The Hindu Business Line : Air India's moment

WHEN A PUBLIC sector unit is slotted for an initial public offer of its shares, it is invariably a signal of the Government's confidence in, first, the stock market and, then, in the organisation. In the case of Air India, which has just selected the advisor for the IPO slated for later this year, it is a reflection of a resurgence in confidence within the airline as well. Times are indeed changing at the airline. Fuel costs may have risen steeply. In what long used to be a protected market, competition is building both from foreign and domestic private airlines, causing fares to crash on prime routes. Yet, Air India remained profitable in 2004-05, for the third consecutive year, albeit by a thin margin. Its plans to buy new aircraft are being cleared after years of dithering by the government. On top of such distinct improvements in the internal working of the organisation, the external environment has also turned positive: A buoyant economy fuelled a 19 per cent growth in international passenger traffic in 2004-05.

So, are the Government and the national carrier finally getting their act together? It must be noted that the airline has a steep and long climb ahead considering the ground it lost in the past decade of indecision. Air India's market share has been slipping over the years, as it failed to offer the flight connections travellers wanted or the service quality other airlines did. For instance, it did not spot in time the potential of the United States as a destination and, till three years ago, operated just 10 flights a week. After the European carriers wormed their way in and creamed the business, Air India now flies 28 times a week to the US. One of the commonly heard explanations for the sloppy performance was that it did not have enough aircraft. The aircraft acquisition programme was delayed no doubt by government inaction, but that was at best an excuse. Leasing aircraft was always an option and that was used regularly without much political fuss being raised. (It is odd that the political class considered the purchase of an aircraft being worthy of their detailed scrutiny, not its lease.) By leasing 21 aircraft over the past three years, the airline has more than doubled its fleet, and increased flights to the burgeoning markets. It is another matter that it has leased well-worn aircraft; their average age is 13 years, not much lower than the own fleet that is 15 years old on average. While the leasing option has helped the fleet expand cheaply and quickly, it has not done enough to spruce up the dowdy image of the airline.

Clearance to buy new aircraft provides the airline another chance to redeem itself, and the business environment is also just right. The fact that today two out of every three international travellers fly a foreign airline presents as much an opportunity for Air India to grow quickly as it is an indictment of its past. Yet, the task will not be easy: When the private domestic carriers expand their international operations, there will be more desi options for the Indian travelling overseas. Soon Air India will have to answer its investors as much as its passengers.

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