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Rediff.com  » Business » SpiceJet's revival has lessons for Air India

SpiceJet's revival has lessons for Air India

July 09, 2015 13:58 IST

It is imperative that the government first decides who should assume ownership of running Air India, notes Jitender Bhargava.

Image: SpiceJet has almost scripted a successful turnaround story.. Photograph: Reuters
 
 

Barely six months ago, SpiceJet was in a state of crisis with an uncertain future.

Fleet and network had shrunk, market share was down, lessors were demanding back aircraft for non-payment of lease rentals, and service providers like Airports Authority of India and oil companies had suspended credit lines seeking payment of outstanding dues.

Kingfisher Airlines' collapse was fresh in the minds of all. No questions on SpiceJet's ability to survive are, however, being raised today as the airline has almost scripted a successful turnaround story.

Image: Air India has also been in a state of crisis for years. Photograph: Reuters
 
 

Air India has also been in a state of crisis - for years now. Questions, however, continue to be raised on its ability to survive without the periodic infusion of funds by the government.

What is it that makes the crisis story of the two airlines so different? First, it is a question of assuming ownership. While in the case of SpiceJet, Ajay Singh, who returned as a promoter and infused funds, assumed ownership, one is not so sure in the case of Air India.

One is, in fact, befuddled as to who is indeed running the airline? Is it one of the two ministers, the cabinet and the minister of state, the bureaucrats in the civil aviation ministry or the management headed by a bureaucrat - all with no experience of aviation sector or running a commercial entity?


Image: SpiceJet reduced debt, consolidated finances now. Photograph: Reuters
 
 

Second is the question of taking drastic measures, however unpalatable, to put the airline on track.

SpiceJet has clearly followed one of the successful global turnaround stories - it reduced debt, consolidated finances and then systematically began expanding fleet and network.

It is hoping to regain market share that it commanded before it was engulfed in a state on crisis in the not-so-distant future.

Air India, on the other hand, has been following a turnaround plan formulated by a committee, which lacked experience and accountability, but generously backed it with a Rs 30,000 crore (Rs 300 billion) financial package.

Image: Launch of new flights shows lack of experience. Photograph: Reuters
 
 

A committee is now said to be reviewing the implementation - successful or otherwise - of a turnaround plan due to change in market dynamics, as if market environment has ever remained static. With no clarity on ownership and accountability whatsoever, the airline continues to register huge losses and miss turnaround targets by quite a distance.

Even as successful turnaround stories underlined the need for controlling debt by temporarily downsizing operations, fleet and network, Air India has been regularly inducting B787s as if funding for acquisition of more aircraft is not an issue. Qantas, the Australian airline, which has been in a better financial state than our national carrier, deferred deliveries of B787s two years ago so that finances could be consolidated.

Regular induction of new aircraft has also meant that they need to be deployed and hence, Air India has been launching new flights - all of which have proven to be unprofitable thus adding to the burgeoning losses.

Image: Old experienced Air India hands had cautioned the management before these flights were launched. Photograph: Reuters
 
 

The launch of new flights also demonstrated lack of experience in good measure. After sustaining three-digit losses in less than a year, the schedule of new flights has been changed thus raising questions as to why it couldn't be done in the first place?

The Moscow flight is no longer a daily flight but only four times a week, the daily Delhi-Sydney-Melbourne flight now operates thrice weekly to Sydney and three times a week to Melbourne on different days.

As if failure to reduce losses in spite of increased use of fuel efficient B787s by underutilising B777s on international routes and depressed aviation turbine fuel (ATF) prices wasn't good enough to set alarm bells ringing, the airline management is said to be thinking of launching flights to new destinations like Houston and San Francisco in the USA.

Image: Government must decides who should assume ownership of running Air India. Photograph: Reuters
 
 

If flights to high-density routes like New York, to which the airline has been operating services for more than five decades, and Chicago, have failed to generate a modest surplus even in the best of times, will new routes be profitable?

Clearly, the architects of the new flights, who over-optimistically projected revenues, load factors and profitability for the purpose of seeking approval but eventually saw them turning out to be grossly unrealistic, need to be held accountable.

To describe such decisions as bonafide, which went wrong because of market dynamics, will be unfair as old experienced Air India hands had cautioned the management before these flights were launched.

Image: Government has failed to find a chairman for Air India. Photograph: Reuters
 
 

It is imperative that the government first decides who should assume ownership of running Air India. Who should be credited with success or held responsible for fiascos that are harming the airline?

The uncertainty is proving to be disastrous just as the failure of the government to appoint a Chairman has. The current incumbent's term had ended in August last year but was allowed to continue as the government failed to find a suitable successor.

It still hasn't found one and the latest is that a committee headed by a person no less than the cabinet secretary has been entrusted with the task of finding a suitable head for Air India.

The committee needs all the good wishes and luck because the task is not only formidable but also because the old appointment practice of 'anyone from the IAS is good enough' will simply not work if the decline in Air India's fortunes is to be stemmed before being put on a northward trajectory.

The writer is former executive director, Air India, & author of 'The Descent of Air India'.

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