The Hindu Business Line : ‘Maharaja experience must make a comeback for customers’

Apart from introducing more non-stop flights to international destinations, we also aim to improve other aspects such as fuel efficiency, the frequent flyer programme, facilities at the airports and in-flight services to make AI the first choice of travellers flying to, from and within India.

MR RAGHU MENON, CMD, AIR INDIA

Ashwini Phadnis

The newly appointed Chairman and Managing Director of Air India, Mr Raghu Menon, is just one-month old in the top spot. In an interview to Business Line, he outlined how there will be increasing emphasis on passenger comfort, expansion of the network and improving the carrier’s profitability.

Excerpts from the interview:

You have taken over at a time when the airline has reported the highest loss in its history and aviation turbine fuel (ATF) prices are at a global high. What would your strategy be to manage these issues?

There is no denying that the airline industry is going through a difficult period. Fuel prices have escalated more than three times in the recent past.

From 115 US cents to a US gallon in 2004-05, fuel is now around 350 US cents/USG thus eroding and denting the profitability of all Indian carriers.

From constituting 18 per cent of the operating cost in 2004-05, it is between 35 and 40 per cent in 2007-08. Every cent influences profits. It is estimated that a variation of one cent could lead to impacting our bottom line by Rs 12 crore per annum. The total expense on fuel in fiscal 2007-08 is likely to be Rs 5,800 crore.

While the pricing and taxation on ATF is beyond our control, we are trying to put in place a Fuel Efficiency Gap Analysis in consultation with the International Air Transport Association (IATA), which could lead to a 5 per cent projected savings in fuel cost.

We have not restarted hedging but could look at it in the context of forward prices. One also has to critically look at congestion at airports to bring down fuel costs. Every minute of wasteful flying directly impacts costs and we need to bring this down. We also hope that the other States will follow the lead taken by Andhra Pradesh and Kerala in reducing Sales Tax on ATF.

AI is losing market share both domestically and internationally. What steps are being initiated to regain market share?

Market share is a relative index that indicates the performance of a business entity in its specified markets, in relation to the industry. In the airline industry world over, there exists a positive correlation between the capacity and market share of an airline. AI has lost market share in the markets that it operates to primarily because it has not been able to match the capacity induction by its competitors in domestic and international markets.

We are, however, getting aircraft at the rate of about one-two per month and shall be improving our presence in key markets in a gradual manner, as also our product and services, so as to be able to retain our existing clientele as well as attract more passengers.

At the same time, we aim to improve all aspects such as distribution, the frequent flyer programme, facilities at the airports and in-flight service so as to make AI the first choice of air travellers flying to, from and within India.

What are your short, medium and long-term objectives?

As far as I am concerned the overwhelming objective is quite clear — without dividing it into different time-lines, it is to make Air India one of the best airlines in the world. Customer focus and satisfaction is the highest priority. Everything else follows from this, including enhanced load factors, enhanced revenue and profitability. Each and every passenger of ours must enjoy a great travelling experience from the moment he/she checks in till stepping out of the airport at the destination. Our famous Maharaja experience has to make a comeback for customers!

Air India has a glorious history and in the last 76 years it has been India’s most visible and well-known brand across the globe.

Admittedly, there have been some setbacks but if we can recapture the image, prestige and position it enjoyed among the world’s airlines, I would consider it a major achievement.

The strategies to achieve this will be worked out over the next three to six months.

Why should a passenger who has so many other choices fly Air India?

I disagree with your basic premise since your question implies that AI is amongst the least preferred choices, which is not correct. Air India has millions of loyal and happy customers. There are a number of reasons why our passengers prefer to fly with us.

After the merger, AI offers unmatched domestic reach for passengers whose travel originates in foreign countries. The airline is replacing old aircraft with new ones both on domestic and international routes. This will enable us to revamp our network in phases, offering even greater value to our passengers.

We plan to add new destinations to our network as well as offer better connectivity to existing destinations. AI also offers attractive fares and a top-of-the-line frequent flyer programme that offers a number of add-ons, over and above the free miles that flyers earn by flying with us.

Another option that will be available soon is that we are all set to join the Star Alliance. Once AI becomes a full-fledged member of the Star Alliance, it will offer significantly enhanced reach and overall value-proposition by providing end-to-end connectivity across the Alliance network.

Entry into the Alliance will give our passengers a much larger choice in terms of flight options, connections to various cities globally and seamless travel.

Moreover, AI’s frequent flyers will also benefit as miles will be earned and redeemed on all member airlines of the Alliance.

What kind of changes on the ground and in the air can a passenger travelling with AI expect?

We have planned a number of initiatives, including more non-stop flights to most destinations. For instance, AI has commenced non-stop flights from Delhi and Mumbai to New York, and has restructured operations from Mumbai to Hong Kong, and Delhi to Shanghai and Tokyo to operate non-stop.

We are also looking at commencing flights to more international destinations such as San Francisco, Washington, Houston, Vancouver, Moscow, Rome, Zurich, Johannesburg, Sydney and Mauritius. Then there is extension and introduction of self check-in kiosks at all metros and introduction of roving agents for check-in especially for first/business class and needy passengers.

For domestic passengers there is in-flight entertainment on flights operated on all major domestic routes.

What impact will the delay of the Boeing 787 have on network expansion plans? Which routes are likely to be affected?

No doubt this has been a setback. The deliveries of the B787s were originally to commence from September 2008 but are now delayed by about one year. B787 aircraft are envisaged to mainly replace the medium haul routes to Europe and Africa and to upgrade some of the narrow body operations in regional markets to South-East Asia and the Far East.

Due to delay in delivery, introduction of routes to Australia may be delayed. Moreover, introduction of flights to London and other European hubs from other points in India may be affected. Also, we have to take another look at various leasing options, including extension of existing leased aircraft to meet this shortfall. It is a major issue as the leasing market is also very hard with limited short-term options.

At what stage is the fleet expansion plan? Has any target date been set for placing orders for new aircraft, especially as there is a lag of several years between placing orders and the aircraft being delivered?

The first priority is getting the aircraft that we have already ordered. Out of the order for 111 new aircraft, 32 have been inducted. The remaining will be inducted in a phased manner up to 2012.

In the context of future fleet expansion plans, a strategic network and fleet development plan has been under discussion with a view to acquiring additional aircraft for our requirement beyond 2011-12. I am yet to review this.

It has been almost a year since the merger process started. What kind of financial and physical benefits have been seen?

Following the merger, and with the fleets of AI and IA becoming one common pool, Air India has rationalised many routes that were flown by both the erstwhile carriers.

Several overlaps in routes to South-East Asia and the Gulf have been removed. Further, quite a few routes have undergone rationalisation in terms of capacity and schedules. In the process, more non-stop routes have been added to the network and several frequencies have been increased.

AI has put in place a number of domestic hub and spoke flights to and from Delhi, Mumbai and Kolkata with Airbus-320 aircraft, in some cases replacing flights that were earlier being operated with larger aircraft such as the A-310, B-777, B-747 and adding new domestic hub and spokes in some cases.

In cases where the airline has replaced larger aircraft with the smaller A-320s, the airline is incurring lesser costs of running the hub and spoke flights, and adding to its network and long haul feeds out of Delhi, Mumbai, Kolkata with the others. We now operate 34 A-320 hub and spoke flights per week as compared to 8 per week earlier.

The schedule integration and restructuring of flights achieved so far has resulted in savings of about Rs 300 crore. With rationalisation in many other areas like sales and marketing, procurement, administration, finance, cargo, engineering and ground handling, we expect synergy benefits of about Rs 800 crore as per the latest estimates in a full financial year.

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