Professional Documents
Culture Documents
Turnround
Strategy for
Air India
Group 7
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9.2 South African Airlines..................................................................................................18
9.3 Continental Airlines .....................................................................................................18
9.4 Malaysian Airlines .......................................................................................................18
9.5 From the archives .......................................................................................................19
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1 PROJECT DESCRIPTION
Formulate a turnaround strategy for the ailing national airline, Air India.
1.1 BACKGROUND
Air India had borrowed some INR 21,412 crore towards acquisition of new
aircraft, another INR 22,368 crore towards working capital and owes around
INR 2,000 crore to oil retailers, besides facing accumulated losses worth INR
22,000 crore.
In April, 2012, the government of India announced a Turnaround plan (TAP)
and a Financial restricting plan (FRA) to revitalize the ailing national airline.
The government granted the state-owned carrier a performance-linked
bailout package of over INR 30,000 crore. The airline was expected to turn
profitable by FY22.
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2 PROJECT METHODOLOGY
We plan to do a comprehensive external and internal analysis of Air India
and the airline industry in general. Building up on the strengths and
capitalizing on the opportunities, we will formulate a turnaround strategy.
3 INDUSTRY ANALYSIS
The Indian aviation was characterized by just two private players and the Air
India group up to 2002-03. The entry of low cost carriers from 2005 to 2007
changed the landscape of the Indian aviation. Companies competed on
prices, resulting in profitability pressures for many airlines. However, with the
industry undergoing consolidation in 2007-08, competitive intensity
moderated, and by 2013-14 just five players were left in the industry following
the exit of Kingfisher Airlines. In 2014-15, competition has again intensified
with new entrants - Air Costa, Air Asia and Vistara.
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Growth in the Indian economy, low fares and enhanced connectivity are
expected to drive passenger traffic in the near term. Steep decline in crude
oil prices supported by strong demand and high PLF are expected to boost
operating profit of airline companies.
3.4 COMPETITION
Owing to low fuel prices, entry of new airlines and tussle over market share,
the domestic aviation industry has become a fierce battlefield in terms of
fares, quality of service and enhanced connectivity. As a result, flyers are all
set to benefit from varied options at attractive prices.
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4 DATA
4.2 FINANCIALS
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4.3 MARKET SHARE
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4.4 FLEET SIZE
Rupee value against Dollar - If rupee is weak against dollar then more
cost to airlines, as they have to buy ATF in dollars
Price of ATF - A decrease of 10% in ATF price may lead to increase in
EBITDA by 3-5%
Debt, interest on debt
Higher profits help reduce the debt pile
Expat pilot salaries
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Seat occupancy(PLF)
Taxes
Airport Fee
Metro and Non metro routes, can be an advantage or disadvantage
Insurance cost
5 FINDINGS
5.1 SWOT
Strengths Weaknesses
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Opportunities Threats
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5.2 CUSTOMER SATISFACTION
Air India has the worst customer satisfaction performance across all airlines
recording 4.3 complaints per 10,000 passengers. Go Air is next, but has only
1.5 complaints per 10,000 passengers. The industry leader IndiGo reported
0.5 complaints per 10,000 passengers. In fact, the number of complaints has
risen significantly during the last 24 months.
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5.3 OPERATIONS
Air India’s passenger load factor (PLF) has improved significantly. But, a
poor On Time Performance (OTP) has been a cause of worry. Poor customer
experience causes loss of trust and hence lower future passenger load factor.
Air India has a Hub and Spoke model with Mumbai and Delhi as its two major
hubs.
6 CONCLUSION
With a Turnaround plan and a financial restructuring plan already in place,
Air India have had enough funds from the taxpayer’s wallet. Although senior
management at Air India is optimistic of going profitable in a couple of years,
they should not see it as the ultimate goal.
For a turnaround strategy to work, all the measures should be implemented
in sync with each other. A company becomes successful when it uses its
core competency as a competitive advantage.
Air India needs to understand its core competency and communicate the
same to the employees at all levels. Employees need to work at a level no
less than that of employees at a private airline.
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7 RECOMMENDATIONS – TURNAROUND PLAN
We have put in our recommendations in a Turnaround framework:
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Government of India
Board of directors
High
Aircraft
On time
Utilization performance
Least
Efiicient Operational Customer
MRO Turnaround
Efficiency satisfaction
time
Loyalty In flight
incetives Services
Young
aircraft
fleet
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7.5 CRITICAL PROCESS IMPROVEMENT
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9 INSIGHTS
Insights from successful turnarounds:
9.1 SRI LANKAN AIRLINES
40% disinvestment to Emirates in 1998
20% reduction in staff with a restructuring exercise
partnership with the tourism ministry
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9.5 FROM THE ARCHIVES
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