STRATEGY ANALYSIS REPORT ON AIR INDIA

Submitted To, By, Prof. Dr. Supriti Mishra Joseph Strategy Formulation Chauhan IMI-Bhubaneswar Dash

Submitted Jubin Ajeet Singh Aditya Anshuman PGDM 2012-14 IMI-Bhubaneswar

Strategy Analysis Report on Air India

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TABLE OF CONTENTS
Declaration Acknowledgement
1. 2.

3 4 5

Executive Summary Background

2.1. 2.2.

Brief History of Air India Organization Structure and Agreement

5 7

3. Strategy Analysis
3.1. 3.2. 3.3. 3.4. 3.5. 4. 5. 6.

Analysis of Industry (PESTLE) Analysis of Competitors Analysis of Strategic Group Analysis of Competitive Advantage Value Chain Analysis

12 15 17 18 19 20 20 22 22

Business Strategy Corporate Strategy Conclusion

7. References
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DECLARATION

It is hereby explicitly declared that this piece of work is purely subjective of our observation and analysis of the firm, Air India. The facts and figures are based on the project material as mentioned in the references section. There has been no infringement on the copyrights of any other proprietary work of any form or content.

Jubin Joseph Dash

Ajeet Singh Chauhan

Aditya Anshuman

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ACKNOWLEGEMENT

We take this opportunity to convey our gratitude to our Guide for the project Prof. Dr. Supriti Mishra, who guided us with all the necessary insights and helped us understand the intricacies the project subject. We are also greatly obliged to Prof. Ramesh Behl, Director, IMI-B and all the staff members of IMI-B, without whose kind co-operation and encouragement, we would not have been successful in the completion of this project.

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1.

Executive Summary
In this project, we have tried to analyze the strategy

formulation of Air India, which is the national airline of India. Air India is owned and administered as a part of Air India Limited, by the aviation ministry of the Government of Republic of India. The analysis of the subject will include its operating industry, competitors, value chain and strategic group. Later on, in the report we will also try to gain an insight of the business and corporate strategy of Air India.

2. Background 2.1. Brief History of Air India

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In July 1932, Air India, initially chronicled as Tata Airlines, a

business unit in the Tata Sons (now known as Tata Group) was founded by J.R.D Tata. It was in 29th of July 1946, that the Tata Airlines was made a public limited company and was rechristened as Air India. The Maharaja being its lucky mascot, the Air India was the pride of India. In 1948, the newly formed Govt. of India acquired 49% of its equity stake and with an option of acquiring an additional 2%, nationalized the airline. With this, Air India was given the status of Air India International with an operational right to ply on international routes. Air India International entered the jet age in 1960 when its first Boeing 707420,

named Gauri Shankar (registered VT-DJJ), was delivered.1 In May 2004, Air India launched a wholly owned low cost airline called AirIndia Express. Air India Express connected cities in India with the Middle East, Southeast Asia, and the Indian subcontinent. Until 2007, Air India and Indian Airlines operated as two completely different airlines, though completely owned by the government of India. Air India mainly operated on International longhaul routes while Indian Airlines operated on domestic and international short-haul routes. Both airlines had different fleet expansion and retirement plans. In 2007, the government decided to bring both the
1

http://en.wikipedia.org/wiki/Air_India

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airlines, including Air India Express and Indian Airlines' low cost subsidiary Alliance Air under the control one body. The Government of India announced that Air India would be merged with Indian Airlines. As part of the merger process, a new company called the National Aviation Company of India Limited (NACIL) was established, into which all four airlines were merged. Again in February 2011, Air India and Indian Airlines merged along with their subsidiaries to form Air India Limited, which now operates only three Airlines, namely Air India, Air India Express and Air India Regional.

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2.2.

Organizational Structure and Agreements

The Air India registered office and headquarters in the

Indian Airlines House in New Delhi. Air India has three subsidiaries. Together Air India, Air India Cargo, Air India Express, and Air India Regional form the Air India Limited. 2.2.1. Air India Cargo: In 1954, Air India Cargo started its freighter operations with a Douglas DC-3 Dakota aircraft, giving Air India the distinction of being the first Asian airline to operate freighters. The airline operates cargo flights to many destinations. The airline also has ground truckPage 7

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transportation arrangements on select destinations. A member of IATA, Air India carries all types of cargo including dangerous goods (hazardous materials) and live animals, provided such shipments are tendered according to IATA Dangerous Goods Regulations and IATA Live Animals Regulations. At the warehouse in Mumbai, Air India has developed a system of inventory management for cargo handling of import/export functions. This takes care of the entire management of cargo, supports Electronic Data Interface (EDI) messages with Indian Customs and replaces to a great extent existing paper correspondence between Customs, airlines, and the custodians. This also replaces manual handling and binning of cargo at the warehouse in Mumbai by Air India.

2.2.2. Air India Regional: Air India Regional was started as a low-cost arm of Indian as Alliance Air As part of Indian's merger with Air India, it was renamed Air India Regional. It operates 357 weekly flights to 25 domestic destinations as a subsidiary of Air India. Its main hub is Delhi's Indira Gandhi International Airport. As Alliance Air, the airline operated a fleet of 12 Boeing 737-200 aircraft. All these aircraft were phased out post the merger. Air India Regional now operates a mixed fleet of ATR 42-300 and Bombardier CRJ700 aircraft. 2.2.3. Air India Express:
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Air India Express is the airline's low-cost subsidiary headquartered in Mumbai, operating mainly from Indian state of Kerala. It operates services mainly to the Middle East and Southeast Asia. The airline belongs to Air India Charters Limited, a whole owned subsidiary of Air India Limited. Today Air India Express operates nearly 100 flights per week, mainly from southern states of Tamil Nadu and Kerala in India. Air India Express operates flights from airports in Kerala, Punjab and Mangalore to Dubai, Abu Dhabi, Al Ain, Muscat and Salalah in the Middle East and Singapore in the east. The airline was established in May 2004, after a long demand from Malayalee expatriate communities living in Middle East Being a statutory corporation; Air-India submits a yearly report of its activities to the Parliament through the Ministry of Civil

Aviation. It enjoys functional autonomy and its management is through a Chairman and Managing Director (CMD) who works under a Board of Directors. The Board is re-constituted every two years by the Government. The Board of Directors is the highest governing body of Air-India. Chairman cum Managing Director (CMD) is the Chief executive of the corporation. The corporation has its headquarter in Mumbai. Mumbai headquarter has a big establishment with well defined divisions and departments. All the policy matters are decided at the headquarter level and executed through field and branch offices. The field stations and branch offices are spread in a large number of cities in India and abroad. Under the Managing Director, there are
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the Deputy Managing Director and a host of Directors looking after various functions and departments. Chart-1 represents the organisational structure. 2.2.4. Departments of AI:

Operations Department is responsible for flight operations and also looks after navigational problems, training and licensing of air crew.

Engineering Department takes care of maintenance, repair and overhaul of aircrafts. It also manufactures simple equipments required for the aircraft.

Commercial

Department

looks

after

the

revenue,

sales,

promotion, publicity, advertising and public relations.

Personnel Department is responsible for recruitments, training and maintaining records of staff.

Stores and Purchase Department takes care of all the purchases and maintenance of the stores.

Tourism Division is a separate cell to promote tourism. Co-operation Agreements:

2.2.5. Commercial

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There are three types of agreements for commercial cooperation of among the airlines

Pool Agreements: These are co-operation agreements between two national airlines, operating on the same routes. This agreement involves sharing of revenues with a ceiling on transfer of funds in settlement of the accounts.

Commercial Agreements: This covers unilateral operations by one partner for which compensation is payable to the non-operating partner

Joint Venture Agreements: Under these agreements, one partner provides the equipment and operates the services which are marketed under a joint flight number. Profits are shared subject to a minimum guaranteed return to the non-operating partner.

In the year 1992-93 Air India entered into certain new agreements, New Air Services Agreements were concluded during the year with Israel and Ukraine. Talks were also held with Russia and the Scandinavian countries of Denmark, Norway and Sweden on the texts of fresh Air Services Agreement Apart from this, the bilateral opportunities available under the agreements with Bangladesh, Bulgaria, Romania, UK and Uzbekistan were enhanced at the intergovernmental

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discussions. Agreements were also reached at airline level with Emirates and Gulf Air to recommend increases in the bilateral entitlements. New commercial agreements were concluded with Tarom and Balkan Bulgman Airlines and some of the terms and conditions of the existing arrangements with Swissair, Emirates and Royal Jordanian were renegotiated. The validity of the existing agreement with Yemen, Air Mauritius and Gulf Air was extended. In addition, discussions were held will1 Malaysian Airlines and Ethiopian Airlines as part of the ongoing process of reviewing the relevant managements. Discussions were held at Government level with Germany, Singapore and Thailand and at the airline level with Kenya Airways and Saudi Arabia to consider various issues related to the operation of air services.

3.
3.1.

Strategy Analysis Analysis of Environment (PESTLE & SWOT)

PESTLE analysis is the abbreviation of Political,

Economic, Social, Technological, Legal and Environmental analysis of the external factors of Air India and it is jotted below:
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Political:

Liberalization of the Aviation Sector is creating intense competition for Air India Interference of government is much more compared to other airlines. Employees unrest and HR issues are continuously hampering the growth of company.

Economic:

Rising Fuel Costs and competition is driving margins low. Increased investment in the aviation sector has led to the low entry barrier for the new entrant.

Social: Safety Regulation Employment Opportunities Ensuring a Level Playing Field

Technological: Growth of Internet Ticketing. Satellite based Navigation Systems Technical Cooperation with EU

Legal: Legal notices from employees on issue of unpaid salaries and work conditions. Legal issue of flying Dreamliner without clearance from Boeing. Environmental Strong Corporate Environmental policy

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First airline of a developing country to work with the United Nations Environment programme (UNEP).

SWOT Analysis of Air India2

Strengths Air India has been the largest air carrier in India in terms of traffic volume and company assets. It owns the most updated fleet and competent repairs and maintenance expertise. Its information systems are advanced and compatible with its operation and service. It has a good reputation in both international and domestic markets, quality service and the age-old Goodwill that has still kept it alive in the interests of the rescue operators. Has financial backing of the Government

Weaknesses

Air India is operating across broad international and domestic markets competing with world leading giant airlines as well as local small operators. This lack of clarity on the strategic direction largely dilutes its capabilities and confuses its brand within markets. Low profitability and low capacity utilization. Growing Competitor base and entry of Low-Cost Carriers (LCCs) The airlines high-cost structure and the compulsions of being a public sector unit are the reasons and it had been making a loss and shall continue to make losses for some more quarters.

Opportunities

http://www.marketing91.com/swot-air-india/

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India airline industry is growing faster and will continue to grow as the GDP increases, and the trend is predicted to continue once the slowdown recedes. Worldwide deregulations make the skies more accessible; the route agreement is easier to be achieved. The number of foreign visitors and investors to India is increasing rapidly. Complementary industry like tourism will increase demand for airline service. The Civil Aviation Ministrys strong regulation and protection provides opportunities for consolidation and optimization. Customers are getting wealthier, tend to be less price-conscious and prefer to choose quality service over cost. Best time for introducing LCCs

Threats

Air India faces imminent aggressive competition from world leading airlines and price wars triggered by domestic players. The Indian Railway Ministry has dramatically improved speed and services in their medium/long distant routes, attracting passengers away from air service, with prices almost at par with the low cost carriers.

3.2.
3

Analysis of Competitors3

http://www.strategicbriefings.com/2011/india/low-cost-airlines-creating-travelrevolution-in-india/

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Indian Low Cost Airline Industry

The aviation sector in India is one of the fastest growing in the world with around 18.9% growth in domestic passenger traffic in 2010 compared to 2009. The boom in the aviation sector started during the last ten years with the entry of various private players in the domestic market leading to a significant reduction in air fares. Till then, domestic flying in India was as costly as international flights. This was because of the limited options travelers had, to choose from. The main airlines back then were Air India and Indian Airlines. But today, there are at least ten different airlines operating in the domestic routes, thereby giving Indian travelers competitive prices. This has actually led to a revolution in the way Indians travel today. Main players in Indias domestic aviation: Jet airways, Indigo airlines, GoAir airlines, Spicejet Airlines, Jetlite airlines, Paramount airways and Indian airlines. The specific strategies of the low cost model emphasize a reduction in cost in terms of the following parameters: 4 No free in-flight food service. No advance seat assignment. No frequent traveler lounges at the airports. No interlinking agreement with other airlines. Introduction of paperless/electronic ticketing. Competing primarily with ground transportation
4

http://edissertations.nottingham.ac.uk/1445/1/Low-cost_Carriers_in_India.pdf

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Helping global aviation industry

The biggest headline maker in the global aviation industry in the past few days is not Cathay Pacific or Lufthansa but a domestic player from India, known as Indigo Airlines. At a time when the developed economies are complaining about slow growth rate, high unemployment and jobs going to developing countries, such new investments, buying and consumer trends from emerging markets like India is indeed a boon. They are creating jobs and helping these companies to sustain at a time of global crisis and reduced profits. Rising fuel prices and its affect on passenger growth

The increase in the international crude oil price has forced many domestic players in India to go ahead with a hike in their airfares since the beginning of January 2011. Although there will be lots of criticisms from various groups on this, such an increase in the ticket fares will not have a drastic effect on the volume of passengers. Compared to the time taken to reach from point A to point B in India by train or other means, the number of people who will continue to use this means of transportation will only increase as years pass by. Indian travelers are slowly getting used to the fast paced and comfortable travelling by air and they are ready to spend on this.

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3.3. Analysis of Strategic Group 3.3.1. Jet Airways

Jet Airways, Indias largest carrier by market share, merged its two low-fare brands under the JetKonnect brand from 25-Mar-2012, as part of a strategic rebranding and rationalisation exercise and efforts to simplify the groups service proposition and enhance brand recall. Under the restructure, JetKonnect became the dedicated low-fare service with a mixed fleet of Boeing and ATR aircraft operating on metro, tier II and III routes, with et Airways to continue offering a full service product across domestic and international markets. The merger was little more than a branding exercise, with the fundamentals of aircraft ownership and slot allocations to remain the same as under the current model. However, the carrier looked at opportunities to optimally deploy and cross-utilise common resources of Jet Airways and JetLite where possible and this rebranding exercise will help further in synergising carriers collective operations Jet Airways to continue offering a full service product across domestic and international markets.5 Jet Group posted impressive Q1 performance with record growth and strong EBITDAR margins in 2012. High traffic growth in Q1 helps Jet Group to post a profit after tax of Rs. 85 million (US $ 1.8 million) for Q1 FY10 vs loss of Rs. -2,231 million (USD -46.6 million) in the same period last year. EBITDAR of Rs.7,034 million (USD 151.4

http://centreforaviation.com/analysis/jet-airways-to-consolidate-and-rebrand-its-lowfare-products-jetlite-to-be-merged-into-jetkonnect-70267

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million) for Q1 FY11 vs Rs. 4,963 million (USD 103.6 million) for the same period last year, up 42%. 6 As Jet Airways and Etihad jointly conduct a series of meetings with key Indian Ministers and officials in New Delhi in the first week of February, the carriers appear to be seeking blessing for an impending wedding. If consummated this would be the first foreign airline investment transaction in Indian aviation since the long-overdue Sep2012 decision by the Indian Cabinet to permit up to 49% foreign investment in Indian airlines.7 Allowing foreign airline investment is a vital step in establishing a more professional and corporatised sector in India. It offers the promise not only of introducing strategic capital and expertise into the market, but also delivers a much needed confidence factor for other institutional funding.

3.3.2.

Kingfisher Airlines

The license of the Kingfisher is cancelled right now. It no more exists as a player in the strategic group of Air India.

3.4. Analysis of Competitive Advantage Air India has one and only competitive advantage over its competitors and that is the full support of the Government of India. Every time the airline falls into trouble the government is ready to bail
6

http://www.jetairways.com/EN/IN/PressReleases/Q1FY11.aspx

http://centreforaviation.com/analysis/etihads-potential-investment-in-jet-airways-tobe-a-game-changer-for-india-96114

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out the airline as it owned by the government itself. Except this there is no other product or service provided by the airline which could be a competitive advantage.

3.5. Value Chain Analysis 3.5.1. Primary Activites

Inbound Logistics: It includes Route Selection, Passenger Service System, Yield Management System (Pricing), Fuel, Flight Scheduling, Crew Scheduling, Facilities Planning, Aircraft Acquisitions. Operations: It includes Ticket Counter Operation, Gate Operations, Aircraft Operations, On-board Service, Baggage Handling, Ticket Offices. Outbound Logistics: It includes Baggage System, Flight Connection, Rental Car and Hotel Reservation System. Marketing and Sales: It includes Promotion, Advertising, Travel Agent Programs and Group Sales. Services: It includes Lost Baggage Service and Complain Follow-up

3.5.2. Support Activities

Firms Infrastructure includes Financial Policy, Accounting, Regulatory Compliance, Legal and Community Affairs. Human Resource Management includes flight, route and yield analyst training, Pilot Selection Safety Training, Baggage Handling Training, Agent Training, In-flight Training.

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Technology Development includes Computer Reservation System, In-flight System, Flight Scheduling System, Yield Management System, Computer Service Improvement, Market Research and Baggage Tracking System. Procurement covers Information Technology Communication and the whole of primary activities.

4. Business Strategy
Increase market share and develop competitive strength. Increase market access through strategic alliances.

Deploying modern aircraft with state of the art amenities.

Operating customer friendly schedules with increasing of connectivity among cities. Increase of asset productivity(aircraft and staff) Out-sourcing of non core activities to subsidiaries.

Adoption of best practices.

5. Corporate Strategy8
Global Aviation Industry is currently going through the most difficult phase. Airlines have collectively lost over US $10.4 billion last year, and are estimated to lose a further US $9 billion this year, of which US $2 billion (Rs 10,000 crores) will be the share of Indian carriers. With Air India operating in a global environment, the national carrier has been impacted as adversely as other airlines the world over.
8

http://www.airindia.com/SBCMS/Downloads/AirIndia_Embarks_on_a_Turn_around_PlanI. pdf

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Causes for the losses suffered by Air India

Escalating costs, particularly of ATF. Fewer passenger numbers, particularly in the premium class. Low fares with a gradual shift of passengers from legacy full service airlines to low cost airlines. Decline in carriage of cargo. Excess capacity in a falling market.

Measures for operational and financial turnaround

Product up gradation through improved on time performance and enhanced customer touch point experience. Seamless connectivity from interior points of India to destinations abroad. Pre-mature retirement of old aircraft, including leased aircraft, and their replacement with a newer fuel efficient fleet. New aircraft with best-in-class passenger amenities. Rationalization of routes and capacities.

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6. Conclusion:
Air India which enjoyed monopoly in 1990s is ranked 4th by market share (17%) has a debt burden of 40000 crores and losses amounting to 5551 crores and this the worst hit in its 79 years of history. The conditions worsened when it merged with Indian Airlines. Rising fuel prices, competition, unplanned merger, mismanagement, widespread economic gloom and strikes have resulted in a huge liquidity crunch. A number of initiatives like financial restructuring, strict monitoring, improvement on-time performance, passenger service, rationalization of routes with full government support has been taken up to revive Air India to its full potential.

7. References
Wikipedia

http://www.marketing91.com/swot-air-india/ , March 2nd 2013 http://www.strategicbriefings.com/2011/india/lowcost-airlines-creating-travel-revolution-in-india/, January 18th 2011

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http://edissertations.nottingham.ac.uk/1445/1/Lowcost_Carriers_in_India.pdf/ , September 2007 http://centreforaviation.com/analysis/jet-airways-toconsolidate-and-rebrand-its-low-fare-products-jetliteto-be-merged-into-jetkonnect-70267 , 22nd March 2012 http://www.jetairways.com/EN/IN/PressReleases/Q1FY 11.aspx , June 30th 2010 http://centreforaviation.com/analysis/etihadspotential-investment-in-jet-airways-to-be-a-gamechanger-for-india-96114 , 2nd February 2013 http://www.airindia.com/SBCMS/Downloads/AirIndia_E mbarks_on_a_Turn_around_PlanI.pdf ,

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