in international
passenger air traffic. However, due to competition from foreign players, the
share of domestic carriers continues to remain low over the last few years.
4.2 FINANCIALS

9. 8
4.3 MARKET SHARE

10. 9
4.4 FLEET SIZE
4.5 COST STRUCTURE OF AN AIRLINE
 ATF (Airline Turbine Fuel) - 40-60%
 Maintenance - 20-30%
 Lease rentals 15-20%
 International Marketing 2-3%
 GDS. Reservation, Online Sales 3-8%
 International Stations and network upkeep costs 3-5%
 Navigation, over flight and international routing charges 1-3%
 HR - 2-10% depends on training, expat pilots, outsourcing
4.6 DRIVING FACTORS
 Rupee value against Dollar - If rupee is weak against dollar then more
cost to airlines, as they have to buy ATF in dollars
 Price of ATF - A decrease of 10% in ATF price may lead to increase in
EBITDA by 3-5%
 Debt, interest on debt
 Higher profits help reduce the debt pile
 Expat pilot salaries

11. 10
 Seat occupancy(PLF)
 Taxes
 Airport Fee
 Metro and Non metro routes, can be an advantage or disadvantage
 Insurance cost
5 FINDINGS
5.1 SWOT
Strengths Weaknesses
1. Only Indian Airline with the
elite Star Alliance
Membership
2. Widest network with 48
Domestic and 36 International
destinations
3. Financial support from
government
4. Brand recognition of the
national airline
5. Employee cost per available
seat kilometer (ASKM) is
about half the global average
6. Passenger load factor has
increased to 82%
1. High maintenance cost due to
high average age of fleet
2. Indiscipline in employees out
of complacence
3. High turnaround time leading
to poor customer experience
and a ripple effect delaying
subsequent sector
connections
4. Predatory pricing by domestic
players hurts the load factor
5. Political interference hinders
the culture of professionalism
6. A messy merger with Indian
Airlines has left Air India with
poor organizational structure
7. Lower revenue per kilometer
travelled (RPKM) due to
fewer business class seats
and occupancy
8. On time performance stood at
73% which well below the
industry average

12. 11
Opportunities Threats
1. Establish a hub in India
leveraging increasing India-
China trade, replicating Abu
Dabhi and Dubai
2. India is the ninth largest civil
aviation market in the world
having a potential of
becoming third largest
aviation market by 2020
3. Estimated air traffic in India to
be 60 million international
passengers by 2017
4. Airline market is estimated to
have 800 aircrafts by 2020
1. Competition due to increase
in FDI, Jet-Etihad Deal
2. Competition from new
entrants - Vistara and Air
Asia
3. A sudden increase in oil
prices may worsen the
financials

13. 12
5.2 CUSTOMER SATISFACTION
Air India has the worst customer satisfaction performance across all airlines
recording 4.3 complaints per 10,000 passengers. Go Air is next, but has only
1.5 complaints per 10,000 passengers. The industry leader IndiGo reported
0.5 complaints per 10,000 passengers. In fact, the number of complaints has
risen significantly during the last 24 months.

14. 13
5.3 OPERATIONS
Air India’s passenger load factor (PLF) has improved significantly. But, a
poor On Time Performance (OTP) has been a cause of worry. Poor customer
experience causes loss of trust and hence lower future passenger load factor.
Air India has a Hub and Spoke model with Mumbai and Delhi as its two major
hubs.
6 CONCLUSION
With a Turnaround plan and a financial restructuring plan already in place,
Air India have had enough funds from the taxpayer’s wallet. Although senior
management at Air India is optimistic of going profitable in a couple of years,
they should not see it as the ultimate goal.
For a turnaround strategy to work, all the measures should be implemented
in sync with each other. A company becomes successful when it uses its
core competency as a competitive advantage.
Air India needs to understand its core competency and communicate the
same to the employees at all levels. Employees need to work at a level no
less than that of employees at a private airline.

15. 14
7 RECOMMENDATIONS – TURNAROUND PLAN
We have put in our recommendations in a Turnaround framework:
7.1 CRISIS STABILIZATION
 Identify the loss making routes, find their feasibility and strategize to
breakeven on those routes, within a year. Failure to do so should be
followed by opting out of those routes with immediate effect.
 Restructure employee payment structure, increasing bonus
component at cost of fixed salary. Complacence among the employees
would only increase if they are sure of their fixed compensation every
month. They should be positively reinforced so as to work towards the
greater good of the organization, while taking home incentives.
7.2 NEW LEADERSHIP
Air India was in good shape even in turbulent times till it was headed by Mr.
J.R.D. Tata. A professional organization needs professional management,
which in this case was taken away due to political interference.
Air Vistara recently inducted Mr. Sanjeev Kapoor, the former CEO at Spicejet
to its management. Air India also needs to bring in people with industry
experience from either abroad, or from the country. Although, due to
government interference, it may take time, but such a move is very important
for a new plan to work.
7.3 STAKEHOLDER MANAGEMENT
The only stakeholder’s of Air India whose interest has been managed well,
are the politicians and bureaucrats of the country. More importantly, it’s a
public company and hence it should take the interest of all its stakeholders
into consideration. Immediate recognition of all the stakeholders is
necessary:
 Employees
 Public (Taxpayers)
 Customers

16. 15
 Government of India
 Board of directors
7.4 STRATEGIC FOCUS
Air India should focus on gaining ground through operational efficiency. Also,
since it’s a full service carrier, customer loyalty is an essential success factor.
Fig: Strategic focus
Strategic Route Optimization and Planning
Operational
Efficiency
High
Aircraft
Utilization
Least
Turnaround
time
Young
aircraft
fleet
Efiicient
MRO
Customer
satisfaction
On time
performance
In flight
Services
Loyalty
incetives
Establish New Delhi as a global hub and target emerging destinations

17. 16
7.5 CRITICAL PROCESS IMPROVEMENT
 Recruitment – Air India should move away from traditional hiring
practices. Private carriers around have tailored recruitment drives,
suited to the organization and market scenario.
 Aircraft Procurement – Delays in procurement of aircraft, like in the
case of Boeing Dreamliners, hurt operations and planning. When in
shortage of funds, they should adopt sale-and-leaseback model.
 Training – A flawed training process using rejected simulators was
recently exposed. A cost cut in training department may compromise
on the safety. They should match global standards.
 Route Optimization - A loss making route should be shelved if it does
not start making profits within a year.
 Tourism as an opportunity – Partner with the tourism ministry/state
ministries.
 Fleet management – Induct new aircrafts and retire aircrafts with
average age above 15 years. Old aircrafts have poor fuel efficiency
and higher maintenance costs. Induct fuel efficient aircrafts like A320
neo on a dry lease to prevent further debt pile up.
 Restructure compensation and appraisals - Restructure employee
payment structure, increasing bonus component at cost of fixed salary.
Complacence among the employees would only increase if they are
sure of their fixed compensation every month. They should be
positively reinforced so as to work towards the greater good of the
organization, while taking home incentives.
7.6 PARTIAL/FULL DISINVESTMENT
Disinvestment of the national airline has been a debatable issue. Previous
senior management have raised doubts over the feasibility of a
disinvestment. Politicians would not want to lose control over the airline.
Sri Lankan airlines turned around to profitability within a span of 7 years,
after a disinvestment of 40% to Emirates in 1998. Air India could seek
potential buyers or may offer shares to public and employees. Disinvestment
will make the management more liable to their actions. Stake holder
management would thus become more meaningful.

18. 17
8 REFERENCES
 https://www.crisilresearch.com.ezproxy.svkm.ac.in/industryasync.jspx?serviceId=
564&State=ECONOMY#storyId#114901#sectionId#1453#newsFeedId#undefine
d
 https://www.mindtools.com/community/pages/article/turnaround-
management.php
 http://www.bangaloreaviation.com/2015/10/infographics-india-domestic-airlines-
performance-for-august-2015.html
 http://www.dailyo.in/politics/air-india-indian-airlines-civil-aviation-spicejet-indigo-
kingfisher-airlines-dreamliner-jet-airways/story/1/8887.html
 CAPA Aviation
 http://www.thehindubusinessline.com/opinion/can-privatisation-work-for-air-india-
no/article5305498.ece?homepage=true - V. SUBRAMANIAN( was Secretary to
the Government of India and served in the Aviation Ministry)
 http://www.thehindubusinessline.com/opinion/can-privatisation-work-for-air-india-
yes/article5305500.ece?homepage=true -V. THULASIDAS( former CMD, Air
India)
 http://www.khaleejtimes.com/article/20131012/ARTICLE/310129970/1002 -
Jitender bhargava, Air India’s executive director for 13 years
 http://india.blogs.nytimes.com/2012/10/15/when-air-india-was-efficient-profitable-
and-growing-fast/?_r=0

19. 18
9 INSIGHTS
Insights from successful turnarounds:
9.1 SRI LANKAN AIRLINES
 40% disinvestment to Emirates in 1998
 20% reduction in staff with a restructuring exercise
 partnership with the tourism ministry
9.2 SOUTH AFRICAN AIRLINES
 Third party consultant Mot MacDonald brought in for analysis, review
and recommendations
9.3 CONTINENTAL AIRLINES
 The turn-around plan — the Go Forward Plan 'A' — had four different
elements each of which were given an inspirational title :
 Fly to win — product improvement and network redesign;
 Fund the Future — cost control and cash flow management;
 Make Reliability a Reality — punctuality and reliability; and
 Working together — incentivizing the staff.
9.4 MALAYSIAN AIRLINES
 Inadequate yield management, an inefficient network, and poor cost
control finally brought it to its knees in 2005
 A large number of stakeholders, intense public scrutiny, competing
priorities, insufficient freedom to operate commercially, and a host of
legacy personnel challenges
 Solution in 3.5 months - Cost cutting, yield management fixing, cut the
loss making routes
 Sell assets which could be done without
 Research laboratory to analyze routes and check their viability. Either
fix or cut the loss making routes
 Reward people for doing things differently, like linking pay increases and
bonuses to their performance and contribution to the P&L, you find that
they deliver results that impact the P&L. They get out from the
complacency of not delivering. They discover that they can do a lot more
than they ever dreamed possible

20. 19
9.5 FROM THE ARCHIVES