Two days ago I wrote Air India May Be Forced Out Of Star Alliance Before It Joins …
… early this morning Star Alliance’s Chief Executive Board, in Frankfurt, officially notified Air India’s management in Mumbai that their courtship for membership, which began on the 13th of December 2007 in Beijing, was effectively over.
Star Alliance has publicly let it be known that it has left the door open for Air India in the future … but in reality, the relationship is over. Following Star Alliance CEO Jaan Albrecht notifying Air India that they would not be joining the airline alliance, he released this statement, “Air India has not met the minimum joining conditions that were contractually agreed in December 2007” and “With the collective decision to put the integration efforts on hold today we aim to contribute to Air India’s flexibility to concentrate on its ongoing strategic reorientation. In this process our member carriers will continue to provide assistance to Air India wherever required.”
Star Alliance’s rejection of Air India is the first time an airline invited to join the alliance has then been rejected from the alliance.
There were many reasons for Star Alliance member CEOs to veto Air India’s entry into the airline alliance including, brand reputation, government interference, labour disputes, internal corruption, employees having not been paid in more than a month, a lack of customer service, ineffective marketing, poor on time and dispatch flight performance, poor management … but ultimately the business of Air India’s business is what did the relationship in.
Air India in the past fiscal year posted a loss of US$1.75-billion, with an estimated daily operating loss of approximately US$4,794,520. These significant losses following a trend of other quarterly and annual financial losses has put the airline in the position of having financial liquidity challenges, problems getting funding through many banks an being consistently bailed out by the Indian Government. As Air India spends an average of 158.33% more than it earns daily due in part to its inefficient management and bloated structure, the company continues to spiral further and further into debt, burning cash faster than it becomes available.
As Air India and Star Alliance enter a tense final few weeks prior to the membership vote, the airline faced the growing likelihood of the financial institutions providing the airline with its working capital loans would slow or cease access to the cash as the airline’s balance sheets indicated the company would miss its interest payments for the third time in a row.
The debt burden of Air India is massive and the airline’s inability to meet its basic financial obligations is not only a short-term problem, but an on going and long term concern of all businesses involved with Air India. No airline alliance can allow an airline membership that is constantly on the verge of collapse. Airline alliances rely on a mutual partnership with its members, a partnership that spans not only route networks and marketing, but also shared financial obligations and global brand awareness. At times airlines in alliances teeter, some fail and leave an alliance … but with the shared financial burden of allow an airline into an alliance, it is foolish to bring in a partner that is failing at the time they are admitted.
The Indian Government is likely extremely upset and embarrassed by Star Alliance shunning their National Flag Carrier, but the repercussions were not unforeseen by the alliance. For now, Lufthansa, a founding member of Star Alliance will not be able to fly its A380 to India in the foreseeable future, as well Star Alliance will not be able to successfully bring Jet Airways into the alliance in the near future.
For Air India the ramifications of rejection are much greater than those of Star Alliance. Air India sought to regain its once glorious reputation, but now it has been pushed aside as an n unworthy airline. The Indian government needs to take a look at what it needs to do so Air India can succeed, but likely it will put its blinders back on as the airline spirals further away from success. Air India must return to the drawing board with its finical restructuring plan as it factored in a revenue increase by as much as 15% over the next fiscal year … and of course the airline already bogged down with image problems must deal with cleaning up its image.
Air India should receive its €10,000,000 (US$14.4mil) alliance entry fee back from Star Alliance, but the airline will burn through that money is approximately three days as it continues to rack up daily losses totaling US$4,794,520.
Air India hopes the Boeing 787 can save the airline … but nothing can save Air India until it looks within and figures out how to save itself.