Air India

Industry Profile:
Introduction:

The aviation industry is the global transportation network that carries goods and passengers by air. Air travel was only made possible in the early 20th century, the aviation industry now generates billions of dollars in annual revenue. It also provides essential services to numerous other industries, from medicine and national defense to tourism and sports. The bulk of the worldwide aviation industry is involved with the use and manufacture of airplanes. 1912 to 1990: Indian Aviation Industry is one of the fastest growing airline industries in the world. The history of Indian Aviation Industry started in December 1912 with its first domestic air route between Karachi and Delhi. It was opened by the Indian Air Services in collaboration with the UK based Imperial Airways as an extension of London-Karachi flight of the Imperial Airways. The aviation industry in India gathered momentum after three years with the opening of a regular airmail service between Karachi and Madras by the first Indian airline, Tata Sons Ltd. However this service failed to receive any backing from the Indian Government. Tata Airlines, Indian National Airways, Air service of India, Deccan Airways, Ambica Airways, Bharat Airways and Mistry Airways were the eight airlines that was operating at the time of independence. With an attempt to farther strengthen the base of the aviation sector in India, the Government of India together with Air India (earlier Tata Airline) set up a joint sector company, Air India International, in early 1948. In 1953 under the Air Corporations Act, the Government of India nationalized all existing airline assets and formed Indian Airline Corporation(IA) for domestic air services along with Air India International(AI) for international air services.

1|Page

Air India
1990 to 2003(Open-sky Policy): In April 1990, the Government adopted Open-sky policy and allowed air taxi- operators to operate flights from any airport, both on a charter and a non charter basis and to decide their own flight schedules, cargo and passenger fares. After liberalization a number of private airlines came into being. A few notable amongst them were Damania, EastWest, Jet, Sahara, Modiluft and NEPC. A point to note here is that although this sector was very capital intensive, these airlines did not have the backing of any of the business powerhouses of India like the Tata's or Birla's In 1994, the Indian Government, as part of its open sky policy, ended the monopoly of IA and AI in the air transport services by repealing the Air Corporations Act of 1953 and replacing it with the Air Corporations (Transfer of Undertaking and Repeal) Act, 1994. Private operators were allowed to provide air transport services. In April 1990, the Government adopted Open-sky policy and allowed air taxi- operators to operate flights from any airport, both on a charter and a non charter basis and to decide their own flight schedules, cargo and passenger fares. In 1994, the Indian Government, as part of its open sky policy, ended the monopoly of IA and AI in the air transport services by repealing the Air Corporations Act of 1953 and replacing it with the Air Corporations (Transfer of Undertaking and Repeal) Act, 1994. Private operators were allowed to provide air transport services. In 1995, government granted scheduled carrier status to six private air taxi operators. But only four operators Jet Airways; Air Sahara; Jagsons and Spice jet (previously operated as Modiluft) started operations by 1997 and continued to operate. Eventually, by 1998, at least six private airlines, East- West, Modi-Luft, NEPC, Damania, Gujarat Airways and Span Air were closed and according to an estimate, the capital losses implicated after these closures were to the tune of Rs. 10 billion. Jet, Sahara, and Indian Airlines shared the market between themselves with market shares of 46%, 9% and 40% respectively in the year-ending March 31, 2003. By 2003, only two private carriers survived to see the sunrise of the new century, i.e. Jet and Sahara.

2|Page

Air India

2003 to 2011 : In 2003, Air Deccan gave India its first Low Cost Carrier (LCC) or no frills Airline which was a turning point in the history of Indian Aviation Sector. It introduced budget flying by lowering down the fares to mere 17% of what the other airlines were charging. It marked a shift from the stereo type economy fares & business fares to the era of check fares ; web fares ; APEX fares ; internet auctions ; Special discounts ; Corporate plans ; last day fares; promotional fares etc. With the arrival of Deccan, reformation and innovation began in the aviation sector. It revolutionized the industry, offering fares as low as Rs. 500 ,compared with Full Service fares offered by the incumbents, averaging about Rs. 3000 or more. In December 2004, Indian scheduled carriers with a minimum of 5 years of continuous operations and a minimum fleet size of 20 aircraft, were permitted to operate scheduled services to internationals destinations. On January 11, 2005 the government designated four scheduled Indian carriers (Air India, Indian Airlines, Jet Airways and Air Sahara) to operate international services to and form Singapore, Malaysia, Thailand, Hong Kong, the UK and the USA. Another milestone in the history of the Indian Aviation sector came in the year 2007. This was the year of mergers and collaborations in the Indian skies. In the year 2006, the merger of Jet-Sahara & Indian Airlines-Air India was announced but it materialized only in 2007. After this, the Indian aviation sector has witnessed a series of Mergers and Acquisition of airlines namely: Indian-Air India; the Jet-Sahara Deal; the Kingfisher-Deccan Deal. Aviation industry statistics have shown a growth curve that establishes the emergence of a new world leader. The latest Aviation Industry news shows airlines launching newer flights everyday with very low fares to attract the maximum number of customers. The airline landscape in India has been transformed in recent years. In 2003 there were just 4 carriers Air India, Indian Airlines, Jet Airways and Air Sahara all operating full service models. And private carriers in those days were limited to operating domestic routes only. Today, there are effectively 7 airlines : Air India, Jet Airways, Kingfisher Airlines, IndiGo, Spice Jet, Go Air, Paramount.
3|Page

Air India
The year 2010-11 Jet Airways, Kingfisher Airlines and Air India possibly being the largest LCCs in the market, should allow the big three carriers to develop a more competitive cost structure, which is essential for their survival. Jet Airways and Kingfisher are both faced with a cash crunch and are urgently seeking to raise capital. The three large airline groups Air India, Jet Airways and Kingfisher Airlines have a combined debt of approximately USD10 billion. The Indian Aviation Industry has been going through a turbulent phase due to high oil prices and limited pricing power contributed by industry wide over capacity and periods of subdued demand growth. The passenger traffic growth has been steady (averaging 14% in 9m 2011-12), intense competition has impacted yields and forced airlines back into losses in an inflated cost base scenario. Aviation industry in 2012: Airline companies in India are going through a rough phase except a few. With the ever rising fuel cost, the revenue/profit numbers continues to topple. In the last 5 years, there are couple of new entrants in the market. The players who were believed to be low-cost carriers changed the game and overtook full-service carriers in terms of market share. There are lot of notable events happening in Indian airline industry. The component of fuel cost in the total operational cost of Indian carriers (airlines) is approximately 50%, while the same is around 33% in other markets Tony Tyler, Director General & CEO of IATA. Earlier in an interview, Vijay Mallya led Kingfisher also said that the rising fuel costs has taken a toll in their revenue numbers. Below are some of the notable events happened in this year in Indian airline industry:

Shares of Kingfisher were down 4.8% to Rs.10.90 apiece after Indias

aviation regulator suspended its licence on Saturday.

Kingfisher owes $2.49 billion (around Rs.13,400 crore today) to creditors

and had accumulated $1.9 billion in losses by 30 June, according to the Centre for Asia Pacific Aviation (CAPA), a consultancy.

Kingfisher hasnt paid salaries to their employees for 6 months

4|Page

Air India

A group of Air India pilots demanding exclusive rights to fly new Boeing

Dream liners called off a 58-day strike, bowing to pressure from the government and a Delhi court order

Irrespective of the decrease in capacity of 17% due to a strike by a section

of pilots, Air India posted Rs. 4,757 crore revenue during April-August, up 6.5% over the corresponding period of 2011

Government-owned carrier Air India is expecting all 27 Dream liners it

ordered to be delivered by 2016

With the first Boeing 787 already having arrived in Delhi, Air India is

going to get five more in 2012

IndiGo, a 6 year old airline became the country's leading carrier in terms

of market share. It overtook the market leader Jet Airways in the month of Jun-July.

Indian government allowed foreign carriers to buy up to 49% stake in

domestic airlines, Indias leading private airline, Jet Airways could be the first to receive investment from Etihad Airways

To regain the market share, the countries 2nd and 3rd biggest (by market

share) airlines Air India and Jet Airways have announced up to 40% discounts on tickets booked a month in advance.

Kingfisher Airlines, which was once considered as one of the top three

carriers in the country now has the least market share of 3.5%.

5|Page

Air India
Table showing Market share of Indian Airline Companies in 2012: Company Name Air India Jet Airways and Jet Lite Kingfisher Spice jet Go air Indigo Mantra Market Share 19.3% 23.8% 3.5.% 18.5% 7.6.% 27.2.% 0.0.%

Market share of Indian Airline Companies as of 2012:

6|Page

Air India
Flight Cancellations: Indigo scored very well in this area as well which registered lowest cancellation ratio of just 0.5 percent. Spice jet (0.9%) and Jet Airways (1.3%) also witnessed quite less cancellations. On other hand, JetLite was by far the worst performer with 3.5 percent flight cancellations!

Passenger Complaints: Now this one is a surprise Air India performed better than all other carriers registering least passenger complaints with only 1.2 in 10,000 passengers complaining about various services . Go Air was the worst performer with just over 5 passengers in 10,000 complaining about their services.

7|Page

Air India
Out of the total complaints, 29 percent of all were for lost baggage, while 5.9 percent were refund related issues.

SWOT Analysis of Airline Industry in India

Strengths: Liberal Environment: India's airlines operate in a liberal environment in both the domestic and international spheres. With three major airline groups and four smaller carriers all operating domestic routes, there is no shortage of competition, although this factor combined with excess capacity has tended to depress yields. Nevertheless, carriers are free to operate any domestic routes without seeking permission from the government, and without restriction on pricing. One condition that airlines find onerous however, is the requirement to operate a proportion of ASKs to remote and underdeveloped regions of the country.

Modern Fleet: In light of the fact that much of the growth in Indian aviation has occurred in the last five years, the country's airlines operate a relatively young and modern fleet, ensuring a high quality passenger experience, improved safety and good operational reliability.

High Quality: India's airlines offer a good quality product in each of the operating models in existence. Jet Airways and Kingfisher Airlines are competitive in terms of their in-flight service against the leading carriers in the world. Kingfisher for example is one just half a dozen global carriers such as Singapore Airlines and Cathay Pacific, with a Skytrax 5 star rating. In fact it could be argued that the full service product on domestic routes is excessive for the sector lengths involved and results in a higher cost structure, which the passenger does not necessarily see value in paying for. The LCCs too, by and large, offer a comfortable, efficient and reliable service. Until a couple of years

8|Page

Air India
ago, Air Deccan was one carrier that had developed a reputation for poor on-time performance, flight cancellations and overbooking, however since being acquired by Kingfisher, most of these operational issues appear to have been resolved.

Economic Growth: Economic growth has historically been the primary driver of air traffic, and the relationship has generally been even stronger in developing countries. Between 2004 and 2007, India enjoyed four years averaging 9% per annum GDP growth. This slowed to 6.5% in 2008, however against the background of a global economic recession, this was a creditable performance. The increased business confidence following the general election result in May 2009 has eased concerns that growth may slow further. The stock market has soared 25% in the last month and the outlook for growth and consumption has improved, which is a positive for the aviation industry.

Political Stability: The re-election of the Congress Party, with a stronger majority is expected to allow the new administration to push ahead with further economic reforms, which had to date been blocked by coalition partners. The prospect of a government which has the ability to last its full term and pursue its agenda is extremely encouraging. In addition, Minister Praful Patel, who was the architect of the dramatic transformation of the aviation sector, has retained the portfolio, which brings experience and stability to the aviation industry.

9|Page

Air India
Weaknesses: Airport Infrastructure: The rapid growth in air traffic over the last few years exposed the deficiencies of airport infrastructure across the country. After decades of neglect, many of India's airports were forced to operate well above design capacity. The resulting congestion in the terminals and on the runways delivered a poor experience for the passenger and a costly, inefficient operating environment for the airlines. However, although a weakness today, it is also fair to say that it is becoming less so, as the airport modernization program starts to deliver results, with new airports in Bangalore and Hyderabad, and improving facilities at Delhi and Mumbai. The upgrade of non-metro airports remains behind schedule so it may be another 3-4 years before we see good quality facilities across the country, but there are tangible signs of improvement.

Airways Infrastructure: Although congestion on the ground is relatively visible, another current area of weakness is the limited investment that has taken place in improving infrastructure for air traffic management. This too results in expensive aircraft holding patterns, indirect flight paths and sub-optimal use of runways.

National Carrier: The state-owned carrier, Air India, is in a dire situation. The carrier is estimated to have posted losses of close to USD1 billion in 2008/09, and morale within the bloated workforce is at a low. With no clear direction, management instability at the top and continuing issues with the integration of Air India and Indian Airlines, the carrier is in need of radical restructuring. It is imperative that the government develops a turnaround strategy for Air India as an urgent priority.

High Cost Structure: India's airlines operate in a relatively high cost environment, primarily due to the punitive taxation structure. The greatest impact is felt in the area of sales taxation on fuel, which can increase the cost to 60%

10 | P a g e

Air India
above the international benchmark. The limitations of airport infrastructure also increase costs due to the fact that carriers are unable to schedule fast turnarounds, resulting in reduced aircraft utilization. In addition, the fact that high quality ancillary services such as MRO and training are not currently available in India, means that aircraft and personnel have to be sent overseas.

Skilled Resources: Domestic air traffic in India tripled in the five years to 2008, while international passengers doubled. This rate of growth far outstripped the capacity to develop skilled technical and management personnel. The gap was partly addressed by employing expatriates, particularly as pilots, and by learning on the fly. This means there is a lack of in-depth experience and knowledge at all levels. Furthermore, there is an absence of high quality training infrastructure incountry to deliver the resources to support future growth. This lack of personnel affects the government as well and the FAA has expressed its concern at the shortage of qualified safety inspectors within the Directorate General of Civil Aviation (DGCA). India has been put on notice that unless this issue is addressed, it may be relegated to a Category II nation, which would mean that Indian carriers would not be permitted to increase services to the US.

Opportunities Market Growth: Despite the rapid expansion of recent years, India has only just scratched the surface of the potential for the aviation sector. Trips per capita remain low even by the standards of other developing countries. China's domestic market is more than four times the size of India's 40 million passengers. Even, Australia, a country with a population of just 21 million, compared with India's 1.1 billion, has a market 25% larger. Similarly on the international front, less than 1% of Indians travel overseas each year. Inbound visitor numbers at 5.4 million in 2008 for the entire country, were less than for Dubai or Singapore. It is not difficult to see the expansion potential from such a low base as economic growth continues apace.

11 | P a g e

Air India
Geographic Location: India is ideally positioned as a major aviation hub at the crossroads between Europe, the Middle East and Asia Pacific. The fact that aviation was a neglected sector for so long has allowed airports such as Dubai and Singapore to effectively establish themselves as offshore hubs for Indian passengers, and they now have a significant head start. However, as India's airports improve, and its airlines receive international awards for their service, there may be an opportunity to leverage its huge home market to compete with these longer established hubs.

Lower Costs, Higher Quality: India has already managed to develop a dynamic aviation sector despite, and not because of, its environment. The improvements in airport and airspace infrastructure, the development of indigenous training and maintenance facilities and the potential for fiscal reform, all point to the potential for Indian aviation to increasingly operate in a lower cost, higher quality and more efficient manner. This could in due course lead to an opportunity for India to develop as a global outsourcing hub in areas such as aerospace manufacturing, MRO and training.

Threats: Middle East Aviation: The carriers of the Gulf are aggressively expanding in India, with high frequencies from multiple destinations to their hubs, from where passengers can access extensive global networks. The ability for a passenger for example to travel one-stop from Ahmadabad to Hamburg, or multiple daily frequencies from Mumbai to London, connecting at an attractive hub, is a strength which Indian carriers simply cannot match at present. It will take time and the question is how far ahead will the Middle East carriers be by that stage.

Terrorism: India has seen frequent terrorist activity in recent years. The country has shown great resilience in bouncing back after each attack, however inbound international traffic in particular is sensitive to such events. Similarly the potential

12 | P a g e

Air India
for India to develop as a global traffic and services hub is contingent upon it being seen as a safe and attractive destination.

Major Airports in India:

13 | P a g e

Air India

Players in the Indian aviation industry: Air India: The first major domestic airline of India, Air India started its operations in 1953 as the oldest airline company in India. Indian Airlines was renamed Indian in December 2005, and in 2007, both Air India, the national carrier of India in the
14 | P a g e

Air India
international arena and Indian Airlines were amalgamated into National Aviation Company of India Limited (NACIL). The name Air India has been adopted for the air services. Spice Jet: This Domestic Airlines has an on-time performance of 82.7 per cent. The Ground staff and the cabin crew are courteous and the interiors of the planes are clean and well-maintained. The Airline receives 3.5 complaints per 10,000 passengers. Jet Airways: Jet Airways has retained its leadership position in India. With its first flight in 1993, Jet Airways has come a long way to becoming the fastest growing airlines in the world- now all set to change the way you fly- for the better! Connecting 24 international destinations and operating flights to and from 51 destinations in India, Jet Airways offers the best air deals. Kingfisher Airlines: This is an airline that claims to offer the ultimate comfort in air travel.
Owned by Vijay Mallya, the head of the Bangalore-based United Breweries Group, Kingfisher Airlines was established in 2003. His aim was to make air travel in India an experience to remember and not merely a journey from a place to another place. Stylish and comfortable this airline boasts of having highly trained personnel. It wouldnt be wrong to say that the airlines provides safe, value based and comfortable air travel to travelers.

Go Air : Established in June 2004 by the Wadia Group, Go Air is a low-fare carrier. The airline currently operates across 16 destinations with 120 daily flights and approximately 847 weekly flights. On an average it receives 1.8 complaints per 10,000 passengers.

COMPANY PROFILE:

15 | P a g e

Air India

Background and inception of the company:

Air-India Limited operates passenger and cargo flights from Bombay to destinations in the United States, Europe, the Middle East, Africa, the United Kingdom, Russia, China, Japan, and other countries. It holds the distinction of being the world's first all-jet airline. Founded as a small, private, domestic carrier in 1932, Air-India is now government owned. Once regarded as a "little jewel" of an airline, its reputation became somewhat tarnished as service and profits slipped. Significant changes, however, have rejuvenated the airline, put it back in the black, and restored its ranking among the better airlines of the world. Three million passengers a year fly Air-India. Air-India Limited operates passenger and cargo flights from Bombay to destinations in the United States, Europe, the Middle East, Africa, the United Kingdom, Russia, China, Japan, and other countries. It holds the distinction of being the world's first all-jet airline. Founded as a small, private, domestic carrier in 1932, Air-India is now government owned. Once regarded as a "little jewel" of an airline, its reputation became somewhat tarnished as service and profits slipped. Significant changes, however, have rejuvenated the airline, put it back in the black, and restored its ranking among the better airlines of the world. Three million passengers a year fly Air-India. 1932 to 1970: Air-India began operating in 1932 as Tata Airlines, named after J. R. D. Tata, its founder. The line carried mail and passengers between the Indian cities of Ahmadabad, Bombay, Bellary, and Madras, and Karachi, Pakistan. Within a few years Tata Airlines' routes included the Indian cities of Trivandrum, Delhi, Colombo (in Sri Lanka), Lahore, and other locations in between.

16 | P a g e

Air India
In 1946, at the conclusion of World War II, the airline became a public company and was renamed Air-India Limited. In just two years, with the government having a 49 percent share in the company, the airline was flying further outside of India, with regular flights to Cairo, Geneva, and London. The line's name changed again to reflect its new scope of operations, becoming Air-India International Limited. India enjoyed more success in the airline industry than most other developing countries for a number of reasons. Whereas others had to rely on foreign pilots to fly their planes, AirIndia used mostly native-born pilots. Similarly, skilled Indians were plentiful enough to maintain India's fleet as well as to train and supervise its personnel; many other countries had to go outside for this kind of expertise. Air-India benefited from these advantages along with its sister carriers. Air-India first encountered competition for its routes in the early 1950s. Many new airlines were forming, propelled into business by the availability of inexpensive, war-surplus DC-3s. No fewer than 21 airlines had been established, with 11 of them licensed to fly the skies of India. A 1985 article in the Economist cited Tata's foresight of what this plethora of airlines could lead to: "The scene was well and truly set for the ultimate debacle." To prevent that debacle from occurring, the Indian government in 1953 took control of all of the airlines within its borders. Along with the nationalization the government created two corporations. Indian Airlines Corporation, which merged Air-India Limited with six smaller lines, served the country's domestic travel needs. Air-India International Corporation flew routes overseas. By 1960 the international airline had routes to Singapore, Sydney, Moscow, and New York. By 1962, when the name was shortened to Air-India, it had become the world's first all-jet airline. The Jet Age(1970 to 1990): Beginning in the 1970s, however, Air-India saw difficult times. It suffered a net loss in three of the years between 1976 and 1985. The downturn in the world economy had a significant effect on air travel throughout the world, and India was no exception. In addition, the government kept a number of unprofitable routes open simply for prestige purposes--a strictly

17 | P a g e

Air India
commercial airline may have closed those routes. Its flights to New York, for example, resulted in losses for a number of years, even though many of those flights were full. At one point an airline official estimated that only about ten percent of Air-India's passengers to New York were business travelers who would buy the more expensive seats. Flights to Canada were even less profitable, flying at around 55 percent of capacity. Another factor in the airline's financial problems was that, to compete for American and European travelers with American and European airlines, Air-India had to discount many of its fares. In addition, the airline depended heavily on local citizens--"ethnic traffic"--which generally meant lower fares. The routes that had proven to be most profitable for Air-India had been those to the oilproducing nations. Flights to the Persian Gulf accounted for 35 to 40 percent of Air-India's traffic in the mid-1980s. Working with Gulf Air, Air-India operated 60 flights each week between the Gulf and India. But even these routes saw profits fall, as revenue in the gulf states declined. Another problem was the shortage of tourists traveling to India. Communal violence and the assassination of Indian Prime Minister Indira Gandhi in 1984 kept tourism down. In addition, to combat the terrorism that was becoming a major problem at many of the world's airports, the government imposed heavy restrictions at airports, giving tourists another reason to stay away. The darkest note in Air-India's history was the tragedy that took place in June 1985 when one of its 747s, on a flight from Toronto to Bombay, crashed to the sea with 329 passengers aboard. A Canadian Safety Board Report, addressing an inquiry by Indian High Court Judge Bhupinder Nath Kirpal, concluded that an explosive device was the probable cause of the crash. The board reported that an X-ray machine at Pearson International Airport in Toronto broke down before all the luggage had been checked. Nonetheless, the effect on the reputation of AirIndia was severe. Despite these problems, Air-India's productivity was high. By acquiring large-body airliners, its productivity almost doubled from the year 1974-75 to the year 1983-84. In terms of rupees, this productivity figure translated to a per-employee production of Rs 125,000 (US $16,000) in operating revenue in the 1974-75 year and Rs 439,000 in the 1983-84 year. In 1985 Air-India flew 8.1 billion passenger-kilometers (number of passengers times distance), a figure
18 | P a g e

Air India
that prompted the International Air Transport Association to rank Air-India 15th out of 136 member airlines in passenger-kilometers on scheduled services. Nevertheless, Air-India lost US $23 million in the 1987-88 fiscal year. To stem such losses, Prime Minister Rajiv Gandhi named Rajan Jetley chairman of Air-India. Jetley took command of an airline that was overstaffed, mired in sticky negotiations with unions, and struggling under difficult working conditions. In addition, some bureaucratic meddling and high gasoline taxes interfered with procedures and made operating the airline expensive. A number of these factors came together to have a significantly negative impact on the airline. Specifically, Air-India was flying many flights with intermediate stops, while competing airlines were flying the more attractive nonstop flights. One reason for these intermediate stops was the pilots' refusal to fly more than nine hours. A second reason was that, to minimize the effect of the high cost of fuel, Air-India did much of its refueling outside of India's borders. Jetley dealt with these problems by convincing the government to reduce its gasoline tax and by convincing the pilots to fly longer flights. According to Jetley, as quoted in a 1990 New York Times article, the carrier was "packing the back of the bus" on many of its routes. In addition to selling coach fares, Jetley hoped to entice affluent fliers to purchase the more profitable business-class seats. Toward that end he bought new planes and changed the look of the airline, ordering a new logo and a redesign of the planes' decor and employees' uniforms and improving in-flight service and meals. He increased the number of flights to Europe, making Frankfurt, Germany, a hub and enabling passengers to connect to other European cities. In addition, he adjusted the timing of flights, making it more convenient for passengers to connect with other flights. Under Jetley's direction, Air-India turned the loss of the previous year into a profit of US $23 million. The airline rose to number 22 on the International Air Transport Association's list of the world's most profitable airlines. The revitalized Air-India saw record profits of US $41 million in the year 1989-90, then topped that the following year with profits of US $42.7 million. These accomplishments were all the more startling because they came at a time when many of Air-India's flights to the Persian Gulf had to be suspended because of the conflict between Iraq and Kuwait and the ensuing Persian Gulf War.
19 | P a g e

Air India
The airline, though, did experience activity during the conflict, launching a massive airlift to help 110,000 Indians flee war-torn areas. Ravi Mani, deputy general director of cargo for AirIndia, was quoted by the Journal of Commerce as saying that compared with this airlift, "the Berlin airlift was chicken feed." Air-India was intent on continuing its success of the early 1990s. Although it controlled 28 percent of air passenger traffic out of India, that was a drop from 32 percent just a few years before. Subbash Gupte, acting chairman after Jetley left his post, explained, as quoted by the New York Times: "The reason for the drop is simple. Other airlines have expanded, bought new aircraft; we haven't." Between 1982 and 1986 the airline had kept its capacity at a standstill. While Jetley was still in command, however, plans were implemented to increase capacity by six to eight percent each year from 1990 to 1995, reducing the average age of its fleet--13 and one half years in 1990&mdash about four and one half years by the turn of the century. Succeeding Jetley was Chairman and Managing Director Yogesh Deveshwar, who outlined the airline's direction for the 1990s. As reported in Travel Weekly in 1992, Deveshwar said: "We want to make Air-India a boutique carrier, as opposed to a department store." Parts of those plans called for expanding the carrier's United States routes to include Chicago, Los Angeles, and Newark. Flights to Los Angeles, it was hoped, would attract many ethnic Indians, who were using other carriers to other points in the Far East and then transferring to Air-India. New aircraft, including long-haul 747-400s, would help to bring those plans to fruition. In addition to passengers, cargo has always been a large portion of Air-India's business. Its major cargo markets are the Persian Gulf countries, Europe, the United States, the United Kingdom, and Japan. In 1989 (the last year for which figures were available) Air-India ranked 19th among all International Air Transport Association carriers in scheduled international freight tons. The carrier handled 66,000 metric tons of cargo that year. One of the major goals of Air-India for the 1990s was to increase its cargo operations still further. At the beginning of the decade Air-India had about 30 percent of the country's air cargo market, while more than three dozen airlines from other countries carried the balance of the country's cargo. The airline planned to lease additional jet freighters to increase its capacity to carry exports. The International Airports Authority of India improved the infrastructure and
20 | P a g e

Air India
ground handling at the gateways it operates, making them more attractive to carriers and freight forwarders. With these changes under way, cargo revenue for fiscal 1990 amounted to US $195 million, 21 percent of Air-India's revenue. The Challenging 1990s: Air-India lost $171 million in the three years beginning with 1994-95. The airline gained a reputation for poor service and poor on-time performance. The company initiated a generous incentive program to motivate employees, which proved successful. In addition, a computerized flight system and updated lounges and cabin interiors were added to update the company's image among customers. Management cut fares drastically and provided two-for-one discounts. In the summer of 1997 the carrier negotiated code-sharing deals with Air France and Singapore Airlines. Streamlining the carrier's route network became an ongoing process. In fact, Air-India was notorious for constantly adding and dropping routes. Its network dropped Canada, Australia, and South Africa in an attempt to cut losses. Air-India sought to offer its $150 million annual North American income streams as debt securities, pending the approval of a hesitant Indian government. The company also planned to raise cash (it already had reserves of more than $110 million) by selling its Hotel Corporation of India subsidiary, worth at least $220 million, as well as some older Boeing 747-200s, valued at $60 million. Still, the company owed $900 million on new aircraft purchases. In spite of this impressive sum, Air-India found itself chronically short of medium-sized long haul aircraft, reported Air Transport World. Most of its planes were too large to be profitable on their particular routes, a liability previously covered by an especially profitable Persian Gulf market. A recovery seemed to be in place upon the announcement of a quarterly profit of $10 million in the fall of 1997. More positive results were projected. Operating revenue was expected to reach Rs 4,189 million in 1997-98. It was later announced that these results had been overly optimistic; the $10 million profit was in fact a $10 million loss. Managing Director Michael Mascrenhas announced the news after
21 | P a g e

Air India
taking over from Brijesh Kumar, whose two-year term had just expired. Mascrenhas colored the news in the best possible light, noting in Air Transport World that Air-India had lost money only "six times in the last 43 years." A planned merger between Air-India and Indian Airlines was canceled in spring 1998. Nevertheless, closer ties between the two carriers remained after the aborted deal. As Air-India cut routes, it maintained code-sharing deals with Air France, SAS, Singapore Airlines, and Austrian Airlines. Still, market share fell from 35 percent to 20 percent in 1997-98. Reducing its annual payroll costs of $40 million was a top priority for Air-India, which had not found sufficient productivity increases to match its generous incentive programs. Air Transport World reported that Mascrenhas trimmed $23 million in other areas. In spite of these savings, Mascrenhas predicted Air-India would not pull out of the red for another two years after projecting a 1997-98 loss of $44 million. To raise desperately needed cash, the airline offered its hotels and two 747 airliners for sale. As the carrier planned for its $150 US/Canada security issue, the Indian government also was considering a rescue

The government of India on 1 march 2007 approved the merger of Air India and Indian airlines. Consequent to the above a new company called national aviation company of India limited was incorporated under the companies act 1956 on 30 march 2007 with its registered office at new Delhi. The merger of the two airlines would enable them to leverage their combined assets and capital better and build a strong and sustainable business. The potential synergies were expected to enhance the new combined airlines profitability by over US$133 million per annum, or about four per cent, of their current combined assets. By 2010-11, when all the new aircraft ordered by the two carriers are inducted into the fleet, the merged entitys employee-aircraft ratio would come be about 200:1, comparable with any major global airline. While Air-India has ordered 68 Boeing planes, Indian has finalized the acquisition of 43 Airbus aircraft. According to the report submitted by Accenture, there will be no manpower rationalization as the consultancy has suggested careful integration of manpower at various levels. It has also suggested a top-to bottom integration of the employees. It is proposed that the pay-scales be revised to bring parity in promotion procedures.
22 | P a g e

Air India
Air India in 2012: Air Indias domestic market share declined from 17.1% in FY2011 to 16.5% in FY2012. International market share also fell, from 19.5% in FY2011 to 18.6% in FY2012. The passenger load factor on domestic routes, however, improved from 66.1% in FY2011 to 68.5% in FY2012. Domestic market share stood at 16.2% in May-2012 with an average load factor of 70.6%. However, Air India experienced a strong 30-35% year-on-year improvement in revenue in the period from Jan-2012 to Apr-2012 as a result of the downsizing of Kingfisher Airlines and due to benefits generated from better integration of the route network. Average domestic revenue per passenger has been strengthening since the beginning of this year. Air India average domestic fares: Jan-2012 to May-2012 Average domestic fare INR4900 INR4950 INR5250 INR5600 INR5400

Month 12-Jan 12-Feb 12-Mar 12-Apr 12-May

The average fares in Apr/May-2012 were approximately INR1050-1100 (USD19-20) higher than the corresponding period last year, equivalent to 23-24%.

MERGER BETWEEN AIR INDIA AND INDIAN AIRLINES:

The government of India on 1 march 2007 approved the merger of Air India and Indian airlines. Consequent to the above a new company called national aviation company of India limited was incorporated under the companies act 1956 on 30 march 2007 with its registered
23 | P a g e

Air India
office at new Delhi. The merger of the two airlines would enable them to leverage their combined assets and capital better and build a strong and sustainable business. The potential synergies were expected to enhance the new combined airlines profitability by over US$133 million per annum, or about four per cent, of their current combined assets. By 2010-11, when all the new aircraft ordered by the two carriers are inducted into the fleet, the merged entitys employee-aircraft ratio would come be about 200:1, comparable with any major global airline. While Air-India has ordered 68 Boeing planes, Indian has finalized the acquisition of 43 Airbus aircraft. According to the report submitted by Accenture, there will be no manpower rationalization as the consultancy has suggested careful integration of manpower at various levels. It has also suggested a top-to bottom integration of the employees. It is proposed that the pay-scales be revised to bring parity in promotion procedures. The aim of the merger was to Create the largest airline in India and comparable to other airlines in Asia. The merger between the two state-run carriers will see the beginning of the process of consolidation in the Indian aviation space - the fastest growing in the world followed by China, Indonesia and Thailand. Provide an Integrated international/ domestic footprint which will significantly enhance customer proposition and allow easy entry into one of the three global airline alliances, mostly Star Alliance with global consortium of 21 airlines. Enable optimal utilization of existing resources through improvement in load factors and yields on commonly serviced routes as well as deploy freed up aircraft capacity on alternate routes. The merger had created a mega company with combined revenue of Rs 150 billion ($3.7billion) and an estimated fleet size of 150. It had a diverse mix of aircraft for short and long haul resulting in better fleet utilization. Provide an opportunity to fully leverage strong assets, capabilities and infrastructure. Provide an opportunity to leverage skilled and experienced manpower available with both the Transferor Companies to the optimum potential. Provide a larger and growth oriented company for the people and the same shall be in larger public interest.

24 | P a g e

Air India
Potential to launch high growth & profitability businesses (Ground Handling Services, Maintenance Repair and Overhaul etc.) Provide maximum flexibility to achieve financial and capital restructuring through revaluation of assets. Provide an increased thrust and focus on airline support businesses. Economies of scale enabled routes rationalization and elimination of route duplication. This resulted in a saving of Rs1.86 billion, ($0.04 billion) and the new airlines will be offering more competitive fares, flying seven different types of aircraft and thus being more versatile and utilizing assets like real estate, human resources and aircraft better. However the merger had also brought close to $10 billion (Rs 440 billion) of debt. The new entity was in a better position to bargain while buying fuel, spares and other materials. There were also major operational benefits as between the two they occupied a large number of parking bays and hangers, facilities which were usually in acute short supply, at several large airports in the country. This worked out to be a major advantage to plan new flights at most convenient times. Traffic rights - The protectionism enjoyed by the national carriers with regard to the traffic right entitlements is likely to continue even after the merger. This will ensure that the merged Airlines will have enough scope for continued expansion, necessitated due to their combined fleet strength. The protectionism on traffic rights have another angle, which is aimed at ensuring higher intrinsic value , since the Government is likely to divest certain percentage of its holding in the near future.

Company profile: Founded Commenced operations Hubs Secondary hubs

25 | P a g e

July 1932 (as Tata Airlines) 15 October 1932 (80 years ago) Chhatrapati Shivaji International Airport (Mumbai) Indira Gandhi International Airport (Delhi) Chennai International Airport (Chennai)

Air India
Netaji Subhas Chandra Bose International Airport (Kolkata) Bengaluru International Airport (Bangalore) Trivandrum International Airport (Trivandrum) Cochin International Airport (Kochi) Rajiv Gandhi International Airport (Hyderabad) Sardar Vallabhbhai Patel International Airport (Ahmadabad) Dubai International Airport Hong Kong International Airport Flying Returns Maharaja Lounge Air India Cargo Air India Express Air India Regional 133(Including subsidiaries) 55 (excl. subsidiaries) Your Palace in the Sky Air India Limited Air India Building, Nariman Point, Mumbai, Maharashtra, India (moving to Delhi in 2013)[1] JRD Tata (Founder)

Focus cities

Frequent-flyer program Airport lounge Subsidiaries

Fleet size Destinations Company slogan Parent company Headquarters

Key people

Vision and Mission and Philosophy: Vision: "To be among top five Asian airlines in terms of Yield, Profitability, Productivity, Size and Quality" Mission: Focus on customer satisfaction. Grow with emphasis on sustained profitability. Provide exciting and satisfying work environment to retain and develop employees committed to corporate vision fours on social responsibility environment and community.

26 | P a g e

Air India
Air India - Logo and Mascot: As it symbolizes movement and speed, the Centaur, a stylized version of Sagittarius, was selected as Air-India's logo. The choice of a constellation was also intended as an allusion to the airline's original long distance routes with Lockheed Constellation aircraft. Air India's mascot, the Maharaja, is a turban clad king with over-sized moustache and a royal dress. "He may look like royalty, but he isn't royal" - these are the words of Bobby Kooka, the man who conceived the Maharajah. This figure first made his appearance in Air-India in 1946, when Bobby Kooka as Air-India's Commercial Director and Umesh Rao, an artist with J.Walter Thompson Ltd., Mumbai, together created the Maharajah. Air India - Passenger Operations : Air India has 44 world-wide destinations. It also has code-sharing agreements with many international airlines to expand coverage. The airline carried 3.39 million passengers during the financial year ending March 2003 and achieved a load factor of 71.6 per cent, substantially higher than the 66 per cent load factor recorded in the preceding year. The airline has received a 4 star rating for cabin safety procedures from skytrax airline quality review. Three classes of seats are offered - First class, Executive class and Economy class. Flat bed seats are offered for first class passengers. The airline also offers a frequent flyer programme alone and in collaboration with many of its alliances. The airline also offers luxury lounges in its ground terminals for its First and Executive class travelers in select destinations within India. Air-India has duty free sale on board its flights effective June 1, 2003 named 'sky bazaar', meaning Market in the sky. Air India - Cargo Operations : In 1954, Air-India started its freighter operations with a Douglas DC-3 Dakota aircraft, giving Air-India the distinction of being the first Asian airline to operate freighters. The airline operates regular cargo flights to many destinations of the world. The airline also has ground truck-transportation arrangements on select destinations.

27 | P a g e

Air India
A member of IATA, Air-India carries all types of cargo including dangerous goods (hazardous materials) and live animals, provided such shipments are tendered according to IATA Dangerous Goods Regulations and IATA Live Animals Regulations, respectively. At the warehouse in Mumbai, Air India has developed an indigenous system of inventory management for cargo handling of import/export functions. This takes care of the entire management of cargo, supports Electronic Data Interface (EDI) messages with Indian Customs and replaces to a great extent existing paper correspondence between Customs, Airlines, and the custodians. This also replaces manual handling and binning of cargo at the warehouse in Mumbai by Air India. Air India Fleet: As of November 2005, Air India's fleet consists of the following 41 aircraft:

21 Airbus A310-300 2 Boeing 747-200 2 Boeing 747-300 13 Boeing 747-400 3 Boeing 777-200 The Air India Board has recently approved an acquisition plan at its meeting held in

Mumbai on April 26, 2005. The acquisition plan envisaged procurement of the following 68 aircraft:

18 Boeing 737-800 aircraft for Air India's subsidiary Air India Charters Ltd. under whose umbrella the low cost airline Air India Express would be run.

8 Boeing 777-200 LR Medium Capacity Ultra Long Range aircraft in three-class configuration (including three options);

15 Boeing 777-300 ER Medium Capacity Long Range-350 seater, in three-class configuration (including five options); and

28 | P a g e

Air India

20 Boeing 787-8 Medium Capacity Long Range-250 seater aircraft in two class configuration (including seven options). Total cost of this acquisition is estimated to be 35000 crores INR (7.5 billion USD). On

15 December, 2005 the Indian Government board approved the purchase of 68 jets from Boeing Corporation. Price negotiations resulted in a $225 million rebate for Air India. The Boeing 777's will have GE-90 engines and the Boeing 787 will have Genx engines. Boeing will set up MRO along with training facilities. The aircrafts will start arriving from 2006 and will go until 2011. Air India - Awards and Recognition:

The Airline entered the Guinness Book of World Records - The largest evacuation by a civil airliner, involving evacuation of over 111,000 people from Amman to Mumbai - a distance of 4,117 km, by operating 488 flights in association with Indian Airlines, during August 13 - October 11, 1990, lasting a total of 59 days. The operation was carried out during Persian Gulf War in 1990 to evacuate Indian expatriates from the region .

The airline received The Mercury Award for the years 1994 and 2003, from the International Flight Catering Association, for finest in-flight catering services.

Air India's security department became the first aviation security organization in the world to acquire ISO 9002-1994 certification(January 31, 2001).

The Department of Engineering, Air India, has obtained the ISO 9002 for its Engineering facilities for meeting international standards.

Competitors of Air India

Jet Airways: In May 1974 Jet air (Private) Limited was founded. In 1991, as part of the ongoing diversification programme of his business activities, Naresh Goyal (founder of Jet Airways) took advantage of the opening of the Indian economy and the enunciation of the Open Skies Policy by the GOI, to set up the company for the operation of scheduled air services on domestic sectors in India. It started its International Operations in the year 2004 and carries more than 7 million passengers per annum. In May 2007, Jet Airways took 100% stake in Air Sahara.

29 | P a g e

Air India

British Airways: British Airways is a full service global airline, offering year-round low fares with an extensive global route network flying to and from centrally-located airports.

Kingfisher : The King Fisher initiated its operations in May, 2005. It is a major Indian luxury airline operating an extensive network to 34 destinations, with plans for regional and long-haul international services. Kingfisher Airlines, through one of its holding company UB holdings Ltd has acquired 26% stake in the budget airline Air Deccan. Presently incurring losses.

Emirates: Emirates is an airline based at Dubai International Airport in Dubai, United Arab Emirates. It is the largest airline in the Middle East, operating over 2,500 flights per week, from its hub at Terminal 3, to 122 cities in 74 countries across six continents. The company also operates four of the world's ten longest non-stop commercial flights from Dubai to Los Angeles, San Francisco, Dallas, and Houston.

30 | P a g e

Air India

SWOT analysis of AIR INDIA:

Strengths of Air India: Air India has been the largest air carrier in India in terms of traffic volume and company assets.

It owns the most updated fleet and competent repairs and maintenance expertise. Its information systems are advanced and compatible with its operation and service. It has a good reputation in both international and domestic markets, quality service and the age-old Goodwill that has still kept it alive in the interests of the rescue operators.

Has financial backing of the Government

Weaknesses of Air India:

31 | P a g e

Air India

Air India is operating across broad international and domestic markets competing with world leading giant airlines as well as local small operators. This lack of clarity on the strategic direction largely dilutes its capabilities and confuses its brand within markets.

Low profitability and utilization of capacity. Growing Competitor base and entry of Low-Cost Carriers (LCCs) The airlines high-cost structure and the compulsions of being a public sector unit are the reasons and it had been making a loss and shall continue to make losses for some more quarters.

Opportunities of Air India:

India airline industry is growing faster and will continue to grow as the GDP increases, and the trend is predicted to continue once the slowdown recedes.

Worldwide deregulations make the skies more accessible; the route agreement is easier to be achieved. The number of foreign visitors and investors to India is increasing rapidly.

Complementary industry like tourism will increase demand for airline service. The Civil Aviation Ministrys strong regulation and protection provides opportunities for consolidation and optimization.

Customers are getting wealthier, tend to be less price-conscious and prefer to choose quality service over cost.

Best time for introducing LCCs

Threats for Air India:

Air India faces imminent aggressive competition from world leading airlines and price wars triggered by domestic players.

32 | P a g e

Air India

The Indian Railway Ministry has dramatically improved speed and services in their medium/long distant routes, attracting passengers away from air service, with prices almost at par with the low cost carriers.

Balance Sheet of Air India (2010- 2011):

BALANCE SHEET AS AT MARCH 31, 2011 Particulars I. SOURCES OF FUNDS : Shareholders Funds : a) Capital b) Reserves and Surplus Loan Funds : a) Secured Loans b) Unsecured Loans Future Lease Obligations TOTAL II. APPLICATION OF FUNDS : Fixed Assets : a) Gross Block Less : Depreciation b) Net Block c) Capital Work-in-Progress Investments : Deferred Tax Assets (Net) : (Ref. Note No. 44) Foreign Currency, Monetary Items Translation Difference Account Current Assets, Loans and Advances : a) Inventories 33 | P a g e Schedule As at March 31,2011 (Rupees in Million) 21,450.00 804.7 22,254.70 107,080.40 198,901.40 305,981.80 120,308.20 448,544.70 As at March 31, 2010

A B

9,450.00 624.8 10074.8 65907.1 184,761.10 250668.2 133,373.80 394116.8

C D E

F 354,408.90 47,282.50 307,126.40 18,964.20 326,090.60 1,320.50 28,425.20 113.3 328,410.50 31,990.60 296419.9 24656.2 321,076.10 1,219.30 28,425.20 99.5

6,759.60

8,677.80

Air India
b) Sundry Debtors c) Cash and Bank Balances d) Other Current Assets e) Loans and Advances Less : Current Liabilities and Provisions a) Liabilities b) Provisions Net Current Assets Profit and Loss Account TOTAL N I J K L M 69,241.10 15,637.90 84,879.00 -30,947.50 123,542.60 448,544.70 55652.5 10929.9 66,582.40 -11,594.20 54,890.90 394116.8 28,376.20 4,164.40 825.2 13,806.10 53,931.50 25,791.10 5,284.70 768.1 14,466.50 54988.2

Air Routes of Air India:

34 | P a g e