Chapter 10: Corporate Strategy: Diversification, Acquisitions, and Internal

New Ventures
Expanding Beyond a Single Industry
Hotel Corporation of India Limited (HCI):
India Hotel Group Ltd. (HCI) is a public limited company wholly owned by Air India Limited. It
was established in 1956 under the Companies Act in 1971, when Indian Airlines decided to enter
the hospitality industry to maintain the prevailing trend. Between world airlines. The goal is to
provide passengers with better products, including international airports and other tourist
attractions, which has also increased tourism to India. However, in 2002-03, three properties of
HCL, namely Indo-Hokke Hotel Co., Ltd. (Centaur Hotel, Rajgir), Centaur Hotel, Juhu Beach and
Centaur Hotel, Mumbai Airport were sold. The remaining HCI units are Centaur Hotel, Delhi
Airport, Centaur Hotel Lakeview, Srinagar and Delhi Kitchens at Delhi and Mumbai.

Thoughts on advantages as well as disadvantages:

 The concept of product bundling works here. It involves giving customers the opportunity to
buy a full range of products at a single price.
 This adds value to the company's product line because customers typically get a price discount
from buying a set of products and are used to dealing with only one company and its
representatives.
 It also supports industry models in its core industries.
 However, the model cannot be sustained due to poor management of funds and lack of
expertise and debt burden forcing companies to sell many of their assets.
 The airline is currently indulging in restructuring, the process of divesting the business and
exiting the industry to focus on the core unique capabilities.

Increasing Profitability through Diversification

Subsidiaries
Air Cargo India: A member of Air India, carrying all types of cargo, including dangerous goods
(dangerous goods) and live animals, provided that they are under the IATA Dangerous Goods
Regulations and the IATA Live Animals Regulations. "Tendering." In the warehouse in Mumbai,
Air India developed an inventory management system for the handling of import and export
functions. It is responsible for the entire cargo management, supporting Indian Customs electronic
data interface (EDI) information and largely replacing existing paper correspondence between
customs, airlines and custodians. This also replaces the manual handling and cargo packing of
Indian Airlines' warehouses in Mumbai. It takes advantage of improved scheduling.

Air India Express: Air India Express is the airline's low-cost subsidiary which was established in
2005 during the aviation boom in India. It operates scheduled passenger services primarily to the
Persian Gulf and South East Asia. Air India Express is currently the only airline in Air India
Limited which posts profits. It operates a fleet of Next Generation Boeing 737-800 aircraft.

Air India Regional: Air India Regional (formerly known as Alliance Air) serves mainly on
regional routes. Its main hub is Delhi's Indira Gandhi International Airport.
These are actually helpful in maximizing the learning effects, increasing brand loyalty and also
increasing the share or revenue of the airline on a whole.
Alliance Air operates air services to 53 destinations with a fleet of 16 ATR 72-600 (70-Seater) and
2 ATR 42-320 (48-Seater) aircraft.
Air India Charters Limited: Air India Charters Limited operates a low-cost airline under the
brand name Air India Express. It offers scheduled flight services mainly between Tier-2 and Tier-
3 cities in India and destinations in Gulf and South East Asia. The company was incorporated in
1971 and is headquartered in Kochi, India. Air India Charters Limited operates as a subsidiary of
Air India Limited.
Air India Air Transport Services Limited: Air India Air Transport Services Limited provides
ground handling services. The company was incorporated in 2003 and is based in Mumbai, India.
Air India Air Transport Services Limited operates as a subsidiary of Air India Limited.
Air India Engineering Services Limited: Air India, the Country's proud flag carrier, also has the
`biggest' MRO set up in India that can serve as a One-Stop-Shop for all Engineering requirements.
Air India Engineering Services Limited (AIESL), a wholly owned subsidiary company of Air
India Limited was formed on 11th March 2004. Presently, AIESL is approved by the DGCA
under the purview of CAR-145 which carries with it nomination and acceptance by the DGCA of
additional Managers (Base Maintenance, Line Maintenance and Workshops) who are competent
and experienced in the area of their work.
AIESL policy is to be self-reliant in areas of Aircraft Maintenance (Line and Base Maintenance),
Preventive Maintenance, Alterations or required Inspections, overhaul of aero engines and
components and accessories and specialized services NDT etc.
AIESL comprises of huge infrastructure to cater to Line Maintenance, Base Maintenance, Engine
Overhaul, Accessories Overhaul and Component Overhaul activities as per capability at main
bases and line stations.
AIESL provides Base Maintenance facilities at Mumbai, Delhi, Kolkata, Hyderabad,
Thiruvananthapuram and Nagpur Airports. These locations also have specialized overhaul shops
and are equipped with the necessary hangars, workshops, storage rooms and office buildings, in
accordance with national and international regulations and requirements.
AIESL also provides Line Maintenance Facilities at various Indian as well as International
Stations. It offers exclusive maintenance services to Third Party Customers.

Entry Strategy
Acquisitions
As part of the merger process, a new company called National Airline of India (NACIL) was
formed, in which Indian Airlines (along with Air India Express) and Indian Airlines (and Alliance
Airlines) merged. On February 27, 2011, Indian Airlines and Indian Airlines merged with their
subsidiaries to form Air India Limited.

It turns out that although the combined entity is still touted, there are still losses, which makes
people wonder whether it is feasible to maintain a national airline under taxpayer spending. In the
case of economic fluctuations and high oil prices, the debate continues.

Restructuring
In order to attract passengers, the airline launched the latest printing event called “Jaldi Jaldi”,
which offers discounted fares for domestic travel. It also launched an extension of the short-term
promotional plan Silver and Platinum pass in September this year. Air China spokesperson G. P.
Rao said that in addition, the airline also launched an advertising campaign and the Delhi Metro,
and increased the frequency of its film brand promotion.

In addition, according to the company's statement, airline passenger traffic increased by 23% in
August and passenger revenue increased by 11% in 2017-18. This is the outlook after management
restructuring and improvement.
Chapter 11: Corporate Performance, Governance, and Business Ethics
Agency Theory

Air India- Union relationship

Indian Airlines (AI) has a close relationship with the Airline Employees Alliance (ACEU), which
is banned from use because of unjustified indulgence in strikes. The head of the union elected by
the state-owned airline is protesting, claiming that the management sent a letter acknowledging
that it is not a full-time employee.
Following the strike,

 The airline sacked 58 union members of the ACEU and All India Aircraft Engineers
Association.

 They have held signature campaigns, seeking employees‟ support. The management has
been encouraging this exercise to split the ACEU which had opposed several of its policies.

 AI committees have lost faith of the ACEU members.

 The management is playing games. It misrepresented before the high court.

From these we can infer that there is dirty politics being played both by the management and the
employees.

Air India – Pilots relationship:

Pilots are also not satisfied with the management policies. The agitating executive pilots of Air
India called off strike only after the government gave an assurance that status quo will prevail on
cost cutting measures relating to productivity-linked incentive (PLI).

Governance Mechanisms

Board of directors
 Shri Pradeep Singh Kharola
Board Chairman and Managing Director,
Air India Ltd.

of Ms Gargi Kaul
Addl. Secretary and Financial Advisor

Director Ministry of Civil Aviation

Shri Satyendra Kumar Mishra
Joint Secretary,
Ministry of Civil Aviation
Mr. Vinod Hejmadi
Director - Finance,
Air India Ltd.
Dr. Ravindra Kumar Tyagi
Independent Director,
Air India Ltd
Shri Syed Zafar Islam
Independent Director,
Air India Ltd
Smt Daggubati Purandeswari
Independent Director,
Air India Ltd
Shri Y C Deveshwar
Independent Director,
Air India Ltd
Shri Kumar Mangalam Birla
Independent Director,
Air India Ltd

The current financial state of Air India has led to widespread speculation about the airlines ability
to survive. While diehard loyalists are hopeful that the government, in its capacity as 100% owner,
will never allow it to go bust, independent industry analysts are not as optimistic and are in fact
willing to set a timeframe up to which the national carrier can possibly survive, or be allowed to
survive.

The government’s response to the crisis in Air India has been ill thought-out and grossly
inadequate. The action initiated does not reflect the sense of urgency that is warranted.
The new board consists of Men of equal integrity, competence and proven track record have in the
past been appointed on the boards of Air India and Indian Airlines. Since the airlines have
witnessed a gradual and sustained decline in service standards, market share, etc, over the years
without showing signs of recovery, one should not expect too much from this exercise of
appointing new directors.

How much difference did their presence make to the fortunes of the airlines?

A review of the recent past shows that eminent personalities from the private sector have been
directors of one of the two airlines before their merger. Ajit Kerkar, the then head of the Taj Group
of Hotels, industrialist Suresh Keswani, Inder Sharma of Sita Travels and actor Jaya Bachchan, to
name a few, have been on the board of Air India at one time or the other. The national carriers
have also had stalwarts like Ratan Tata, Rahul Bajaj and Russi Modi as chairmen.

In all fairness to them, one can state with a certain degree of authority that most of the time the
civil aviation ministry has been engaged in backseat driving. Internal resistance to much needed
changes has also compounded the problem. What is needed is not new members (with no offence
intended to the new appointees) but good corporate governance. The board cannot have members
with little or no understanding of the airline industry’s functioning and the ground realities that
exist in Air India. It is one thing to take decisions that are deemed critical and imperative and
another thing to ensure the implementation of such decisions.

How much independence will the newly-appointed members exercise for approving and rejecting
proposals for the sake of the company’s well-being? One is tempted to raise this question because
notwithstanding the pitiable financial state that the airline has been in for the past few years,
decisions with enormous financial ramifications have been taken by the board, either voluntarily
or under some compulsions thrust on them.

Good corporate governance at the board level should also ensure that calls from ministry officials
or the minister himself are not entertained during board meetings for diktats on what decisions the
board must take on key agenda matters. This disdainful practice of tendering last minute advice
(read: order) has been on for almost two decades. Needless to say, intervention comes in most
cases where someone else’s interests supersede that of the airline.

What will be of significance, therefore, will be to see how the new board members approach the
present crisis. In the past, most members of the board have played roles which can be broadly
classified into three categories.

a) Guided Air India’s destiny with active participation;

b) Been indifferent and attended meetings more as a ritual; and
c) Used Air India for benefiting their respective companies.

Needless to say, most private members, based on their performance, would see themselves
classified in the last two categories as they have generally failed to make an impact that is expected
of them. As the new members have been appointed at a time when Air India‟s ability to survive is
being questioned, it is only to be hoped that they will play a role, notwithstanding the infirmities
in the system, which can help save the national carrier.

With time being the greatest factor, the four new members should play their parts fearlessly with
the airline’s interest being the sole guiding force. Indians, particularly Air Indians, serving or
retired, will watch their performance with keen interest because Air India is not just any company
but has been an institution which in the yester years had evoked a lot of national pride.

Here’s wishing the new members from the private sector all the best and hoping that they will
reverse the historical trend which is heavily loaded against them and help steer the airline out of
turbulence.
Financial statement and Auditor:
CAG blasts ministry for Air India mess:

Excerpts summarizing the tussle between CAG and AI:

 The national auditor said Accenture, the consultant asked to prepare the merger plan, did
not do enough work on the move's financial implications.
 CAG did not agree with the theory that the merger was initiated by AI or IA in April 2006.
 'Top down'; the ministry directed the erstwhile AI to appoint a consultant for the process.
 The ministry failed to do a good monitoring job.

Ethics and Strategy

Lethargic work environment:
Casual work ethics is always causing concerns. Delayed decision and wrong loss are the reason
why air India accounting for just 0.35 % of global traffic is making 10% total loss of aviation
industry in the world.
Strengths Never Leveraged
AI Engineering: Excellent maintenance facilities with airplane, engine and avionics shops. Only
such certified outfit in the entire sub-continent. The hangars and 5,000-strong team of trained
manpower was never used optimally.
AI Cargo: Half a century of cargo operations around the world. With domestic linkages, it could
have cashed in on India’s growth. Lost to Emirates, Cathay and Lufthansa.
AI Ground Handling: Handled dozens of foreign airlines. Marginal investment, training and
customer orientation could have made it impossible to beat.
Poor Leadership
Since 2003, Air India has been run by IAS officers with no experience of running a complex,
global business. The last incumbent, Arvin Judah, was secretary of industries in Karnataka and his
predecessor V. Thulasidas was the chief secretary of Tripura. Rivals like Jet Airways hired expat
management. The AI chiefs looked to their super boss, the secretary of civil aviation, for direction.
Ministers Ananth Kumar, Sharad Yadav, Shahnawaz Hussain and Praful Patel, who were at the
helm when the decline was the steepest, have never been able to put the airline on the course to
recovery.
People Trouble
Union Grip: 19 unions with political links have wrested control from the management over the
years.
Bad Agreements: Lopsided agreements make it impossible to push for higher productivity.
Poor Work Ethics: Over the years, little pride in working for the airline and a sense that the
politicians (and management) are responsible for all problems. Pilots struck work in May 2011 for
more pay, even as accumulated losses were touching Rs. 20,000 crore.
No New Hires: No fresh hiring (except pilots and crew) has taken place for about 18 years.

Wrong Commercial Calls

New Planes: Brand new, well-fitted B777s and A320s could never be leveraged for higher fares.
The non-stop flights connecting India and the US had the best timings but flights were losing
money until recently.
Low Fares: Lost its image for business and first-class passengers. Began morphing into an airline
focused on labour traffic between India and the Middle East.
Wrong Routes: Wrong calls on routes with many of them being operated because of political
reasons.
Merger Mishap: Integration between AI and IA is still a distant dream.

Unethical business practices:

Some notable unethical behaviours of Air India are:
 Cancellation of booked tickets without any prior information.
 Freezing employee’s salaries for a considerable duration of time without any prior notice.
 Air India has first right for overseas flights. Air India is neither using the rights nor allowing
other players to operate planes using those rights. There is no mechanism by which Air
India can sell those rights at a fixed cost. This is bad for Industry which is already sick.
Further if such practices are followed by other public sector Industries it would become
bad for the Nation.
 An Air India flight crash landed at the Mangalore airport during 2010. Most of the 166
passengers abroad were killed. But Air India restrained from paying a petty compensation
of Rs. 75 lakhs in total to all the passengers. Air India appealed against the high court order
for compensation.
Conclusion
Air India chief Rajiv Bansal, who has been appointed as the interim Chairman and Managing
Director of Air India is working on ways to improvise the airline’s on time performance (OTP)
and reduce costs on various fronts prior to the sale of its stake.
Due to the above followed strategies by Air India, the following results have been obtained in the
FY 2017-2018:
 Air India operating revenues for 2017-18 that are around 20% higher than those for the
previous year when they were Rs 21,859 crore. However, the operating profit is likely to
be lower than in 2016-17, thanks to rising fuel costs. The airline witnessed a threefold hike
in operating profit to Rs 298 crore in FY17.
 Traffic: Passenger traffic grow by 20.6% in 2017-18 while cargo traffic expands by
18.9%. Over the first quarter, the industry was growing at an annualized rate of 9% for
passenger and 26% for cargo.
 Yields: Yields are now forecasted to grow by 4.5% for both the cargo and passenger
business. The 4.5% rate is just ahead of consumer price inflation. This is contribution
strongly to 13% rise in revenues forecast for 2018.
 Load Factors: The average improvement of 10.2% with 5.4% increase in capacity.
 On Time Performance of Air India is 67.5%.