Thursday, May 24, 2012

What is wrong with Air India?


Air India – India’s National Carrier has been in the news for all the wrong reasons over the past few years. Are you one of those poor Indian Citizens who haplessly watch Air India go spiralling down towards its end? Are you one of those poor Indian Citizens who want to know what exactly is wrong with one of the world’s Large Airlines?

I assume the answer to both questions is a YES. In this article, we are going to analyse the reasons as to why Air India is doing so miserably in spite of the government pumping in thousands of Crores to keep the Airline running.

Reasons for Air India’s Poor Performance

There are numerous reasons for Air India’s dismal performance over the past few years. Some of the significant ones are:
1. Cost of Aviation Fuel
2. Poor Management
3. Poor Performance
4. Over-Staffed
5. Poor Customer Service
6. Corruption1
Point no.6 is something I am not going to waste both our times explaining it. So, let’s get right down to business and look at the other 5 major reasons.

Cost of Aviation Fuel

Aviation Fuel accounts to approximately 50% of the Operating Costs for any Airline. The actual % depends on the price of the Aviation Fuel in the respective country. In India the price of 1 kilo litre of Aviation Fuel works out to approximately 1250 USD which works out to around Rs. 68,000/- whereas it is comparatively cheaper in other countries. For ex: in Dubai & Singapore the price of 1 kilo litre of Aviation Fuel works out to around 810 USD which is approximately Rs. 45000/-

You can say that Dubai has oil wells and so it is cheaper there. What about Singapore? Do they have oil wells too? Unfortunately Not. Singapore too imports almost all of its Oil just like India. But, they are able to sell Aviation Fuel to their airlines at a much cheaper price than India.

If you wonder why, the reason is – TAXES. India has one of the highest taxation rates for fuel in the world and it is significantly affecting the operating expenses of all Airlines in India including Air India.

With the Indian Rupee depreciating so badly against the USD, even if the price of Aviation fuel in USD remains the same, the amount Airlines in India have to pay in Rupees is going up by the day. So, the only respite I can think of at this time is, the Government cutting a % of its Taxes. Unless that happens or the rupee returns back to the 45-48 rupees per USD Range, do you think Air India will make a profit??

Poor Management

A few years back, Air India and Indian Airlines merged into one creating the current Air India Ltd. Air India has tried to grow in a reckless fashion with very poor planning. They have also managed their finances badly. All this is evident from the fact that Government of India has bailed out Air India 4 times over the past 5 years. Around 15,000 Crores worth of Tax Payers Money has been infused into Air India by the Indian Government to keep the National Carrier flying.

The Management doesn’t look like it is learning its lessons. Since the Government will bail them out, no matter how poor their performance/management is going to be, they are continuing to make the same old mistakes and survive on the Tax Payers hard earned money. They don’t have to worry about their job. No matter what happens they are going to get paid and receive a fat pension after they retire because they are “Government Employees”. Nobody in the Government cares about whether Air India makes a profit or not.

So, until things continue this way, do you think Air India will make a profit???

Poor Performance

Airlines & Airports in India perform at a rate which is only around 50% of what the worldwide Industry Standard is.
Ex:
An Airport the Size of Delhi Airport can handle around 90 take-offs and landings in an hour. The actual number of take-offs and landings are only around 50 to 60.
An Airport the Size of Mumbai Airport can handle around 70 take-offs and landings in one hour. The actual number is only around 35.
If the Airlines & Airports continue to perform at such below-par standards, how can they make profits?

Over-Staffed

Air India Ltd has over 35000 Employees (Both Permanent & Contract) to handle its fleet of around 90+ Aircrafts. Since Air India is a government owned entity, all these staff members get good pay packages, retirement packages, bonuses plus a host of other benefits irrespective of whether Air India posts profits or losses.

A Simple Comparison:
Singapore Airlines, the National Carrier of Singapore has a fleet of around 100+ aircrafts but its employee strength is only around 21,500. They are able to handle a much larger fleet size at around 60% of staff strength that Air India employs.

With so many staff members, the company spends a huge chunk of its financial resources in paying for the salary & benefits. Do you think that with so much over-staffing Air India can post profits soon???

Poor Customer Service

In any Service Oriented Industry, customer service is of paramount importance. If you were a passenger and receive pathetic service on both occasions when you travelled with an airline, would you think about taking the same airline again?

Real Life Story:
When I went on my first trip to the United States, my company sent me via an Air India flight. The near 24+ hour journey was one of the most miserable trips in my life. The food was horrible, the staff were pretty unfriendly. If you ask them for a glass of water, they will look at you as if you asked them 1000 bucks out of their pocket. You will need to wait at least 10 mins before you actually get that glass of water. Similarly on my first trip to Singapore, my company chose Air India again. I hoped that my previous bad experience was one off but I was wrong. The service was equally poor. In fact, they did not even have enough blankets to give to the older passengers in the flight who were feeling cold. They dint even have 100 blankets in a flight whose capacity was over 250.
Can you guess if I ever took Air India again in my multiple trips to India & back?

Some things customers feel about the Staff of Air India (On-board the flight, in Airports, in their offices etc.) are:
1. They are Rude
2. Getting updates about lost baggage is next to impossible
3. Nobody cares if your flight is delayed or cancelled
4. Etc.

The Average customer satisfaction rating for all passengers who have ever flown in Air India according to a global survey is 4.1 out of 10.

Do you think that with this kind of customer service, Air India can post profits??

Final Verdict:

If you ask me, this poor performance is a direct result of the Government putting up with all sorts of nonsensical decisions taken by the Air India Management. Perform or Perish should be the words the Government must put to all staff of Air India. Unless the Government takes some tough stands the staff is not going to perform well and the airline is going to continue to languish in huge debts & losses.

The government will continue to bail them out using our hard earned tax money so that they can enjoy their so called “Government Job

Before we wrap up I want to write a few things about Singapore Airlines. They are a Government Owned Airline too, but they aren’t languishing like Air India.
1. I have almost always taken Singapore Airlines on my trips to India
2. The Customer Service they provide is exceptional
3. They posted an operating profit of 63.1 million SGD in the year ending March 2010 due to turbulent economy and rising fuel prices. Do you want to guess what their operating profit was in the year ending March 2011? It was 1271.3 million SGD.
All this is because – Neither Singapore Airlines, nor its staff enjoy the luxuries & benefits that Air India or its Staff enjoy. Perform or Perish is the whole idea and the results are for us to see…

Hope our Government does something to put Air India out of its misery!!!

3 comments:

  1. Hi Anand,
    .
    I completely 100% agree with all your opinions.
    .
    I assume you've visited DMV on one of your trips to the US. How do you find the service at DMV compared to the one received in Emirates First-Class (assuming you've traveled in the latter)?
    .
    Singapore Airlines seems an exception to govt-service and not the norm, to me.
    .
    http://en.wikipedia.org/wiki/Singapore_Airlines#Corporate_management
    Seems like SIA does not actually receive funding, support or preference or any-governance from the GoS.
    .
    Simply because a Porsche Boxster, a Maserati GranTursimo Sport & an HM Ambasaddor are all cars we cannot compare them. One of them is for the rich, another for the elite-rich-est & the last for no-one (but me, possibly).
    .
    Good Read. Glad to have read it.
    .
    MN

    ReplyDelete
    Replies
    1. @ MN

      Nope I havent travelled in Emirates however have used Etihad Airways and the service was exceptional. One of my friends used Emirates and he was all praise too...

      The last analogy with a car comparison is simply priceless. Well said :) That is exactly what the difference between Singapore Airlines & Air India is.

      Anand

      Delete
  2. travelled quiet a bit on air india, i agree to the above comments, the planes are dirty, on my flight to bangkok in sept12 the empty bottles were under and in the side of the seats from the previous flight, the staff r so robotic, it is very clear that every person can read facial expressions and their smiles say a lot,,(why r u on this flight)
    on a banbalore goa flight in nov 12 the flight was so dirty, they always anounce a reschedule of flight, then give you peanuts during lunch hour, this was my kochi bangalore flight,
    this is a disgusting airline, it all reflects on a disgusted manager sitting on the top,

    ReplyDelete

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