How Air India's million little steps are taking it on a journey to find lost glory

A plan to transform was brought about last year, when Air India launched a five-year plan titled Vihaan.ai, which translates to the dawn of a new era in Sanskrit. According to the plan, the airline has set itself clear milestones focused on growing its network and fleet, developing a revamped customer proposition, improving reliability and on-time performance, and taking a leadership position in technology, sustainability, and innovation, while aggressively hiring industry talent. Over the next five years, the airline will also look to increase its market share to at least 30 percent in the domestic market.

“It is quite unprecedented, merging four airlines into two while taking a long government airline private, growing it significantly, and trying to take it to the top leagues in terms of performance and experience,” Wilson says. “To do all of those things concurrently, it's going to take a while. It's a five-year project and what we've done in the first year, is a very healthy start. A lot of the foundational items have been addressed.” 

Still, it hasn’t been as easy as Wilson makes it sound to be. The airline, according to him, has had a 15-year gap in the talent pipeline. Alongside, there hadn’t been investments in IT systems and revenue management systems. “The email infrastructure was such that most corporate businesses were done on private Gmail accounts. We were the last company in the world on the SAP mainframe,” Wilson says.  

In addition, when the government disinvested the airline, it kept with it Air India’s engineering division Air India Engineering Services Limited (AIESL). AIESL is the country’s largest Maintenance, Repair, and Overhaul (MRO) service provider. “When Air India was divested, Air India engineering services were retained by the government,” Wilson says. “And, it's not a common situation for an airline not to have its own engineering competency in-house. So, we had to build a whole engineering division and capability in-house.” 

“It is the mother of corporate turnarounds, and it would obviously take some time for the changes to be visible to consumers. Some major aspects of it also hinge on external factors,” says Vinamra Longani, the head of operations at Sarin & Co, a law firm specialising in aircraft leasing and finance. “Global supply chain constraints could slow down the pace at which Air India wants to revamp their cabin products. With some of the new aircraft, changes are visible but that’s not possible with the old ones and that going to take time. However, there are some visible changes one sees already, including significant improvement in on-time performance, inflight food, and the crew attitude.”

Also read:  Air India: Will we see a new avatar of the beleaguered airline in 2023?

What’s been going on? 

Since it launched its turnaround program in September last year, the initial six months were spent on addressing some of the accumulated grievances and issues that have historically held the airline back. That meant serious investments into technology, hiring, training, and infrastructure. 

“The first six months of the transformation program was about trying to address some of the accumulated issues that had built up,” Wilson says. “Things as basic as refunds not having been paid, or seats not being fixed. But in parallel, we also negotiated the largest aircraft order in aviation history as a very clear signal of intent about the scale and aspiration of the business, and the investment that we were prepared to make in it.”

Air India has signed what can now safely be referred to as the mother of all aviation deals. Earlier this year, the airline announced that it is purchasing 470 aircraft from airline manufacturers Airbus and Boeing. The combined value of the deals is estimated at some $80 billion.

“That is a confidence born of what is the India story,” Wilson says. “We see economic growth, we see supply chain re-adjustment around the world and we see the population traveling more by air. We see a very strong diaspora and geographically India is in a very strong position as an air connectivity centre.” 

Air India’s order comprises 40 Airbus A350s, 20 Boeing 787s, and 10 Boeing 777-9s widebody aircraft, as well as 210 Airbus A320/321 Neos and 190 Boeing 737 MAX single-aisle aircraft. The A350 aircraft will be powered by Rolls-Royce engines and the B777/787s by engines from GE Aerospace. All single-aisle aircraft will be powered by engines from CFM International.

The first of the new aircraft will enter service in late-2023, with the bulk to arrive from mid-2025 onwards. The company is figuring out a viable plan for financing the aircraft and is expected to put out a request for proposal (RFP) for the sale and leaseback of the narrow-bodied aircraft. Of the total order, 400 aircraft are single-aisle aircraft which means that the aircraft would likely be used for domestic or short-haul international operations. Some will also be used for operations at the new low-cost arm comprising Air India Express and AirAsia India. The others are dual-aisle planes that will be used for long-haul operations.

“I’m not entirely convinced Air India will take all 470 aircraft as circumstances are bound to change and therefore, management will have to adapt,” Shukor Yusof, Founder and CEO of Malaysia & Singapore-based Endau Analytics says. “The airline does need upgrading of many planes but 470 in my view appears a bit excessive.”

Air India is currently in the process of also bringing on an additional 37 aircraft including 11 Boeing 777 and 25 Airbus A320s. The Boeing 777 are long-range wide-bodied aircraft while the A320s are narrow-bodied short-haul ones. “That's additional to the 470 new orders, to address the immediate capacity shortfall,” Wilson says. “But it also has a product benefit, because these aircraft come with new seats, new products.” Air India, Wilson says, has already invested $400 million in completely new interiors for the airlines’ existing wide-body aircraft, new seats and new in-flight entertainment in addition to spending another $200 million on IT infrastructure.  

“The order is historic and paves the way for fleet renewal and fleet replacement,” adds Pandey. “But ordering aircraft is the easy part, deploying them profitably and matching the asset to the route profiles is critical. How this is executed remains to be seen.”    

Also read: Why Do India's Airlines Choose Foreign CEOs?

 

The critical merger

Despite the gigantic order, the elephant in the room remains the merger of the four aircraft to create two entities, a full-service, and a low-cost carrier. India’s domestic aviation market is currently led by low-cost carriers that control as much as 80 percent of the market. The Tata group’s total fleet size stands at 219, including Air India’s 113 aircraft, AirAsia India’s 28 aircraft, Vistara’s 54, and Air India Express’ 24 jets.  

Interestingly, it was an ill-fated merger between Air India and Indian Airlines in 2007 that made the airline sick; it never recovered since then, forcing the government to sell it a decade and half later.   

The company has already received clearance from the Competition Commission of India (CCI) for the merger of Air India Express and AirAsia India. The two low-cost airlines had moved to a single, unified reservations system and website, and adopted common social media and customer support channels earlier this year. Passengers can now make and manage bookings of domestic and international flights of both airlines on its integrated website. The two low-cost carriers are now under the leadership of Aloke Singh. 

“At some point, perhaps towards the end of the calendar year or early in 2024, the two air operator certificates will merge into one at which point the merger is effectively complete,” Wilson says. 

The group is now awaiting CCI clearance for the Air India-Vistara merger. As part of the merger transaction, Singapore Airlines, which owns a 49 percent stake in Vistara, will also invest Rs2,059 crore in Air India, with SIA holding 25.1% shareholding in Air India post the merger. The Vistara brand is also likely to be retired after the merger. 

“We are planning for the organization and the roles on the presumption that it would be approved,” Wilson says. “If it's approved, then at that point, we could start putting people into their future positions and aligning the organizations more operationally. The merger of the two air operating certificates would likely not happen until the middle or early second half of next year.”

  

The merger is also a challenging one especially since the airlines have four sets of operating procedures and operating manuals approved by the regulator. “We are taking the opportunity to harmonize and extract the best practices from those to build an operating manual of the Air India group,” Wilson says. “We're very clear about our future with a full service and low-cost component within the group.”

“Global airlines have had success and failures in equal measure with the FSC (Full Service Carrier) and LCC (Low cost carrier) under one roof strategy,” says Pandey of AT-TV. “The positives of such a move are that the domestic market is extremely price sensitive and thus the LCC model is a good fit. Beyond 5 hours, the customer behaviour changes and the challenge for Air India will be to position itself for both markets and ensure minimal cannibalization on its own routes. This while competing with global behemoths like Emirates, Lufthansa and British Airways.”

All that means aggressively ramping up on hiring especially with nearly 500 aircraft expected in the next few years. On average the group has been hiring nearly 600 cabin crew a month, in addition to training over 50 pilots a month. The group has set a target to hire over 4,200 cabin crew and 900 pilots through the current year while also significantly ramping up personnel in the non-flying division.   

“To be honest, the merger of the airlines is also helpful; AirAsia India and Vistara, in particular, were younger airlines using more modern technology platforms,” Wilson says. “So there's quite a lot of synergy in people from those organizations coming into Air India, because of the very complementary fit.”

Despite all that, Wilson knows the turnaround still hinges heavily on external factors, especially on supply from manufacturers, even for seats. “It's quite understandable why people have such high expectations of Air India and the Tata Group,” Wilson adds. “And we're striving mightily to meet them as fast as we possibly can, given the real-world constraints of seat production, seat certification, seat installation, aircraft, maintenance, hangers, and slots.” 

“Time is a double-edge sword,” adds Yusof. “It can work for or against an airline. In Air India’s case, it requires a long time, at least five years, to reorganise all four carriers and streamline the new entity. India's market looks good now but the landscape can change in the blink of an eye.”

Full throttle

For now, returning to the Tata group has meant that the airline has been able to tap into the various arms of the group for its overhaul, from crew accommodation at the Indian Hotels Company Limited; to IT assistance from TCS and Tata Communications; or technical spares design from Tata Technologies or even procurement processes from Tata Motors among others. That also means a certain reduction in costs.  

Today, Air India has the second-best on-time performance for an airline in the country, following Akasa Air, while the passenger load factor across the group airlines has also been among the highest in the country. “Our load factors are at record levels,” adds Wilson. “The yields are strong, and the punctuality is strong, which means that people are more inclined to consider traveling with us because they're more confident in our product. We have seen an improvement in the financial performance.”

“Air India has been improving their foreign network especially to North America, and Europe, and logically an Australia expansion may be next in plan,” adds Longani. “They may not be very concerned about increasing frequency on some of the domestic routes. But what their end game is really about is the integration of Air India with Vistara in the full-service space, and on the other hand the streamlining of products in the low cost space with AirAsia India and Air India Express. That will be challenging for the likes of IndiGo, because they will look at mixing and matching the low cost carrier with the international operations which bring a lot of money, and when coupled with loyalty programs and connecting smaller cities to the international route, will make it a formidable player.”

It has also helped the Tata Group that the country’s aviation industry is emerging into a duopoly with IndiGo and the Air India group now cornering over 80 percent of the market. Last month, Go First, had shut down operations due to mounting debt. “India has seen a fairly regular cycle of some airlines not making it,” adds Wilson. “But in the past that was also true of the US and Europe. So perhaps some form of consolidation of the industry is required for the industry to become healthy and stable and have the platform to grow.”

For now, Wilson reiterates that the Air India turnaround is a long-drawn test match in the times of IPL and T20. That means being patient and waiting it out. “The Air India of today is not the Air India of yesterday and the Air India of today is certainly, not the Air India of tomorrow,” Wilson says.