Turnaround Strategies
AIR INDIA
In recent past, Air India is suffering from heavy losses. They are undergoing a turbulent time in there operation. Global Aviation Industry is currently going through the most difficult phase. Airlines have collectively lost over US $10.4 billion last year, and are estimated to lose a further US $9 billion this year, of which US $2 billion (Rs 10,000 crores) will be the share of Indian carriers. With Air India operating in a global environment, the national carrier has been impacted as adversely as other airlines the world over.
Hard Facts
Air India has never received budgetary support, except for the initial equity.
Past fleet acquisitions by Air India have always been financed through internal resources. In the past 20 years alone, 41 aircraft worth US $3 billion were self financed.
Air India also inducted leased aircraft to augment capacity, without any government support. Aircraft acquisition after a 15-20 year gap has resulted in a large fleet order and high debt burden.
In the last 3-4 years the entry of low cost carriers has caused the aviation tariff structure to transform from a cost plus to a market driven pricing structure, with capacity exceeding demand.
Internal resource generation in the current context is insufficient to fund aircraft acquisition costs.
MANAGEMENT DIAGNOSIS OF THE PROBLEM
Escalating costs, particularly of ATF.
Fewer passenger numbers, particularly in the premium class.
Low fares with a gradual shift of passengers from legacy full service airlines to low cost airlines.
Decline in carriage of cargo.
Excess capacity in a ‘falling’ market.
Potential for Growth
The Indian Civil Aviation market grew at a compound annual growth rate (CAGR) of 18 per cent, and was worth US$ 5.6 billion in 2008. The Centre for Asia Pacific Aviation (CAPA) has forecast that domestic traffic will increase by 25 per cent to 30 per cent till 2010 and international traffic growth by 15 per cent,
In recent past, Air India is suffering from heavy losses. They are undergoing a turbulent time in there operation. Global Aviation Industry is currently going through the most difficult phase. Airlines have collectively lost over US $10.4 billion last year, and are estimated to lose a further US $9 billion this year, of which US $2 billion (Rs 10,000 crores) will be the share of Indian carriers. With Air India operating in a global environment, the national carrier has been impacted as adversely as other airlines the world over.
Hard Facts
Air India has never received budgetary support, except for the initial equity.
Past fleet acquisitions by Air India have always been financed through internal resources. In the past 20 years alone, 41 aircraft worth US $3 billion were self financed.
Air India also inducted leased aircraft to augment capacity, without any government support. Aircraft acquisition after a 15-20 year gap has resulted in a large fleet order and high debt burden.
In the last 3-4 years the entry of low cost carriers has caused the aviation tariff structure to transform from a cost plus to a market driven pricing structure, with capacity exceeding demand.
Internal resource generation in the current context is insufficient to fund aircraft acquisition costs.
MANAGEMENT DIAGNOSIS OF THE PROBLEM
Escalating costs, particularly of ATF.
Fewer passenger numbers, particularly in the premium class.
Low fares with a gradual shift of passengers from legacy full service airlines to low cost airlines.
Decline in carriage of cargo.
Excess capacity in a ‘falling’ market.
Potential for Growth
The Indian Civil Aviation market grew at a compound annual growth rate (CAGR) of 18 per cent, and was worth US$ 5.6 billion in 2008. The Centre for Asia Pacific Aviation (CAPA) has forecast that domestic traffic will increase by 25 per cent to 30 per cent till 2010 and international traffic growth by 15 per cent,