What is Wrong with Air India?

Y Udaya Chandar
The Writer can be reached at yudayachandar@gmail.com)

Air India (AI) is an Indian government-run organition. Historically, the notions of governments and profits have been less often synonyms and more often antonyms. AI realized a whopping loss of Rs 5,765 crore in FY17. The accumulated losses are about Rs 35,000 crore. Despite these seemingly dire conditions, the government has continued quietly, but frequently, to pump money into it.

Civil servants, whose business and commercial acumen are wanting, often run the organization. These bureaucrats/puppets are not interested in the airline’s wellbeing. They come to the post, stay for a couple of years and then move on to other attractive positions. There is no incentive for them to turn the airline around or to make it profitable.

Making matters worse, there is uncalled for day-to-day interference from the Ministry in the functioning of the airlines.

Many of the world’s airlines are loss- or small profit-making enterprises.Air travel is a consumer commodity, and these consumers generally shop based on price. This forces airlines into a position where they are always competing at this basic level. In addition, the high capital investment and operating costs; heavy regulations; and uncontrollable variables, such as fuel pricing etc. make the business even more difficult to manage. Government airlines are often given bailouts or subsidies.

The world’s airlines report a staff-to-aircraft ratio of roughly 100 to 120. Air India has 256 employees per plane. As of 31 December 2017, AI alone employed 11,214 permanent staff, in addition to 2,913 contractual and 2,155 casual workers. These employees belong to one of six unions, all of which are pampered. By 2023, as many as 4,217 of these employees will retire. They will be paid retirement benefits and pensions, and new employees will be needed. The national carrier also has five subsidiaries, a joint venture and a combined workforce of as many as 27,000.

Among AI’s cabin crew, there is always an excess of 17 to 20% manpower. As per international norms, a pilot should log more than 84 hours in a single month. In the case of AI, pilot hours hover around 65 hours. AI has roughly1450 pilots to fly their 410 planes.

Even after retirement, employees enjoy handsome perks like subsidized air tickets, health care benefits and attractive gratuities. Many politicians and bureaucrats receive free or reduced price airfares.

AI’s employee salaries and benefits are very high. By comparison, Jet Airways spends 10% of its revenue on them, while AI spends 20%.
Being a government organization,there are scams galore, in every activity, which drains the outfit. The Rs 70,000-crore scam, related to the purchase of 110 aircraft during UPA regime, is under CBI probe now.

For political reasons, AI maintains some unprofitable routes. The airline operates an average of 250 domestic and 120 international flights per day. Only nine of these routes are profitable. The passenger-load factor is sometimes as low as 30%. This is mainly because of low on-time performance. Frequent technical failures are another cause for losses. At any given time, an average of 22 AI planes are ‘under repair’, a very high rate.

The government’s slow decision-making process has not resolved all the problems related to the merger of Indian Airlines and AI, which happened in 2007. In particular, employee grievances remain as ‘teething problems’, leading to frequent disturbances in the working of the united airline.

India’s Comptroller and Auditor General pointed out in 2016 that there had been mismanagement in granting bilateral agreements with foreign countries: The Auditor General noted that granting more than the required bilateral seats to carriers of foreign countries hurt AI’s prospects. ‘Considering the significant equity funds committed by the government to AI, decision to grant additional bilateral rights to foreign carriers should take into consideration its impact on Air India’, the audit said.

The audit found that there has been a mismatch in demand and the airline’s availability. For instance, there was an over provisioning of wide body aircraft on routes where the airline lacked the required number of narrow body aircraft.

AI may now be on an expansion drive to serve new international destinations, but the audit reports that most of these routes will burn a hole in the airline’s pocket, as it will fail to recover their cost. For instance, flights to North America and Europe resulted in a loss of Rs 2,323.76 crore in 2015-16. On the Delhi-NewYork-Delhi route, the occupancy stands at 77%, as AI faces stiff competition from other airlines.

One of the reasons for AI’s present situation is the government’s refusal to provide it with much-needed management autonomy. AI does not have power to select the routes it flies; instead, the government forces it to fly unprofitable routes. Further, the airline lacks the free hand needed to make employment policy that could lead to better optimization and use of resources. At present, the airline spends too much on salaries, pensions, employee benefits such as free tickets and the like.

Opening Indian Skies, well before readying AI by making it lean and efficient has further dented the airline’s image among passengers. AI’s operations are rife with cancellations and flight delays, which annoy any passenger.

Selling a majority stake in the loss-making, 85-year-old company isn’t going to be a cakewalk. At least one attempt, almost two decades ago, failed amid fierce political opposition. So far, there have been no takers in the latest disinvestment attempt, which was announced in early 2018. The government has taken a decision to postpone the disinvestment until the economic situation of the country improves and the crude oil prices come down to an affordable level.