Flight Plan

The first order of business for Tata Sons

K Giriprakash | Updated on: Feb 06, 2022

FILE PHOTO: An Air India Boeing 787-8 Dreamliner takes part in a flying display during the 50th Paris Air Show at the Le Bourget airport near Paris, June 14, 2013. REUTERS/Pascal Rossignol/File Photo | Photo Credit: PASCAL ROSSIGNOL

How will Tata Sons turn around all the airlines under its fold, except maybe the Kochi-based Air India Express?

One of the reasons for the sale of public sector Air India was that it was incurring huge losses, and the government was unable to sustain its operations for a long time. Before its sale to Tata Sons, Air India’s losses had grown to around ₹20 crore per day, and now the same gets transferred to Tata Sons. 

So, the big question is, how does Tata Sons turn around an airline which has perennially been in the ICU? Perhaps the more significant issue is, how will Tata Sons turn around all the airlines under its fold except maybe the Kochi-based Air India Express, which flies mainly to Gulf countries and is a profitable entity. Each airline has a distinct profile, culture, and cost base.

Tata Sons now owns four airlines after taking over Air India. Apart from Air India Express and Air India, it holds a majority stake in the loss-making Vistara and AirAsia India. When the loss-making Kingfisher Airlines bought Deccan Aviation, which owned Air Deccan, critics slammed the acquisition claiming that two negative numbers make a positive in math. Still, in a P&L, it ends up with a more considerable loss. 

However, Air India is a far bigger airline than Air Deccan was, with one of the broadest international and domestic networks across airlines in the country and a fleet consisting of several types of aircraft and an army of well-trained crew. Hence, for Tata Sons, it is all the more critical to turn these assets to its advantage. Then, within two to three years, reduce the losses through route rationalisation and make it far more efficient than in its earlier version. 

“In an environment of much disruption, Air India has several avenues that can be explored. To start with is the access to a large domestic and international travel base. But the supply-demand dynamics are brutal, and the Indian traveller continues to gravitate to the lowest cost. But, unfortunately, hope, history and happiness as good as they are, do not automatically translate to costs, cash-flow or returns,” Satyendra Pandey, Managing Partner of aviation advisory firm AT-TV, said. 

Another aviation analyst pointed out that almost everything about Air India is broken, including the employees’ morale. “For example, once an aircraft arrives at the airport, it takes a long time for the baggage to be transferred to the conveyor belt. This exercise might seem extremely trivial, but if the pace of the entire process of loading and unloading the baggage is made faster, it will be one of the contributing factors for a quick turnaround of the aircraft,” he said. 

What caught the industry by surprise was that Tata Sons is yet to appoint a CEO for Air India even though the sale of the airline happened in early October last year. As a result, the group had a lead time of nearly four months to put together a crack team headed by a CEO to take over the airline on the day it was handed over to Tata Sons. 

Another issue that could become challenging for the group is that Air India is more of a network-driven carrier. In contrast, most of the competition comes from direct flights of other airlines. So, it is pretty evident that Tata Sons will need to integrate all the airlines in its fold, so that the carriers do not eat into each other’s operations. Hence the integration will involve looking at standard systems, redundant capacity and costs. 

Based on the inputs from analysts, here is a checklist of the measures that the group going forward might have to take to realign its airline business: 

1. A product overhaul will be critical to success, and if the occupancy in hotels is any indication, demand patterns have been highly volatile. Operationally this can be a nightmare. 2. Post-pandemic behaviour may see a preference for direct flights effectively bypassing hubs. But in the past, these hubs have introduced incentives that had the traveller flying right back. 3. The fleet will need upgrades; the route network will require realignment. 4. Better utilisation will help drive some returns, but the cost base must align. 5. As tough as these are, these may be the more manageable challenges. The harder ones are culture and return on capital. 6. With a fleet strength of 125 odd aeroplanes, Air India suffered losses of ₹15 crore- ₹20 crore a day. This bleeding has to be stopped. 7. The margins will have to be addressed, and this exercise means going over each cost item. 8. Air India faces the dual challenge of intense competition in the domestic market, including one new airline. 9. By keeping Vistara as a separate entity until Tata Sons wants to, it will compete directly with Air India on the premium offering. 10. Possibility of creating two separate airline entities out of the existing four, with the low-cost AirAsia India being merged with the low-cost Air India Express and full-service carrier Vistara being merged with Air India.

If the latest robust quarterly numbers of the country’s largest airline, IndiGo, are any indication of the health of the sector, Tata Sons has perhaps a near-ideal weather condition to give wind beneath the wings to its portfolio of airlines. 

Published on February 06, 2022
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