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Air India hopes to take flight with Star Alliance

Publication Date : 10-07-2014


India's flag carrier Air India joins the world's largest airline grouping Star Alliance tomorrow, the first big piece of good news for the beleaguered airline in years.

The Indian government and management of the state-run company see this as a major milestone in the path to revive the airline that is steeped in losses and is unable to fight domestic and international rivals.

Air India will become the 27th member of Star Alliance, which includes Lufthansa, Singapore Airlines (SIA) and United, among others. It is hoped that the global network of the grouping will boost business and ensure that Air India adheres to its benchmarks.

But industry experts and analysts feel Air India's problems run too deep to be solved by just joining a new alliance. While membership of the alliance could improve its poor image to an extent, the only hope for the airline is privatisation, they say.

"This is a major new chapter for us and it will expand our international reach like never before," a senior Air India official told The Straits Times on condition of anonymity, as he is not authorised to speak to the media.

"Star Alliance members will also gain as they will get much better access to India through our network. This will increase our revenues and help cut costs."

Indian civil aviation minister Ashok Gajapathi Raju Pusapati told parliament on Tuesday that Air India has in fact begun turning the corner, and that its revenues and passenger numbers climbed in the financial year that ended on March 31.

Passenger revenue, he said, rose 14.45 per cent to 143 billion rupees (US$2.42 billion), net loss marginally narrowed to 54 billion rupees ($903,600 million) and the number of passengers grew 8.5 per cent to 15.3 million.

Membership of the Star Alliance, Pusapati added, could increase revenues by 4 per cent to 5 per cent.

Air India and its erstwhile domestic counterpart Indian Airlines, had a monopoly of the Indian market until private carriers were allowed entry in the early 1990s.

The two carriers, which were merged under the Air India brand in 2007, have traditionally been known for their poor service.

Experts blame this on mismanagement by politicians and bureaucrats, a bloated and inefficient workforce and inadequate attention to modernisation.

Over the years, Air India has seen its domestic market share erode and it now hovers between the third and fourth position, flying less than 20 per cent of all passengers.

Internationally too it has lost out to more reputed players such as Emirates, Lufthansa and SIA.

Losses have mounted and so has debt. Its accumulated losses are estimated at 380 billion rupees ($6.36 billion) and debt at 490 billion rupees ($8.20 billion).

In 2012, the government announced that it would inject about 300 billion rupees ($5.02 billion) into Air India over nine years to support a turnaround plan.

The airline has already received about 120 billion rupees ($2 billion) of that amount, which has not made much of a difference to its performance.

Analysts say the performance parameters of the airline are shocking when compared to other Star Alliance members.

According to AirInsight, a consulting group based in the United States, Air India ranks last in terms of passengers per employee and revenue per employee, and last but one, after Thai Airways, in terms of the number of employees per aircraft.

"The net result is quite clear. Air India would be the worst-performing and lowest-productivity airline in the Star Alliance," AirInsight said in a report in April.

Indian analysts are also sceptical.

"To me, it does not mean much," Jitender Bhargava, a former executive director of Air India and author of the book The Descent Of Air India, told The Straits Times, referring to the Star Alliance membership.

"The pressure from Star Alliance could help Air India enhance its product. But the question is: If the threat of losing market share did not compel Air India to improve and invest in the product over the years, will membership of Star Alliance motivate it to do that?" Bhargava asked.

Amber Dubey, partner and India head of aerospace and defence at consultancy KPMG, said all that the Star Alliance membership has done is increase the valuation of Air India.

But the unfortunate truth is that the government cannot be in the business of running airlines, he said.

"Air India has a good management team in place but government interference and legacy issues are just too many. The best option for Air India, its employees and for Indians at large is to privatise it.

Someone has to bite the bullet. Maybe the new government can, given the huge mandate it has," Dubey told The Straits Times.

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