Some time ago, Air-India (A-I) announced a major restructuring programme that stalled over the details of its fleet acquisition programme. Now, with the government allowing private domestic carriers to operate on international routes, the national carrier has little choice but to revisit the issue. In an interview with Business Standard,
A-I Chairman and Managing Director Thulasidas discusses the airline's strategy to counter the new competition. Excerpts:
Now that domestic private airlines are allowed to fly overseas are you prepared to face the new challenges?
A competitive environment is not alien to us. We have been facing severe competition from major international carriers. Fresh competition from domestic airlines will not make much of a difference.
In fact, we saw it coming. It was on the cards and A-I is well prepared to face it.
The first step was to prepare the organisation to realise this reality. I made it clear to my people that we have to change ourselves to face the reality if we want to survive.
Frankly, there is no option. We can't be the best because we have a glorious past and the reputation of being the best in the world.
Having infused a sense of confidence in employees, the next step was to address the physical problem that the airline faces.
It was not the inability to compete that pushed us behind, it was the lack of an adequate fleet size, besides an ageing fleet that contributed towards the dwindling market share. This is the primary reason A-I has lost out.
How is the fleet-expansion plan designed to boost A-I's growth plans?
The earlier plan that involved the acquisition of 28 planes (10 Airbus 340-300 and 18 Boeing 737-800) for A-I has completely been changed. While plans to buy the 10 A340-300 were dropped, a decision was taken to buy 18 Boeing 737-800 for Air India Express "" A-I's budget arm "" and not for A-I.
For A-I, a fresh proposal to acquire 50 aircraft has been drafted. This has already been approved by the board.
A-I's fleet acquisition plan envisages the induction of completely new generation aircraft "" eight ultra long range aircraft, 15 medium capacity long range (MCLR) "A" class planes and 27 MCLR "B" class aircraft.
A-I will have ultra long range aircraft like the B777-200 LR and A340-500 to service the India-US sector non-stop. In the MCLR(A) category, the 350-seater A340-600 is the longest aircraft available.
In the MCLR(B) category, the 7E7-8 aircraft is the latest Boeing plane, the first delivery of which is slated for 2008.
In the MCLR(A) and MCLR(B) categories, other aircraft options being looked at are B77-300 and A330-200, respectively. The cost of the 50 planes will be around Rs 30,000 crore.
This is over and above the Rs 5,000 crore that will be spent on acquiring 18 planes for Air India Express.
When is the government approval expected? Are you sure that it won't meet the fate of the earlier proposal?
The board has already approved the plan to acquire 50 planes for A-I. The proposal will be presented to the government by the end of this month and we expect its nod by April.
Discussions with aircraft and engine manufacturers have already begun. Around two-third of our orders will be placed on a confirmed basis while the balance will be optional.
In future, we may want to induct the even bigger next-generation planes like the 600-seater Airbus 380 or Airbus 350.
How do you plan to finance this project?
We have decided to reposition A-I as a premium global carrier. Accordingly, the earlier fleet acquisition plan was completely changed to accommodate the most modern planes with the best of in-flight amenities.
The airline needs such aircraft to compete in the global market. We must also have the 575- to 600-seater A380 and A350, the latest Airbus planes.
However, keeping in mind that our airports are not capable of handling these planes, we have put this on the backburner and may induct them in future.
The acquisition will funded by a mix of internal accruals and funds raised from international markets.
With a government guarantee we can raise money at attractive rates. The government till date has only invested Rs 153 crore in A-I.
After the induction of the new aircraft, what would be A-I's fleet size? How would the new fleet be deployed?
After the aircraft acquisition, A-I will have a 74-aircraft-strong fleet. We have started upgrading the existing B747-400s and A310s. Of the existing fleet of 35 planes, only six 747-400s will remain in its fleet after the aircraft renewal process.
Eight A-I-owned A310s will be deployed for the next five years and then phased out. The four 747-200s and 747-300s will be gradually phased out. Once the new planes arrive, those aircraft that have been taken on lease will be returned.
With the ultra long range planes, A-I is looking at starting daily flights on the Mumbai-Los Angeles, Mumbai-New York, Mumbai-Chicago and Delhi-New York routes.
The MCLR aircraft will enable us increase our frequencies on the India-Europe routes. While A-I will be a offering premium services primarily on the US and Europe sector, the budget arm "" Air India Express "" will largely service the Gulf and south-east Asian routes.
Under the new rules, A-I will henceforth no longer be able to get into compensation agreements with international airlines for allowing them to operate on the routes the rights for which A-I does not use. Hence, the revenue stream, which is as much as Rs 300 crore a year, will dry up. How will this affect the airline?
It is true that A-I will not get this Rs 300 crore anymore but the new rule by itself will not make much of a difference. With the increase in capacity, we will increase the number of flights and these rights will now be used up.
In other words, we will make money on these routes by operating flights instead of selling the rights.
What are your cargo business plans? Some time ago, you had said that the cargo division would be made a separate company?
After the cargo committee submitted its report, we decided that we will not spin off the cargo division into a separate company. A-I will directly operate its cargo business.
We have drawn up a new business plan. We will operate full-freighter aircraft for cargo operations. We will take one Boeing 747-400 and three Airbus 310 cargo aircraft on lease.
Some of the A310 aircraft owned by A-I will be converted into cargo planes, besides leasing cargo space from other carriers. This expansion will augment our market share in the cargo business from 10 per cent to 25 per cent.
Are there any plans to right-size the organisation? You employ about 16,000 people.
With capacity expansion, we are, in fact, facing a shortage of manpower, particularly on-board staff and ground handling operations staff.
We are also hiring pilots and commanders. At this juncture, we have no plans for introducing a fresh voluntary-retirement scheme (VRS). About 400 employees chose to call it a day under the VRS scheme last year.
