CROSS-OVER POST FROM SIMPLIFLYING : How business lessons from AirAsia can rescue the battered Air India brand

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10/07/2009 – CROSS-OVER POST FROM SIMPLIFLYING : How Business Lessons Learned From AirAsia Can Rescue The Battered Air India Brand

This weeks’ Cross-Post from Shashank Nigam’s Simpliflying is an interesting look at ways Air India can rescue its self. What makes the airline’s financial success and future so interesting is that Air India accounts for 0.35% of the world’s airline traffic while simultaneously accounting for 10% of the global airline financial losses.

I found this entry on Simpliflying very interesting.

Happy Flying

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. 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.