Air India may have delivered significant improvement in its operational and financial performance in the past few quarters, but the existence of several structural issues, unless addressed, would upset the applecart, says global aviation consultancy Centre for Asia Pacific Aviation (CAPA) in a detailed report on the national carrier.
“Turnaround efforts are hampered by poor asset utilisation and low labour productivity. A comprehensive review of the business model is required across domestic, regional, international and long-haul operations as there are fundamental weaknesses in each of these domains. The management is faced with huge internal challenges, a fast changing external environment and excessive government intervention,” CAPA says.
FDI, a competition
The significance of this critical analysis is that it comes in the wake of the government allowing foreign airlines to pick up stake in Indian airlines.
CAPA says that turning around a national carrier today is more difficult than it was ten years ago because the environment has changed so dramatically.
“But it is possible if the political will exists to take tough decisions, a feature which has been absent to date. If Air India is financially and operationally restructured, it should subsequently be granted a level-playing field with respect to accessing foreign airline investment,” the aviation think tank says.
As long as Air India struggles under government ownership, it would continue to drive distortions in policy, deterring valuable investment.
Given the critical role that aviation plays in enabling economic development, such distortions are not in the national interest, it says.
Lacuna in framing policies
Highlighting the lacuna in framing policies and political interference, CAPA says “the decision to strengthen Air India Express’ base in Kerala appears to be a politically rather than commercially driven decision. It would be a strategic mistake to focus primarily on Kerala and neglect other important markets across India, leaving them open for Indian or foreign LCCs to develop their own fortresses.”
It says, the combination of stronger Indian competitors, as a result of foreign airline investment, the growth of LCCs, the opening up of the international market and the changing nature of global alliances will impact every aspect of Air India’s operations.
“The pace of change in the market is so rapid that it puts into question the validity of the turnaround plan that has been developed for Air India. The government may have to open a cash tap to keep national career flying in the coming years.”
“Without decisive (and in all probability painful) action, the government could be faced with unthinkable funding requirements for Air India.”
“Apart from drip feeding billions of dollars to finance operating deficits, fleet modernisation alone could require $12-14 billion of funding over the next ten year,” CAPA says.