A Report

Submitted in partial fulfilment of the requirements for the course of Strategic

Management

(Term-3)

Air-India Case Report

INDIAN INSTITUTE OF MANAGEMENT

KOZHIKODE

January 2020

Submitted by: Apoorva Aggrawal (PGP/23/194)

Arjun Singh (PGP 23/196)

Padma Shravan M(PGP/23/213)

Vishwath (PGP/23/248)

Rai Siddhant Sinha (FPM/13/16/S)

Case Summary: Facts and Figures

Air India and Indian Airlines merged in 2008. Formation of NACIL

Air India faced issues on multiple fronts
 Oil costs shot up to $140 in 2008. ATF also increased due to taxes.
 High debt in the company in the order of $8bn. No cash available for working capital
 Passenger traffic stagnated in 2008. Negative growth of -0.7% in passenger traffic
after seven years
 Political influence: mandated non-profitable air routes, aircraft run for government
officials
 Old and very diverse fleet, leading to high maintenance costs
 New aircrafts bought only for replacement and not for growth.
 Inefficient workforce, thrice the size of competitors
 Competitors’ market share increasing due to price wars, Jet Airways- 29.1%,
Kingfisher – 28.4%
 Jet Airways acquired Air Sahara, Kingfisher acquired Air Deccan
 Lack of autonomy for management in key decisions.
 Losses of 33bn and 55bn in 2007-08 and 2008-09.
 Poor customer service image leading to a loss in customer confidence

The Question: “Considering the condition in 2009 - 2010, can Air India turn around its
performance and achieve sustained profits?”
Arguments in favour of “YES”
As per the SWOT Analysis, Air India can turn around its performance through government
support and by leveraging its Star Alliance membership, the rising international traffic, reduced
oil prices and its own ground handling system.
Air India could implement a strategy consisting of the following steps:
· Structural Audit: to identify the pain points (operational, financial, management) and
prioritize those to be tackled first.
· Work Culture Integration: to have a uniform, frictionless, seamless culture among the AI
and IA management and employees.
· De-staffing: Redundant and non-performing employees should be retrenched, aligning
with the international standards. Employees and staff should undergo periodic performance
reviews and clear targets be communicated to them. Necessary steps need to be taken to
take an unwavering stand and overcome the opposition from the unions, if Air India wants
to survive in the future.
· Customer Service Improvement: follow a customer centric approach – train staff to better
cater to the needs of the customer and improve customer support.
· Hedging: to safeguard against the ATF price fluctuations in the future.
· Fleet Rationalization: move away from the existing mix of multiple aircraft models to just
2-3 models. This would help in standardization and uniformity in maintenance and repairs
of the aircrafts.
· Autonomy: reduce government intervention in setting goals and targets for the airline.
Government should be more of a facilitator and not the authority taking all the decisions.
This will also help in gradually reducing the dependence on the government funds as Air
India learns to operate on its own.
· Privatisation: finally, based on its performance and promise of profitability, government
can go for divestment and hand over the reins to a private company.

Arguments in favour of “NO”

Strategic Analysis against Air India turning around its performance and achieving sustained
profits
 External Environment Analysis
1. PESTLE Analysis
a. Economic
i. Steep rise in crude oil prices
1. $60 per barrel (Apr 2007) to $140 per barrel (Jul 2008)
2. 90% correlation with ATF
ii. Economic Slowdown
1. Slip in India’s GDP Growth: 7.7% (2007-08) to 3.1% (2008-
09)
2. Falling in passenger traffic: 44.38 million (2007-08) to 39.47
million (2008-09)
b. Political
i. Merger with Indian Airlines
1. Lack of Synergy
2. Two Power Centers: AI in Delhi and IA in Mumbai
ii. Government Intervention
1. Cost of Prime Minister’s visits and Haj pilgrimage
2. Social burden of loss-making routes
iii. High Taxes and Costs
1. ATF cost 30% higher than international
2. High airport charges
3. High ground handling charges
 Industry Analysis – Porter five forces
●Rivalry Among ●Threat of new
Competitors: entrants :
●1. Numerous ●1. High cost of
Balanced entry
competitors like Jet ●Bargaining ●2. Evolving ●Bargaining ●Threat of
Airways, Kingfisher government aviation Power of Substitutes:
Airlines Power of policy like Bilateral
Buyers: Suppliers : ●1. International
●2. Emergence of agreements with
●1. Variety of foreign government ●1. Few suppliers Carriers : no
players in full in the industry : perfect substitutes
service and low option for buyers ●3. New Boeing, Airbus ●2. Domestic
segments like opportunities for
GoAir, IndiGo private investors ●2. Supplies of Level : may be
●2. Hidden cost of crude oil/Aviation road and rail
●3. Strong Air travel in India ●4. Rise of private
International Turbine Fuel services
players
Players like
●5. Emergence of
Emirates, Singapore
successful models
Airlines
like LCC(Low Cost
Carriers)

 As per analysis due to various reason such as strategic (load factor, competition) ,
operational (cost, manpower, aircraft mix), cost (fuel cost, airport charges) the
turnaround to being profitable is difficult to accomplish.

External Analysis:
S.NO Description Weights Score Weighted Scores
Opportunities
1 Lucrative roots 0.1 2 0.2
2 Hedging 0.05 3 0.15
3 Cost 0.05 1 0.05
4 Government funds 0.05 3 0.15
5 Staff Management 0.05 2 0.1
6 Targeting low income 0.1 1 0.1
passengers
7 Growing Industry 0.1 1 0.1
8 Brand Recognition 0.05 3 0.15
Threats
1 Intense Competition from 0.1 1 0.1
substitutes
2 Another Fuel Crisis 0.05 1 0.05
3 Over Capacity 0.05 2 0.1
4 Old Aircrafts 0.05 1 0.05
5 Government Control 0.05 2 0.1
6 Takeover 0.05 1 0.05
7 Cash Crunch 0.05 2 0.1
8 Social Burden 0.05 1 0.05
Sum 1 1.6