Air India’s Second Innings

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Today’s, Publisher’s Parmesan talks about the transformation underway at Air India.

For context, Air India is India’s flagship airline which had been grappling with mounting losses. Recently it was privatised and has since embarked on a transformation journey led by its buyers - the Tata Group.

A few weeks back, it placed a mammoth firm order for more than 470 aircraft - the largest order in aviation history. We dig into Air India’s history and the Tata Group’s plans to revitalise an ailing asset.

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Publisher’s Parmesan 🧀

Air India’s Second Innings

The beginning

JRD Tata, the maverick scion behind the Tata Group, laid the foundations of Air India as Tata Air Services in 1932. Initially, it was focused on transporting mail but quickly expanded to transporting passengers. In 1938, the airline was renamed Tata Airlines and expanded internationally with flights to Ceylon (now Sri Lanka).

During the Second World War, Tata Airlines’ planes were commandeered by the British Army. Sensing the potential, JRD Tata, the enterprising entrepreneur that he was, offered to manufacture the preferred De Havilland Mosquito plane in India. His offer was first encouraged by the then Government of India but he was later asked to make gliders. Not long thereafter, the government cancelled the contract because, ironically, it didn’t have airplanes to tow the gliders – the very airplanes that Mr. Tata had offered to make in the first place.

Unflinched, JRD Tata initiated the process of expanding his airline on international routes - renaming his company to Air India and hiring a former TWA stewardess to train flight attendants.

In 1948, just before the inaugural Bombay-London flight, JRD agreed to allow the Indian Government (newly formed post Independence in 1947) to own 49 percent of the airline with an option to purchase an additional 2 percent at any time in the future - paving the way for a future nationalisation of the carrier.

Almost on cue, Air India was nationalised in 1953 along with eight other Indian carriers. A heated written exchange followed between JRD and the newly formed Government. In a long, stinging telegram to the then Prime Minister Jawaharlal Nehru, JRD minced no words:

In an interesting turn of events, JRD was invited to be the chairman of the newly nationalised Air India. Despite initially being angered by the move, JRD Tata returned to lead the airline as its chairman soon after. In his biography, he said,

Before getting nationalised, Air India was known for its exemplary customer service and on-time performance. JRD was obsessed with making the airline special in a distinctively Indian way. Air India soon became legendary for its punctuality. Legend has it that people in Geneva, in those years, could set their watches to the time at which the Air India flight flew over their city.

Because of such meticulous attention to detail and excellence, Air India topped the list of airlines in the world in 1968 as per a survey done by the Daily Mail, London. In fact, in that same year, 75 per cent of Air India’s passengers were foreigners who came from countries with their own airlines. It is also said that when Singapore wanted to launch an airline (now famous as Singapore Airlines), Prime Minister Lee Kuan Yew advised his team to study the high standards that had been set by Air India.

The Downfall

The 1980s and 1990s saw Air India continue to remain successful internationally, adding more cities to its network and maintaining a modern fleet. The Airbus A310 and Boeing 747-400 had become mainstays by the 1990s, serving long-haul and medium-haul destinations efficiently and comfortably.

However, the next decade saw Air India run into problems for arguably the first time in its history. From being a market leader for three decades with no competitor, Air India turned into a laggard with losses, liabilities, debts, decreased revenues and on the verge of defaulting on its loans. All of this started with the removal of JRD Tata as Chairman in 1978.

Some of the issues plaguing Air India included:

• Lack of professional management: Unlike most large airlines, Air India was never staffed with domain experts. Once it came under the purview of the Government, Air India was headed by an ever-increasing list of bureaucrats with no expertise in running airline operations. As a result, revenue management, fleet planning and the overall business went for a toss.

• Heterogeneity of fleet: Air India’s fleet complexity was further exacerbated with the order of 18 Boeing 737s for Air India Express. Indian Airlines as well as Air India had historically used Airbus (A-319/ 320/ 321) fleet for short-haul services. Adding Boeing 737s for short-haul flights added to inventory costs and further training of the crew.

• Poor fleet management: Deploying fuel-guzzling planes like Boeing 747s on domestic routes with a three-class configuration was just one of the classic blunders made by the Air India management. Inefficient fleet utilisation led to increasing operating losses for the carrier.

• Poor route planning: Given the lack of expertise, Air India struggled to build an efficient route map. For example, instead of offering direct flights to the Middle East from cities in Kerala, passengers were forced to travel to Delhi/Mumbai to take flights adding 8-16 hours to the travel time. As bilateral rights opened up, global carriers took away Air India’s share on lucrative routes.

• Air India - Indian Airlines merger: Indian Airlines (state-owned domestic carrier) was merged with Air India in 2006-07 to facilitate better synergies of their resources, yet resources, aircraft, men, materials and machines remained divided. There were no synergies. The merger without employee lay-offs simply magnified problems like excess manpower.

• Inefficient operations: In 2012, Air India had more than 265 employees per aircraft - one of the highest in the world. Large global airlines like Singapore Airlines operated with less than 150 employees per aircraft. The legacy manpower was a drag further increasing operating losses.

Till recently, Air India was incurring almost $3M loss on a daily basis. Given the beleaguered state of affairs, the Govt. decided to privatise the airline in 2018. While there are operational issues that need to be sorted, Air India has a few strong assets - a strong brand name, slots at major global airports and a fairly modern fleet. In a homecoming of sorts, Air India was finally sold to the Tata Group in 2021 in a $2.4B deal.

Air India’s Second Coming

For years, Air India has been plagued by consumer grievances over ill-maintained cabins, dysfunctional entertainment systems and broken charging points. The Tata Group has an uphill battle in trying to revive the struggling legacy carrier.

The Tata Group has massive plans for Air India’s turnaround - starting with the upgradation of the fleet. A five-year plan to modernise the ageing fleet has been put in place with a $400M commitment for refurbishing the existing fleet. In addition, planes have been leased from Delta Airlines and Etihad to provide best-in-class experience on long-haul flights to the US and Europe.

Tatas already operates two airlines in the Indian market - the full-service carrier Vistara (in a JV with Singapore Airlines) and the low-cost carrier Air Asia India. With both Air India and Air India Express coming into the fold, preparations are afoot to merge these airliners into two brands: full-service carrier Air India and a low-cost operator Air India Express.

In a bid to emerge as a large global carrier, Air India recently placed the largest order for airplanes ever in aviation history - 540 planes of varying configurations from Airbus and Boeing. The aircraft mix also helps synergise Air India’s fleet with its Star Alliance partners like Lufthansa and Singapore Airlines. The master plan might also include a plan to help Star Alliance take on the dominance of Gulf carriers.

This massive order has made the world sit up and take notice of Air India’s plans. Whether the Tata Group will succeed in bringing Air India to its past glory - only time will tell. They do have an enviable track record with Vistara and they are the custodians of JRD’s aviation legacy - if anyone can turn around Air India, it is probably then. Till then, fasten your seat belts and enjoy the flight!

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