Air India gets on the competitive runway

For the long term, it needs to spruce up its international biz and fleet

Air India (AI) has flown some distance away from its heavy-footed image. Today, it faces the twin challenges of low passenger demand and the imminent competition from Jet-Etihad alliance. Air India has stepped up its sales and marketing by focusing on pricing and expanding its corporate travel business to brace for the competition. As a result, it has seen increase in load factors and yield, metrics that denote an airline's earning efficiency.

With the exception of May, air traffic decelerated in the past few months. This has led airlines to discount tickets by way of promotional offers. While Jet Airways put up 700,000 seats for sale, GoAir offered fares that were lower than regular rates by up to 50 per cent. Historically slow to react to such fare wars, Air India was pro-active with its pricing this time. An AI executive explains, "We had advance purchase fares for 14, 30 and 60 days before the travel date but none closer to the day of travel. We have recently introduced special fares that can be booked three days before the travel date. The fares have been introduced to fill flights with light loads and will help us compete with other low-cost airlines."

While several of Air India's foreign routes continue to lose money, there has been an upswing in the business due to a mix of pricing and incentives for agents. The Chicago and New York flights are now generating a cash profit. "We have been able to charge a slightly higher economy-class fare than the competition on the US routes because we have non-stop flights and we have a nine-seat configuration in the economy class, as compared to 10 seats in a row in some other airlines. This has given us the advantage," another AI official adds.

  The airline has also been rolling out plans to increase its share in business travel. It has started by making its frequent-flyer programme more attractive through tie-ups with banks and hotels. It has also begun offering holiday packages in partnership with MakeMyTrip. These moves are significant in the backdrop of the Jet-Etihad alliance. While Jet Airways is popular among business travellers in India, it does not have too many loyal corporate customers abroad. The alliance with Etihad will help it increase its network for earnings on international routes as well.

Air India's efforts at bringing in a competitive edge is bearing fruit. It has been able to achieve most of the targets for passenger load and yield for 2012-13 set in its turnaround plan .

Even its on-time performance has shown improvement (refer box). Its revenue is up 15 per cent at Rs 4,700 crore in April-July 2013 over the same period last year. Occupancy in business class has improved, too, airline officials claim.

Air India estimates its total revenue would go up 20 per cent by the end of the current financial year. The carrier's total revenue is expected to rise from Rs 16,130 crore in 2012-13 to Rs 19,393 crore in 2013-14. In an earlier interaction, Civil Aviation Minister Ajit Singh had said Air India expects to generate Rs 1,000 crore in operating profit this year.

"We have formed a cost-cutting committee. On implementation of cost-saving recommendations, the airline management expects to save another Rs 500 crore. The airline's on-time performance has gone up. I have reviewed international operations. All the flights which were losing money are now generating cash profit," Singh had said.

Experts, however, feel Air India will need to frame a long-term strategy and fleet plan to effectively counter the competition. "Since the last year, I see a desire among the airline's top management to turn around the airline and compete against rivals. The main problem had been flight delays but now its on-time performance has improved. I hope the government takes a call on long-term fleet strategy for AI. IndiGo, GoAir and Jet Airways have ordered narrow-body planes. AI will lose market share if it is unable to spruce its own fleet," says the co-founder of MakeMyTrip, Keyur Joshi.

"AI's performance has improved significantly over 12-15 months. Losses have been reduced significantly. The customer perception has improved. The network integration has helped and labour challenges are under control. Overall, the airline is beginning to be relevant again. However, I don't think AI has a credible long-term story as it faces serious fundamental issues which can't be overcome under the current ownership. The Jet-Etihad alliance will be extremely formidable and AI and the civil aviation ministry are underestimating its impact on AI's international operations," warns Kapil Kaul of Centre for Asia-Pacific Aviation.

Its recent measures will have to be more than ad hoc competitiveness to sustain the airline in its future course correction.