New Air India chief has his task cut out

Raghu Menon, Chairman and Managing Director, Air India.

Raghu Menon, Chairman and Managing Director, Air India.   | Photo Credit: — PTI PHOTO

Competition and completion of merger major challenges ahead

The CMD knows too well that mere acquisition of new aircraft or replacement of an ageing fleet cannot solve the problems with the finances or in facing up to competition

The new Air India Chairman and Managing Director, Raghu Menon, has his job clearly cut out. Like his predecessor A. Thulasidas, Mr. Menon is also from the bureaucracy, and has been with the Union Civil Aviation Ministry for the past three years. So he must know the intricacies of the job and the major challenges confronting him and the recently formed National Aviation Company of India, which runs the merged Air India and Indian Airlines.

Soon after assuming charge on April 1, Mr. Menon told the media that improving the airline’s finances and services would be his priority.

Though Mr. Thulasidas has launched the merger process and ensured that the much-stalled fleet acquisition process got off the ground, there is so much more to be done in the competitive aviation field now.

In 2006-07, Air India incurred a loss of Rs. 447.93 crore and Indian Airlines Rs. 240.29 crore. That works to almost Rs. 700 crore for a merged airline. To bring it out of the red, even by next year when some of the new aircraft would be inducted into its fleet, will itself be a daunting task.

Simultaneously, the new CMD will have to complete the process of merger and integration, which should be completed perhaps in a year’s time. The skies seem cloudy on both fronts.

Mr. Menon knows too well that mere acquisition of new aircraft or replacement of an ageing fleet cannot solve the problems with the finances or in facing up to competition. He has promised to look at rationalisation of routes and sectors, both in domestic and international services. It is obvious that the international sector provides the revenue to offset the losses in the domestic segment.

At the same time, the competition that has enveloped the domestic sector has caught up with the international routes too. Other private domestic airlines have launched flights to regional destinations and even to the U.S. and Europe.

Very soon, the monopoly that Air India enjoys over the West Asian market will also be lost. In addition to Jet Airways, Kingfisher (thanks to its acquisition of Air Deccan) will qualify for a piece of the Gulf cake.

And there is pressure on the Union Government and its Civil Aviation Ministry to relax the five-year record stipulation for an airline to be eligible to operate on international routes.

Aircraft orders

Air India may have ordered for 111 aircraft for a phased delivery schedule till 2011. It has also started taking new aircraft on lease to tide over the current shortage of fleet. But it needs to evolve a judicious plan to balance its international and domestic operations in the short and medium terms. Till now, Air India and Indian Airlines appear to have catered more to the ethnic traffic — the non-resident Indians and Indians working abroad. It has tried to alter that focus and also woo foreign tourists and business travellers with the induction of new aircraft and connections to new destinations. It has revived the direct flights to the U.S. and U.K.

Considering that Indian Airlines was concentrating on West Asian and Southeast Asian destinations in the past, the merged airline will have to optimise its services in both directions — west and east. Further, the untapped China market is also opening up in stages. It is up to Mr. Menon and his team to prioritise the airline’s markets and accordingly line up services to various destinations, keeping in mind the bilateral treaties that are in place with some countries and also the more liberal open skies policy pursued by other partners.

Hub concept

Similarly, on the domestic sector, Air India must rationalise its operations and ensure that it enjoys a level playing field with the private competitors. Apart from the trunk routes or the metro connections, it should work on a hub concept to channel its traffic from the second tier towns to the metros. To ensure that, it has to draw up a convenient schedule of flights and operate them on time. A review of the airline’s requirements beyond 2011 was under way and the new chief must be able to fine-tune it to suit the current environment.

Even more sensitive and challenging will be the task of integration. In addition to the technical and financial aspects, it is perhaps the human resource management that can pose serious problems. Mr. Menon, who does not bring with him any baggage of being associated with either of the two airlines, must bring about a smooth and seamless integration of personnel — taking care of wages, fitment, promotions, seniority and postings to name just a few of the ticklish problems. The best forward will be to take the employees and their unions into confidence so that the norms are worked out in a transparent manner through consultations. The merged airline can really take off only when this exercise is completed in early 2009.


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