Air India is losing about $1 billion, on revenues of $3 billion. What’s more alarming is that Air India contributes 10% of global airline losses with just 0.35% of global traffic (stat. from Bangalore Aviation). And the Indian national carrier is still struggling with its merger with the domestic Indian Airlines a couple of years back. Couple that with the global economic crises and a bloated payroll, and you know how much trouble the airline is in.

Being an Indian at heart, I couldn’t help but come up with some ideas to save this once well-regarded Maharaja brand. In fact, I know that when Singapore Airlines began operations, they heavily hired the best from Air India! I’m not sure if Air India can return to its former glory anytime soon, but these ideas should certainly help it get back on track. Or at least, I hope so.

Getting the business plan in order

I frankly feel that Air India has only survived as long as it has due to two reasons – offering extremely low fares, and getting government funding. But having fares that hardly cover your costs are not sustainable, especially in the face of tough competition. Emirates now operates almost 200 flights out of India per week, much more than Air India. There’s an urgent need to revitalize the business plan.

The AirAsia + AirAsia X model for Air India

There are a number of business models that can work for Air India and I think the AirAsia model may be a viable. AirAsia operates as a Malaysian budget carrier serving South East Asia. This can be paralled with the domestic service of AirIndia, which can be turned into a budget-only.

Most flights within India tend to be less than three hours and budget airlines are thriving there, much more than full-service carrier. Domestically, Indians tends to be even more price sensitve than internationally, as can be seen from the success of Indigo, SpiceJet and Deccan before them.

Internationally, though Air India now has good, new planes with a world-class product, their bad on-time performance and a reputation for poor service still stalks them. It’s one of the reasons I still refuse to fly with them, no matter how cheap their tickets get. But Air India can leverage on their new product as an asset – by creating a “blue ocean” and not competing on the same turf as their competition. And that’s where AirAsia X comes in.

AirAsia X is not trying to replicate the Ryanair model to long-haul travel, rather trying to apply the Singapore Airlines model to budget carriers. The key? Low cost base, and connectivity. AirAsia X is charging people for services like food (which really tastes good!) and for a business class seat, and yet cutting overhead costs by not providing lounges or priority check-in. I think it’s a model Air India is close to and can replicate quickly.

Their in-flight service is nowhere close to exceptional, whereas the product is good. So, why not just set the expectation with the customer that he will have to pay for additional service, but he will receive a good product (seats etc) at the low price he pays. That would put the airline in a league of its own when targeting those traveling to India. But the big challenge for Air India is to bring down costs drastically.

It’s the execution that matters

The biggest worry that I have is that Air India is run for and by “babus” – India government and administration officials. With all due respect to them, it is indeed their meddling in the airline’s affairs that have resulted in such rut. Otherwise, who in their right minds would operate a route like Dubai-Srinagar regularly, even when the plane is less than half-full? This has to change (and I know that here… talk is cheap)

Having a capable management team to the lead the execution of a renewed business plan is a must. Air India needs people who’ve run international airlines successfully, not Indian Administrative Services folks who often do not have a clue about running an airline (though I have tremendous respect for the current CEO). They need to hire at least a professional COO, who can take over the reigns from the de-facto COO, the Minister for Aviation. Air India needs to reduce dependence on the government, hence its involvement in the airline’s affairs.

At the end of the day, I see no point in running an unsustainable business entity. And to keep pumping in government money is to have good money chase bad money.

Air India probably has its last chance to learn some lessons from the likes of AirAsia, or it might be too late. What do you think? What can this battered airline do, to emerge from the shadows? Let’s discuss in the comments or over on Twitter (@simpliflying)

• How AirAsia is rocking it in India, and how airlines in India can leverage their entry
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• Can AirAsiaX make the low-cost long-haul model work with focus on Asia-Pacific? Interview with CEO Azran Osman-Rani
• Multi leg flights on budget airlines, great idea

SimpliFlying: India has a lot of first-time fliers. What’s different about marketing to first-time fliers vs frequent fliers?

Binit: First time fliers may be quite apprehensive, and they require reassurance that the experience will be a pleasant one. Apart from the actual act of flying, in a market such as India flying for the first time can involve crossing social barriers which can in itself be quite daunting. Low cost carriers have made flying affordable for some who might otherwise never have dreamt that they could fly, something which was once a preserve of the elite.

However, apart from Air Deccan, which pitched itself as the common man’s airline (see video below), it is not obvious that any of the other carriers have made an effort to specifically appeal to first time fliers, but end up getting them anyway. Air Deccan’s ethos was built around first time fliers and their marketing included a wonderful television advert that captured the mixture of nerves and excitement that a first time flier feels and portrayed itself as the airline that understood and would take care of such passengers.

SimpliFlying: India is well known for disorganized retail and non-traditional channels. Which are the key channels through which Indian airlines build its brand awareness among the target markets?

Binit: Indian carriers have generally pursued quite traditional channels for brand building, namely print media advertising and outdoor billboards. Television has not been a major medium due to cost. Kingfisher has probably adopted the most diverse approach – the airline has been associated with sponsorship of the Indian Premier League and Formula 1, whilst it also benefits from the fact that Kingfisher is a brand beyond the airline and it benefits from the spin off of initiatives such as the Kingfisher Calendar and promotion of its water and beer. Air Deccan when it first launched made efforts to promote its presence in the smaller towns and villages by sending branded vans into rural India, which also doubled as booking locations.

SimpliFlying: Do you think a strong brand can soften the impact of downturns on airlines?

Binit: In an economic downturn, where people are reducing consumption it’s questionable whether strong brands will prevent travellers from flying less per se. However, individual airlines with strong brands may benefit in two ways 1) they may be in a position to maintain stronger yields because of the value of their brand and 2) in times of uncertainty, passengers may prefer to travel with a brand in which they have greater confidence and trust – therefore a strong brand allows them to increase their market share even though overall industry traffic may be declining.

SimpliFlying: Which Indian carriers will be the first to emerge out of the crises. What puts these in such a strong position?

Binit: At present all Indian carriers are losing money and have weak balance sheets. However, amongst the 3 full service carriers, Jet Airways and Kingfisher, have excellent product, strong brands and loyal followings. Air India on the other hand is facing severe problems with its integration with Indian, and political interference and lack of direction mean that the national carrier is likely to continue to struggle. Amongst the low cost carriers, as most are privately held it is difficult to know the exact state of their health. However, Indigo and SpiceJet have established themselves as consistent and reliable operators.

SimpliFlying: What role does the travel agent play in the Indian Industry?
Binit: In the full service space, travel agents control about 90% of sales. In the case of low cost carriers this figure is probably closer to 70-75%. In fact it is understood to have dropped lower, however aggressive promotion by Online Travel Agents saw the travel agent community reclaim some its market share.

SimpliFlying: How big a constraint is infrastructure in Indian carriers’ growth?

Binit: Airport infrastructure has certainly been a constraint in the last few years – many airports are operating at well beyond their design capacity resulting in delays, congestion and a poor passenger experience. The delays mean that airlines are unable to operate efficiently which increases costs. However, a major upgrade and modernization program is underway and improvements are being seen. It will still be a couple of years before all of India’s major metros have world class airports, but we are on the way.

SimpliFlying: What role will foreign carriers have to play in the Indian market, given the regulations?

Binit: At present foreign airlines are barred from holding any equity in an Indian carrier – although foreign non-airline entities may take a shareholding of up to 49%. In light of the poor financial health of Indian carriers, there is a desperate need to raise capital. The most likely investors in the current environment are those that have a strategic interest, namely airlines. As a result, the government appears to be set to relax the restrictions to allow foreign carriers to hold up to 25% in Indian carriers. There are likely to be a number of interested parties if this was to happen, which apart from capital would bring in much needed expertise into the sector.

SimpliFlying: Do you see more consolidation in the Indian aviation industry?

Binit: There are too many airlines in India at present and with their current financial state, consolidation is inevitable and desirable, either through merger or through market exit.

SimpliFlying: What do you see as the biggest threat and the biggest opportunity in the Indian market?

Binit: The biggest threat is that airlines do not take the necessary steps  to reduce capacity. If they fail to do so, the likelihood is that there will remain an urge to discount heavily to fill seats, the result of which will be to diminish overall yields and revenue. The biggest opportunity is the fact that we are only at the beginning of the growth curve. Even today, after domestic traffic has tripled in the last 5 years, it is estimated that only 2% of Indians travel by air in any given year. The growth potential is enormous.

SimpliFlying: Your predictions for aviation in India in 2009?

Binit: 2009 is going to be another tough year for Indian carriers with demand expected to remain soft for the first half and picking up from around Q3. However, fuel prices are low, airports are improving and if airlines can remain disciplined about capacity they can at least stem losses, even if they can’t return to profitability. The key is to stabilising the situation, raising cash cover to cover requirements and being ready to take advantage of an expected upturn from 2010 onwards.

• Announcement: February will be “Indian Aviation Month”
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