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July 17, 2024
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The concept of a national carrier is becoming obsolete, as has been demonstrated by a number of European countries that have lost their national carriers, and a number that are hanging on for dear life through alliances with other carriers.  In today’s environment, in which Open Skies have largely replaced bilateral treaties, the notion of a national airline is less important than it once was.

Nonetheless, a national airline does tend to bring prestige, jobs, economic development, and many believe it can provide an advantage in attracting tourists and companies.   But if a national carrier is losing money, it cannot sustain itself for very long without government subsidies, which cannot last forever.

The Global Airline Competitive Environment has Changed

We’ve seen a consolidation of national carriers in many countries, and the loss of two in Europe, Malev in Hungary and Olympic in Greece.  Of course, locally-based low fare carriers WizzAir and Aegean have nicely filled the gaps, with Ryanair and other LCCs filling in other routes.

Consolidation, such as Air France-KLM,  Lufthansa Group’s acquisitions of Swiss, Austrian, and Brussels Airlines and IAG, BA’s parent acquiring Iberia and Aer Lingus provide more examples of carriers that were in trouble joining forces to reduce overheads and improve efficiency against increased competition.

With more open skies, low fare carriers such as Ryanair have grown substantially and placed inordinate pressures on domestic yields.  At the same time, high service state owned carriers from the Middle East – Emirates, Qatar, and Etihad, are competing aggressively for long-haul traffic, and in most cases winning the battle.

The common theme is that the most efficient players win, and typically national carriers tend not to be the most efficient.  Which brings us to perhaps the most inefficient national carrier – Air India.

Should Air India be Disbanded?

Our view is that Air India should be disbanded. The Indian aviation sector would benefit from Air India being broken up, its international routes auctioned, and domestic operations ceded to other carriers.  There are  a number of reasons we believe disbanding Air India would be beneficial to the industry as well as the Indian economy.

Let’s first examine Air India itself.  This appears to be an incompetently run operation.  It is high cost, overstaffed, and is so inefficient that it cannot keep its newest and most fuel efficient aircraft in the skies.  Air India has grounded one of its new Boeing 787-8 aircraft, acquired just 3 years ago in 2012, and has been robbing it of parts for use on other 787s in its fleet. Air India has not had a happy time with its 787s. No other 787 operator has had nearly as much trouble.

No well run airline can afford to take a wide-body aircraft out of service and use it for spares, as it makes absolutely no financial sense.  But Air India has repeatedly done this, including the dismantling of a 777 for parts as well.

Has the carrier never heard of initial provisioning, or by the hour maintenance contracts with OEMs?  Why can’t the executive leadership in the airline establish proper priorities and ensure that its aircraft are well maintained and can continue to fly – particularly the best aircraft in its fleet.  The answers are complex.

Air India’s internal workings have been described as somewhere between an exercise in futility and a state of resignation resulting from utter frustration. Given routine political interference into the airlines day to day operations, dependence on massive government subsidies, and an inability to financially manage its affairs, it is no wonder that management has a difficult time in turning around the company.

We shouldn’t be astonished at the incompetence at Air India, as it has been an ongoing saga of political corruption, patronage jobs, pricing below cost to satisfy the whims of politicians, and in the process making it difficult for any other Indian airline to be profitable through below cost pricing.

Simply look at the staffing ratios per airplane.  Air India ranks as one the worst carriers in the world using that metric. Why?  The government has mandated feather-bed jobs for political patronage that wouldn’t be found elsewhere, and efficiency levels are at the bottom of the barrel.  This is unfortunate, because the company has excellent pilots and flight attendants, who try hard to provide excellent service on their flights.  But management can’t face the politicians and say no to their interference – whether it be cutting an unprofitable route or reducing the excess labor force to regain competitiveness.  And when an airline begins cannibalizing other aircraft for spares, the level of confidence in the international business community they are trying to attract as passengers sinks like a stone.  Air India cannot even regain preference among the Indian businessmen that I know, many of whom prefer Emirates when given a choice.

Turning Around the Indian Airline Sector

The sad part of the story is that the Indian people can be quite productive and technically competent, when government gets out of the way.  IndiGo is an example of a profitable low cost airline that has remained profitable, despite an environment of fares that have been artificially depressed.  They have placed a massive order for new aircraft from Airbus, are well managed, and expanding.

But Air India, just like the European national carriers, is in a no-win situation ensuring that it will never prosper.  It has been outclassed by airlines in the Middle East, who provide superior service and reliability for international flights, with easy connections in Dubai, Abu Dhabi and Doha.  It has also been outclassed domestically by a number of domestic competitors, including IndiGo, SpiceJet and the emerging Tata Group-Singapore Airlines joint venture Vistara.

It is Time for the Indian Government to Face Reality

Air India has failed – financially, technically, and in the market – and needs replacement.  India has several good candidates who could fill the gaps on both domestic and international routes.  But the transition requires political courage, as market realities have resulted in Air India no longer being a competitive player on the global scene but rather an embarrassment.

The carriers is not an asset that could be sold, as no one in their right mind would purchase a bloated and inefficient operation as it stands.  The only option is to sell pieces of the airline to other Indian carriers, allocate international and domestic routes in an auction, and have government get out of the way.

But this requires political courage, something that has been lacking in India in recent years.  Facing reality is something governments never want to do – but eventually are forced to do when things continue to go wrong.  We believe the time for the Indian government to take action in now, before the carriers financial and operational conditions decline even more.  There are assets that are salable, new jobs as other carriers expand, and opportunities for India to regain credibility and international competitiveness.  But that requires bold leadership, something currently lacking at both Air India and its Indian government owner.

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