More than a year into the corner room. How much has been done?
It’s a five-year transformation programme and the first phase was largely focused on trying to address many of the accumulated issues of the past. We are about halfway through now. It is really about building the platform for growth like doing new aircraft induction, investing in IT systems, ensuring we have the necessary talent in the business so that we can start expanding at a significant pace. Do you have a blank cheque from the Tatas?
Tata Sons chairman N Chandrasekaran and other accomplished people are on the board. He has publicly stated what he wants Air India to be and that doesn’t translate to a blank cheque. We are expected to run a financially healthy business. Air India needs to deliver commercial success but it is accepted that it will take a while to address the years of underinvestment and take necessary steps to elevate it. There is a great deal of support from the shareholders and all companies of Tata group.
The market share is totally lopsided with IndiGo having over 60%. Is there a fundamental difference between IndiGo and other airlines that has created this?
Historically, Air India has been the main airline of India. It was government-owned and hasn’t been able to take the private sector mindset of taking commercial risks. Then, you had airlines that were undercapitalized, and promoter-driven rather than professionally operated. So, over the past 10 years, India had a frequent churn of airlines coming and going. IndiGo came in with a professional management. Now, there is a second commercially oriented, well-funded, long-term focused organisation that we are putting together. It can act as a successful competitor.
Do you see the market share changing?
I think it has already changed. Air India had less than 10% share pre-privatisation. You take the four Tata airlines together, it is close to 30%. We will be adding aircraft and expand capacity considerably. But we are not chasing market share for the sake, but we will be putting in capacity and make the effort to ensure that we are a credible significant competitor.About 30% market share looks to be an easy target with the closure of Go First and SpiceJet shrinking considerably. Are you aiming higher?
Market share is not the target but operating a healthy good business is. If higher market share comes as a consequence of that, we will be happy. It can also be a consequence of how many aircraft you throw into the market. But, we want to make those aircraft generate revenue and pay for themselves. We need to have a good brand, where people are prepared to pay a reasonable price for flying. Once we can do that, we can buy more aircraft and do it at a pace that allows us to increase market share.
Will this emerging duopoly lead to better pricing discipline by the industry?
Again I go back to the practice of the past where you had a semi-commercial player in erstwhile Air India that would sort of constrain the pricing power of the industry. Then the smaller undercapitalised airlines were chasing cash flow because they didn’t have strong financial capabilities.
So, when you have an environment where one is not seeking profit and others are just seeking cash flow, it’s not healthy. But that dynamic is changing. Moving to a healthy industry does actually mean that there has to be a correction in airfare such that the industry can recover its cost. We have got two professionally organized, well-funded airlines which should lead to a more healthy dynamics in the market.
2024 looks to be a big year for capacity expansion?
We have taken 6 new wide body aircraft and restored a few of the grounded ones. We have 11 more to come by March. There are also 35 narrow body aircraft that will be added before the end of this year. We have grown about 26% in the last 12 months in terms of seat capacity.
There are complaints about flight delays and product reliability, especially for long-haul flights…
It is a significant impediment to us that we don’t have a state-of-the-art maintenance, repair and overhaul (MRO) capability. The MRO was part of erstwhile Air India (Air India Engineering Services) and had similar challenges. Added to that is an old fleet that had not received upgrades because of funds. The seats are being flown for 15 years and the in-flight entertainment product predates the iPhone. It’s a challenge to keep those in a functional state because the spare parts are no longer manufactured. That’s why we have invested $400 million in a complete interior refit. We are taking some steps like using capability of AirAsia and Vistara for line maintenance. We are contractually obliged to use AIESL for another year. Hence, we are working with them closely to improve capability because ultimately it’s the customer that bears the consequence.
Will you buy AIESL?
We will consider when it happens but we can’t wait or rely on that being the only option.
DGCA has pointed out some serious lapses in safety procedure
We have invested a huge amount of time and money to uplift practices. We are bringing people in from outside to bring an international perspective and start changing a bit of the dated and complacent culture. That culture arose over many years, it’s ingrained in the organisation and it takes time to turn the ship. We are re-emphasizing cultural values and have put in place consequences of not doing what is expected to be done. It must improve but it takes time.
What kind of policy support are you looking for from government?
We have seen good moves with respect to fuel price taxation. There is good work done to build a hub in India. We will expect similar policy support because we are investing billions of dollars in new aircraft and flying to all of the major points in the world. We would like to sell that to the Indian consumer, get them comfortable with our product, and see the benefits of flying nonstop.
When can we expect to fly the completely new Air India?
The answer to that question is driven by the aircraft that you are flying. Today if you get on Bengaluru-San Francisco or a Mumbai-New York or Delhi-London, you will get a world-class experience…As we do retrofits next year, by 2025, every aircraft will be elevated to the highest standard.
