This document provides an overview and analysis of Air India, India's national airline. It discusses Air India's history, present status in the industry, business areas, organizational structure, and an overview of the aviation sector. It then analyzes Air India's vision, objectives, strategies, and corporate governance. It examines Air India's external environment using Porter's 5 forces model and an analysis of key success factors. Finally, it evaluates Air India's resources, competitive strategies, long-term strategies, strategy implementation, strategic control issues, and provides a long-term SWOT summary.

1. October 10
Term Paper
(Air India)
2011
Strategic
By Shannon Fernandez (Roll No. 18) Management
(10MBA31)

2. Introduction ........................................................................................................................................ 3
1.1 History: ...................................................................................................................................... 3
1.2 Present status in the Industry: .................................................................................................. 4
1.3 Business areas and services: ..................................................................................................... 4
1.4 Organization structure: ............................................................................................................. 5
1.5 Overview of the Aviation Sector: .............................................................................................. 5
Strategy of Air India ........................................................................................................................... 6
2.1 Vision and Mission statements: ................................................................................................ 6
2.2 Current Objectives: ................................................................................................................... 6
2.3 Current Strategies: .................................................................................................................... 7
2.4Corporate Governance: ............................................................................................................. 7
External Environment of Air India ..................................................................................................... 7
3.1 Industry Driving forces: ............................................................................................................. 7
3.2 Analysis of the competitive environment (Porter’s 5 Forces model): ...................................... 8
3.3 Performance against the Key Success Factors: ......................................................................... 9
The Resource Based Analysis of the company .................................................................................. 10
4.1 Short term SWOT analysis of Air India: ................................................................................... 10
4.2 The Value Chain: ..................................................................................................................... 11
Competitive Strategy Analysis .......................................................................................................... 12
5.1Generic Strategies: ................................................................................................................... 12
5.2 Strategic alliances: .................................................................................................................. 13
5.3 Mergers & Acquisitions: .......................................................................................................... 14
5.4 Outsourcing Strategies: ........................................................................................................... 15
Long Term Strategy Analysis ............................................................................................................. 15
6.1 Probable Grand Strategies: ..................................................................................................... 15
6.2 Innovation strategies: ............................................................................................................. 16
6.3 BCG Matrix: ............................................................................................................................. 17
Strategy Implementation .................................................................................................................. 17
7.1 Analysis of Leadership............................................................................................................. 17
7.2 Company Culture: ................................................................................................................... 18
7.3 Ethics and Corporate Social Responsibility: ............................................................................ 18
Strategic Control Issues .................................................................................................................... 20
8.1 Control systems in the company:............................................................................................ 20
8.2 Effectiveness of Control: ......................................................................................................... 21

3. Long term SWOT summary of Air India .......................................................................................... 21
9.1 Strengths: ................................................................................................................................ 21
9.2 Weaknesses: ........................................................................................................................... 22
9.3 Opportunities: ......................................................................................................................... 23
9.4 Threats: ................................................................................................................................... 24
Conclusion ........................................................................................................................................ 24
Recommendations ............................................................................................................................. 24
References: ................................................................................................................................... 25
Introduction
1.1 History:
Air India was founded by J.R. D. Tata in July 1932 as Tata Airlines, a division of
Tata Sons Ltd. (now Tata Group). On 15 October 1932, J. R. D. Tata flew a single-
engined De Havilland Pus Moth carrying air mail (postal mail of Imperial Airways)
from Karachi's Drigh Road Aerodrome to Bombay's Juhu Airstrip via Ahmedabad.
The aircraft continued to Madras via Bellary piloted by former Royal Air Force Pilot
Neville Vincent. In 1932 Air India was based out of a hut with a palm thatched roof
at Juhu Aerodrome and had 1 pilot and 2 apprentice mechanics along with 2 piston-
engined aircraft, one Pus Moth and one Leopard Moth aircraft.
Following the end of World war II, regular commercial service was restored in India
and Tata Airlines became a public limited company on 29 July 1946 under the name
Air India. In 1948, after the independence of India, 49% of the airline was acquired
by the Government of India, with an option to purchase an additional 2%. In return,
the airline was granted status to operate international services from India as the
designated flag carrier under the name Air India International.
On 25 August 1953, the Government of India exercised its option to purchase a
majority stake in the carrier and Air India International Limited was born as one of
the fruits of the Air Corporations Act that nationalized the air transportation industry.
At the same time all domestic services were transferred to Indian Airlines (now
renamed as Indian). In 1954, the airline took delivery of its first L-1049 Super
Constellations and inaugurated services to Bangkok, Hong Kong, Singapore and
Tokyo.
Air India International entered the jet age in 1960 when its first Boeing 707- 420,
named Gauri Shankar, was delivered. Jet services to New York City via London were
inaugurated that same year on 14 May 1960.
On 8 June 1962, the airline's name was officially truncated to Air India. On 11 June
1962, Air India became the world's first all-jet airline.
In 1993, Air India made history by operating the first non-stop flight between New
York City and Delhi.

4. In May 2004, Air India launched a wholly owned low cost airline called Air India
Express.
In 2001, Air India was put up for sale by the then NDA Government. One of the bids
was by a consortium of Tata Group: Singapore Airlines. However the re-privatization
plans were shelved after Singapore Airlines pulled out and the global economy
slumped.
In 2007, the Government of India announced that Air India would be merged with
Indian Airlines. As part of the merger process, a new company called the National
Aviation Company of India Limited (NACIL) was established, into which both Air
India (along with Air India Express) and Indian Airlines (along with Alliance Air)
will be merged. On 27 February 2011, Air India and Indian Airlines merged along
with their subsidiaries to form Air India Limited.
1.2 Present status in the Industry:
Air India is flag carrier airline of India. It is part of the Government of India owned
Air India Limited (AIL). The airline operates a fleet of Airbus and Boeing aircraft serving
Asia, Australia, Europe and North America. Its corporate office is located at the Air India
Building at Nariman Point in South Mumbai. Air India has two major domestic hubs at Indira
Gandhi International Airport and Chhatrapathi Shivaji International Airport. An international
hub at Dubai International Airport is currently being planned.
Air India has the fourth largest share in India's domestic air travel market, behind Jet
Airways, Kingfisher and Indigo. Following its merger with Indian, Air India has faced
multiple problems, including escalating financial losses and discontent among employees.
Between September 2007 and May 2011, Air India's domestic market share declined from
19.2% to 14%, primarily due to stiff competition from private Indian carriers. In August
2011, Air India's invitation to join Star Alliance was suspended due to its failure to meet the
minimum standards for the membership.
AI serves 49 domestic destinations and 26 international destinations in 19 countries
across Asia, Europe and North America., and has a fleet of 103 aircrafts +30 orders.
1.3 Business areas and services:
Air India main business is in the area of air transport. They focuses on quality and
premium traffic airline customers, although they also have economy/ low price services
through their subsidy Air India express in the passenger segment.
Air India also operates in the air cargo segment (freight), although this area is not part
of their main focus.
Other services provided by Air India include online booking, E-ticketing, engineering
services, Charter services and Hospitality services.

5. Air India also owns the Hotel Corporation of India (HCI) which includes the Centaur
Group of Hotels (Luxury hotels that are strategically located near International and other
major airports in India).
1.4 Organization structure:
Chairman and Managing Director (Rohit Nandhan)
Directors: Chief Vigilance officer (Urmilla Subbarao)
Engineering (VK Sharma)
Commercial
Executive Directors (ED) under Commercial:
Related business (Anmod Sharma)
Customer service (Anup Srivastava)
Headquarters (GD Brara)
Finance/ Legal (SK Kundra)
Integration/ Industrial relations (Vineetha Bhandari)
Training (Rakesh Ananad)
Operations (AS Soman)
Medical (LP Naklwa)
Personnel (Deepa Mahajan)
Flight safety (Subodh Nigam)
Sales & Marketing (S Rotkar)
Engineering (RR Rao)
Regional EDs: Western Region (AK Sharma)
Eastern (R Dayal)
Southern (Sunil Kishen)
Northern (Vijay Paul)
Marketing India Region (KD Row)
Piloting Crew
In flight Services
Technicians
Ground Staff
1.5 Overview of the Aviation Sector:
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. The existing downturn is expected to
continue.

6. In spite of the current global scenario, the Indian aviation sector is one of the fastest growing
aviation industries in the world, based on growth patterns observed over the last few years.
The government‟s OPEN SKY POLICY has lead to many overseas players entering the
market and the industry has been growing in terms of customers and in number of aircrafts.
Private sector accounts for around75% of the domestic market share. India is the 9th
largest aviation market in the world according to the Ministry of Civil Aviation. It can easily
inch up to 3rd position by 2020 if it continues to grow as it is.
It is predicted that passengers in the international segment will grow up to 15 million by
2015. Some 10 years ago, there were just 2 airline operating in India- Indian Airlines in the
domestic scene and Air India on the international scene. Today, there are many more
prominent domestic players on the scene.
Some of the main issues affecting the sector currently are:
• Spotlight on Oil Prices that have been continually and rapidly rising as of late.
• The growth of business travel over that of leisure travel.
• "Unbundling" of costs usually bundled in ticket prices, i.e. in order attract customers
with lower prices, carriers are charging only for basic services and facilities and for
services that were normally offered like on flight food, extra baggage space etc.
would be charged extra.
• Air Traffic Management Issues are plaguing the sector like norms over the routing
followed by the carriers.
• History of Airline Bankruptcies Raises Risk Concerns For Investors.
Strategy of Air India
2.1 Vision and Mission statements:
A thorough online scan reveals no recorded references to vision or mission statements
for Air India as such. However, Gustav Baldauf, Air India‟s new Chief Operating Officer has
started the Herculean task of the white elephant direction. Air India is yet to spell out its
mission statement, the implementation of which will set the ball rolling in reducing the
massive debt that the airlines is sitting on.
There is a need to realign the company and give Air India a new vision, which the COO
states that when released, will make everybody, including the Government happy. The vision
would focus on making the company a stronger player in the domestic market.
2.2 Current Objectives:
Focus on execution, accountability, cost reduction and revenue generation.
Adopt international best practices in airline operations, MRO activity, airline terminal
services, cargo, aviation skills development, corporate governance and HR.

7. Be accountable to the stakeholders.
Manpower rationalization to achieve industry benchmarks. Utilization of assets and
operating/ technical crew as per DGCA (Directorate General of Civil Aviation).
To adopt a robust Enterprise Risk Management framework to eliminate redundancies
and minimize dilution of revenues.
2.3 Current Strategies:
• Operational restructuring
– Cost Reduction
– Revenue Enhancement
• Financial Restructuring
– Focus on „Survival‟ – Focus on reducing losses – Healthy operating margins
– Deliver the „future‟ Air India
• Additional Public Offer
• Public
• Indian Financial
Institutions
• QIPs
• Business restructuring
– low cost model,
– Subsidiaries for Cargo, MRO etc.
• Brand building &
Makeover
• Preparation for IPO
• Adopt a robust Enterprise Risk Management framework to eliminate redundancies and
minimize dilution of revenues
2.4Corporate Governance:
As a government owned firm, Air India has a very high level of corporate governance,
transparency and accountability.
There are checks and balances in place on all the activities carried out by the organisation
through government bodies like the Comptroller and Auditor General of India (CAGI),
Chief Vigilance Commission (CVC), the Ministry of Civil Aviation (MCA), regulatory
authorities and the government.
External Environment of Air India
3.1 Industry Driving forces:
• Changes in cost and efficiency: Rising ATF prices- Fuel prices account for over 40%
of the total operating costs of any airline and constitute the major chunk in the costs.
Rapid increase of fuel costs has raised a major concern.

8. • Regulatory policies / government legislation: Open Sky Policy allows private and
international players to enter the domestic markets.
• Changes in who buys the product and how they use it: Evolution of travelers from
leisure to business.
• Changes in long-term industry growth rate: Passenger traffic is expected to grow by
9%, while cargo traffic is expected to grow by 26%.
3.2 Analysis of the competitive environment (Porter’s 5 Forces model):
For the effective analysis of the competitive environment, the threats posed by each of the
forces are rated on a 5-point Likert scale, 1-being the weakest and 5-being the strongest.
1. Rivalry (4/5): This appears to be the strongest amongst the other forces as there is
intense competition that Air India faces in the domestic market from competitors like
Jet Airways, Kingfisher, Indigo, Go Air and Spice Jet in terms of pricing, on board
service, on time performance etc. The competitors are actively involved in making
fresh moves to improve their market standing. Strategies to improve the branding are
also in place.
However, the only competition Air India faces in the international market is from Jet
Airways. Apart from Jet, they are virtually untouchable and have a majority share in this
market.
2. Suppliers (3/5): The force exerted by suppliers is relatively moderate as the main
suppliers are the aircraft manufacturers (Airbus and Boeing), who are in stiff
competition between themselves and therefore would not be able as such to dominate
its airline customers.
Other than aircraft manufacturers, suppliers of ATF (Air Turbine Fuel) are the other members
of the supplier group.
Also, neither the aircraft manufacturers nor the ATF suppliers appear to be capable or
interested in integrating forward.
3. Threat from substitutes (3/5): This force is moderate as well because even though
there appears to be substitutes for the domestic segment through the railways and
luxury roadways, they cannot compete with the benefit of time saving that travelling
by air provides. Also, they do not serve as a substitute to airways in terms of
international travel.
Having said that, advancement in technology, especially in the field of communications
technology like satellite conferencing and other such methods does eliminate the need to
travel considerably.

9. 4. Buyers (3/5): Again, the threat posed by the bargaining power of the buyers can be
rated as moderate because although customers are very price sensitive and would
definitely consider switching brands when there is a price change, the prices set by
carriers are practically similar for similar routes and customers would not be able to
bargain on routes that are not being offered by other airlines.
Also, there is obviously no threat of customers integrating backwards, hence they
would not have a much of a bargaining leverage.
5. Threat of new entrants (1/5): Although most of the barriers have been removed
through the adoption of the „Open Sky Policy‟, this force is by far the weakest and is
almost non-existent as a high level of competition already exists, the industry doesn‟t
seem lucrative enough as capital requirements are high as it includes buying aircraft,
leasing them and paying heavy airport fees, ATF prices are constantly rising,
important players in the industry have been posting losses and brand image would
play a critical role in attracting customers.
3.3 Performance against the Key Success Factors:
• Excellent in flight service- According to renowned Skytrax International rating, AI
has got a 3star rating, due to its inefficient in flight service, low rating in service
efficiency, in flight entertainment, unenthusiastic and poor attitude of staff, low on
problem solving, low in seat comfort in economy and average rating on cleanliness,
quality of meals, food served.
• Commitment to customer service/Reliability- The AI staff is not professional being a
government employee, there are so many delays in flights at regular basis, low rating
in check in checkout, arrival assistance, consistency in staff and baggage delivery etc makes
customer rethink about their reliability and commitment. (Satish & Bharathi, 2007)
• Reputation- Inefficient in flight service, and lack of reliability its reputation is on
stake.
The aircrafts are not maintained properly, staff not good as compared to private and
international airlines.
• Value for money- AI being a full service airline in a monopoly situation in India
charges
high money, but as compared to international airlines it does charge right kind of rates but
due to the poor quality of services it offers customers forget about its rate and choose other
airlines. Tourism India, 2007
• Cost Control- This aspect being a major issue for AI as its costs are way too high,
being a full service airline and due to major other reasons like number of staff this
airline is amusing as compared to other airlines like seen in the chart, other reason is
common with other airline which is ATF a major cause for concern. DGCA, 2006
Source: DGCA, 2006
• Control on Debt- Looking into debt equity ratio which according to industry average
is 3.08 but AI‟s is 7.35 and has always been high since 2002 except for 2005. This can
affect the thinking process of shareholders and lenders. Jet‟s was only 2.0 in 2006,
which is very good.

10. • People- This aspect can make an airline become the best than its competitors but AI
lacks in this majorly detailed information in the human resource section.
The Resource Based Analysis of the company
4.1 Short term SWOT analysis of Air India:
Strengths: Air India has been the largest air carrier in India in terms of traffic volume and
company assets.
Air India owns the most updated fleet and competent repairs and maintenance
expertise.
Its information systems are advanced and compatible with its operations and service.
They have financial backing from the government.
Weaknesses: They are operating across broad international and domestic markets competing
with world leading giant airlines as well as local small operators.
Low profitability and utilization of capacity.
The airline‟s high cost structure and the compulsion of being a public sector unit are
the reasons it has been making losses and will continue to do so in the near future.
Opportunities: The Indian airline industry is growing rapidly and will continue to do so as
the GDP increases and is predicted to continue once the slowdown recedes.
World wide deregulations make the skies more accessible.
The number of foreign visitors and investors to India is increasing rapidly.
The aviation ministry‟s strong regulation and protection provides opportunities for
consolidation and optimization.
Customers are getting wealthier and tend to be less price conscious.
Threats: Air India faces imminent aggressive competition from world leading airlines and
price wars triggered by domestic players.

11. 4.2 The Value Chain:
Firm infrastructure
Human resource management
Margin
Technology development
Procurement
Margin
Inbound Operations Outbound Sales Service
logistics Logistics &Marketing
The main areas of value addition of Air India are in the inbound logistics that consist of the
aircrafts being supplied, operations and service. The most value would be added in the
service area of the chain. Value is added in terms of in flight services, online booking, ground
staff attitude etc.
Operations: Air India must operate ticket counters to get their passengers onto their airplanes.
Some passengers may find at the counter that they can't get on the flight as the airlines
oversell tickets for full capacity utilization.
Stock control: must store and handle fuel, food, and drinks. Stock is managed to ensure
reductions in stock turnover, thus reducing costs and wastage.
• Route selection: must choose their flight routes. These will be selected upon desired routes,
and deals negotiated with the airports. Airports are selected for their prime location, to allow
consumers to get to their desired location. This then entails the scheduling of flights and
crew.
• Passenger services system : software which allows the airlines to function "comprehensive
passenger reservations, inventory control, fares, ticketing, and departure control functions .

12. This allows airlines to reduce their costs of wages and paper transactions, and maximize
utilization.
• Yield management: this allows the airlines to compare their available seats against demand
for particular flights to price the tickets accordingly. This has been particularly prevalent in
recent years for airlines, particularly low cost carriers such as Ryanair whose prices for a
flight vary greatly.
• Aircraft acquisition: airlines must negotiate deals with aircraft manufacturers to acquire
planes. For instance Ryanair use a standardized airplane which allows them to reduce their
staff training costs, as well as their maintenance costs.
Value in Support activities:
Firm infrastructure: budgets, accounting, regulatory compliance, legal issues, public relations.
Human resources: flight, route and yield analyst training.
Technology development: computer reservation systems, in-flight systems, flight scheduling
systems, yield management systems.
Procurement: information technology communications
Operations:
• Ticket counters – airlines must operate ticket counters to get their passengers onto their
airplanes. Some passengers may find at the counter that they can't get on the flight as the
airlines oversell tickets for
One thing to consider is that the value chain is in some circles giving way to the value web
where customers can use alternative pathways to get what they want.
Airlines are good examples of this effect where travel can be put through many categories
which are sometimes interchangeable. Ex: there airlines, buses, boats, cars to get people to
where they want. There airlines reservations systems, travel agencies, online booking systems
to obtain travel. There are also alternatives to location such as cruise ships where travel is the
location! These are also connected in sometime non-intuitive ways and the success or failure
if indirect services can impact the value of the main industry. All this can an effect on the on
the value of an organization and its ability to grow and take advantage of change.
Understanding this interconnectedness can make or break a strategy.
Competitive Strategy Analysis
5.1Generic Strategies:
According to Porter‟s generic strategies, AI comes under the differentiation and focused
cost leadership due to the following reasons:
• AI along with jet airways has the monopoly in Indian international market as they are
the only ones who fly international routes.AI is differentiated as it offers expanded
network, for example gulf regions are still not open for Jet Airways but AI has a
monopoly there.(Ministry of civil aviation reports, 2006)

13. • AI is the national flag carrier of India. It has brand name which is represented by its
mascot called Maharajah which impersonates India and its culture. This feature really
differentiates it from other industry players.
• AI last point of differentiation is it being the oldest airline as per the year 2006 it‟s
seventy four years old. It really makes it a well known brand, creates trust in the
minds of its customers due to its long operation and its service to its customers.
(Tourism India, 2007).
• Air India‟s has new subsidiary AI Express being the country‟s only international low
cost carrier which also operates in domestic market. This strategy of AI can be called
as focused cost leadership as they are marketing middle class passengers who want to
travel internationally at a low cost. (Tourism India, 2007)
5.2 Strategic alliances:
• Air India‟s Engine Overhaul Facility, Mumbai, and Aerostar Asset Management,
Sharjah, UAE have created an Engine MRO brand called “The A Team”. Directed
initially for the Middle East Market, this strategic alliance will provide engine repair
and management solutions to all airline operators of the region.
“A Team” will utilize the existing engine overhaul facilities of Air India at
Mumbai and marketing set up of Aerostar in the Middle East .This alliance will sell
repair services for jet engines such as GE CF6-50 & 80 series, P&W 4000 series, GE-
90 series and CFM56-7 series and will also cover CFM56-5 series engine in the near
future.
A marketing agreement was recently executed between the two companies and
the brand will be formally launched at the Dubai Air show to be held during
November, 15 – 19, 2009.
Air India‟s Engine Overhaul facility, established in 1966, has been catering to
third party MRO services since 1999. The facility is approved by Director General of
Civil Aviation, India, Federal Aviation Administration, USA, and European Aviation
Safety Agency. It is also an ISO rated facility. Aerostar Asset Management is a
company promoted by the ETA Star Group which has a strong presence in the Middle
East. Aerostar has been involved in jet engine management for various customers
since 2005.
The above alliance will provide practical and cost effective solutions for engine
repair management which will result in reduced cost of ownership for engines
operators. Air India‟s technical expertise in the field of engine overhaul and its
elaborate facilities coupled with Aerostar‟s capabilities in MRO marketing and
material sourcing will be an ideal combination for high level of customer care, lower
repair cost & tighter TAT and assured quality that will ensure longer engine time on
wing. The arrangement will also result in additional revenue earnings for Air India.
• With a quantum jump in product profile resulting from induction of new aircraft and
consequent expansion of network, Air India will be all set to join the Star Alliance by

14. middle of 2010. Star Alliance, is a leading global airline alliance of 21 top
international carriers. Once Air India becomes a member, passengers will enjoy
enormous benefits, including seamless transfers while travelling across the world,
more frequent flyer mileage points, code-sharing leading to a wider choice of flights
and access to lounge facilities worldwide. The Star Alliance network offers more than
17,000 daily flights to 916 destinations in 160 countries.
5.3 Mergers & Acquisitions:
The main merger in Air India‟s history is the merger between Air India and Indian
(formerly known as Indian Airlines) to form AIL or Air India Limited which took place
earlier this year (February).
Indian Airlines was formed by merging 8 domestic airlines and was meant to operate in
the domestic market while Air India was meant to operate in the overseas market. Prior to the
merger, in 2005 Indian Airlines was re-branded as Indian. It was given a complete makeover
which included redesigning its logo and crew uniform.
The idea to merge the 2 government owned airlines was first proposed over 20 years
ago. In 2007, a group of ministers approved the merger of the 2 carriers to improve
operational synergy and increase productivity. It had created the largest airline in the country
with a combined turnover of over Rs.150 billion and fleet size 150. The entity arising out of
the merger was called National Aviation Company of India Limited and its brand name was
Air India.
The Maharaja was retained as the mascot, while the logo of the new airline was that of a
swan with a Konark Chakra placed inside it. The merger also brought a debt of Rs.440
million. The factors that influenced the merger were:
6. The merger was the new equity to compete with large global airlines and set the ball
rolling for further consolidation and mergers & acquisitions.
7. The merger was viewed as a step in the right direction because it positioned Air India
well with respect to rivals Jet and Kingfisher.
8. Brand building became important as most players were offering similar fares on the
same sectors.
9. The AI-IA merger was expected to create one of the biggest airlines in the world in
terms of the fleet size.
10. The combined fleet size placed the merged entity among the top 10 airlines in Asia
and the top 30 in the world. It would also become India‟s first airline with more than
130 aircraft.
11. The increasingly intense competition faced by AI & IA from private and international
competitors was another reason for the merger.
12. Accenture had identified significant potential synergies between the two in the area of
sales and distribution network, fuel procurement, materials procurement, passenger
amenities etc.

15. 13. According to a report by Accenture in 2006, the merger could bring in a cost
reduction of 3-4% and lead to revenue increase of Rs. 6 billion initially.
5.4 Outsourcing Strategies:
With a view to cut down its operational costs, national air-carrier Air India today said it
is planning to outsource some of its functions such as Information Technology in the near
future. Outsourcing is common in financial sector, where companies award projects to other
firms in the domestic or international geographies.
Air India has around 42,000 employees on roll and its annual salary expense amounts to Rs
3,100-crore. Salary payment is the second largest component in AI's operating cost after the
fuel bill. The proposed move to outsource some of its functions will help the airline, which is
incurring huge losses, to reduce its costs and is part of the ongoing turnaround plan. The
move will help the airline to concentrate more on its core business--aviation.
Citing examples of Citi Bank and State Bank of India, which have successfully outsourced
functions such as technology, this can be replicated in Air India as well.
Institutions like SBI, Citi Bank stick to the core business and the IT solution is outsourced.
Similarly, AI can also look at this option. Moreover, a company whose core business is
aviation cannot do justice to an IT professional when it comes to the employee's career
progress.
For example, IT itself is one issue. In the aviation business, they may not be able to give
career progress to an IT person. So the best thing is to identify and make good service-level
agreement.
AI has also plans to spin-off its Maintenance Repair and Overhaul engineering operations
business by April this year. This will help the airline to achieve optimum utilisation of its
engineers, besides boosting revenue, he said.
They can earn about Rs 3,000 crore annually (by spinning off the MRO business). Also, their
engineers will be better utilised through in the MRO
The airline has already tied up with Sharjah-based Aerostar Asset Management for marketing
engine overhaul facility for sale and repair services for Boeing and Airbus jet engines to other
companies.
The Nagpur MRO, which the national air carrier is setting up with Boeing in Nagpur at an
estimated investment of Rs. 4.5 Billion (from Boeing), will be a part of the spun off unit.
Long Term Strategy Analysis
6.1 Probable Grand Strategies:
Stability strategy: Even though Air India has an enormous workforce, they do not see the
need to downsize their workforce and this is playing a critical role in their huge losses as
salaries account for the second highest cost after ATF for the company. This is mainly
because of it being a government owned carrier.

16. Since their focus is on maintaining the huge force, their objective should be to increase
efficiency and productivity, there by raising the revenues considerably. Competitive tactics:
better customer service, cost cutting and price
slashing
Expansion strategy: Since AI already has a large enough fleet, they should focus on other
areas of growth, like targeting other segments and expanding their hold in the economy
segment with Air India Express, expansion of their MRO facilities. Diversification strategies
may not seem feasible, at least not in the near future.
Retrenchment strategy: Air India has secured a US$173m bailout from the Indian
Government, which will be paid out in two phases.
The cash injection, which forms one part of an expected US$432m bailout , is aimed at
easing the carrier‟s cash-flow problems and allowing it to avoid borrowing from the market at
a high cost, India‟s Ministry of Civil Aviation said in a statement.
Strict cost-cutting forms a key condition to the granting of the aid package.
Under the terms of the deal, Air India will have to cut its fleet from 146 to 105 airplanes by
March 2011, and will have to aim for cost cuts of US$425m during its current fiscal year,
which runs until March.
Synergy of strategies and the strategy of differentiation-based
Competition: The airline industry is an unique and complex industry. Besides the operators of
airlines and airports, the key industry players also include governments. In this regard,
Singapore provides an interesting case study. The Singapore government not only is an active
negotiator for favourable air agreements and arrangements with other countries, but also
plays an important role in the development of Singapore Airlines and Singapore's Changi
Airport, both arguably the world's best airline and airport, respectively. The Singapore
government also watches with a keen eye management-labour relations in SIA and Changi
Airport, and has played an important arbitration role in the past.
This tripartite arrangement, involving government, management and labour, has distinct
strategic competitive advantage and has resulted and helped boost Singapore's lead in the
world of international aviation. This has led to an industry view that ``Singapore's excellence
in the world of international aviation is now so unquestioned that it has become an article of
faith, Air India should try to mirror this.
6.2 Innovation strategies:
Air India will now save close to Rs. 700 million on their flights by implementing
innovative alternatives to traditional air travel. According to fast company, the airline

17. has cut contingency fuel from 5% to 3% and decreased aircraft weight by reducing the
amount of water, the weight of food carts and the magazines on board. Also, air India
has adopted new methods of flight, such as flying at a straight line at optimal altitudes
and speed, practicing a continuous descent approach during landing and using a single
engine during taxing, and also deriving pre-flight power from sources on the ground.
Money saving and environmentally friendly- now that‟s innovation!
• Medical Tourism- AI has tied up with M/s Vedic India to tap growing medical
tourism market, Medical packages including airfares are offered to all those who are
willing to undergo treatment in India.
6.3 BCG Matrix:
Air India has 6 main SBUs: low cost airline (Air India Express); Cargo; Maintenance, Repair and
Overhaul (MRO), grounding handling; engineering and related business
Relative market share
High Low
Stars ??????
High (Air India Express)
(Air Cargo, MRO)
Market growth rate
Cash cows Dogs
Low (MRO, engineering services) (Ground handling)
Strategy Implementation
7.1 Analysis of Leadership
According to COO Baldauf, people manning positions of importance may not be the
right people for those positions. There are said to be power centres within Air India that will
not let the airline progress as these power centres have selfish interests.

18. MD & Chairman Jadhav's lack of success is amply visible on the human resources front.
Baldauf says Air India is a huge "man management" problem. "Air India's problems are not
resolving as the human resource issue have not been tackled," he adds. For instance,
employee concerns arising out of the merger of Air India and Indian airlines have been dealt
with insensitively without any dialogue, says the former COO.
Those who have observed the CMD's style of functioning point out that he belongs to
the old school of bureaucrats who thinks that most of the woes in organisations are
administrative problems and not people-centric issues. However, at Air India, a workforce of
all of 42,000+ is its core. It is also the airline's bane, what with Air India having 300+
employees per aircraft as against the industry norm of 125 employees per aircraft. What
works in Jadhav's favour are his oratory skills, which indicate a sense of purpose - and
willingness to change and give Air India a contemporary and relevant look. But it is observed
that getting through to the man is indeed difficult as trying to reach him for a comment. There
is ring fencing done by his advisors, wrongly or rightly that time will only tell.And the Air
India employees no wonder feel marginalised because of his attitude to just clamp down.
Civil aviation minister Vayalar Ravi today refused to back the top management of Air
India and instead sought to evade questions when asked about the leadership of the ailing
national carrier. Ravi was speaking to the media on the second day of his visit to Mumbai,
after meeting with all the union representatives of Air India.
“Well, they are still there,” Ravi said when asked if he was happy with the top management
of the airline. Only last week, Ravi sacked Air India Express COO Pawan Arora, two months
after the independent board of directors called for his removal.
7.2 Company Culture:
As mentioned earlier, according to renowned Skytrax International rating, AI has got a 3star
rating, due to its inefficient in flight service, low rating in service efficiency, in flight
entertainment, unenthusiastic and poor attitude of staff, low on problem solving, low in seat
comfort in economy and average rating on cleanliness, quality of meals, food served.
This is a mere reflection of how laid back and carefree the employees are, just as with
employees of most other government owned entities.
The employees are looked down upon due to their services and this has had an impact on the
reputation of the company, Air India has become synonymous with bad service and late
performance. This is a major concern as AI caters to upper class customers who are charged
huge sums of money in exchange for better services.
7.3 Ethics and Corporate Social Responsibility:
Air India, one of the largest developing-country airlines, has become a forerunner in taking
up the cause of environmental protection.

19. On the occasion of the 20th Anniversary of the Montreal Protocol, Air India had been
selected to receive the prestigious Montreal Protocol Public Awareness Award. The award
which was presented by the United Nations Environmental Programme (UNEP) was in
recognition of Air India‟s efforts in protection of the ozone layer and was given in the
presence of Nobel Prize Winners who postulated the depletion of ozone layer and other high
level dignitaries in Montreal on 16 September 2007.
Later Air India spread the activities to Global Reporting Initiative and also hosted discussions
on climate change related issues.
The airline industry is not a significant contributor to the two most important global
environmental issues: ozone layer protection and climate change. However, Air India would
like to be in the forefront to utilize its infrastructure to spread awareness on these issues, as
well as to take action within its business operations to improve energy and efficiency. As a
next step, Air India is planning to launch the Air Lines Forum in India for collective action to
protect the environment.
Air India has won the following environmental and social responsibility awards.
Golden Peacock Award” – for corporate innovation for protection of environment 2007.
Gallileo Express Travel World Award” – for Corporate Social responsibility for 2006.
As a Corporate Social Responsibility initiative, Air India launched its Reaching out Project in
2002-2003. Under this umbrella, Air India recognizes students and teachers across India.
Governors and Vice-Chancellors have given away these awards at State level. His
Excellency, the President of India presented the National awards in New Delhi on 18 July
2007.
Air India has produced environment films with the help of The Energy & Resources Institute
(TERI), with part funding by UNEP
Air India‟s In-flight magazine “Namaskaar” devoted its September 2005 issue to
environmental and ozone layer preservation issues featuring various articles authored by
eminent environmentalists and scientists.
Air India‟s 2006 calendar was fully dedicated to environment and ozone protection, with
images from the 1998 United Nations Environment Programme children‟s painting
competition. This calendar had both Air India and UNEP logos.
A short cartoon film “Ozzy Ozone” produced by UNEP was screened on Air India‟s flights.
Air India conducted a painting competition for children on “Ozzy-Ozone” during the month
of September 2006 on board its flights.
Air India‟s In-flight magazine “Namaskaar” devoted its September 2005 issue to
environmental and ozone layer preservation issues featuring various articles authored by
eminent environmentalists and scientists.
Air India‟s 2006 calendar was fully dedicated to environment and ozone protection, with
images from the 1998 United Nations Environment Programme children‟s painting
competition. This calendar had both Air India and UNEP logos.
A short cartoon film “Ozzy Ozone” produced by UNEP was screened on Air India‟s flights.
Air India conducted a painting competition for children on “Ozzy-Ozone” during the month
of September 2006 on board its flights. The winner and the parents were given tickets by Air
India to receive the award in Delhi in December 2006.

20. As part of the initiative taken by Air India from 2004 onwards on environmental issues, the
airline hosted a conference on “Sustainable Consumption and Production” under the auspices
of EU.
Air India hosted a three-day meet on UNEP – Global Report Initiative (GRI) meeting for
India.
In order to institutionalize the environmental initiative in the airline, Mr. Thulasidas, CMD,
Air India constituted an Environmental Core Group in Air India in June 2005 to act as a focal
point for identification and assimilation of technologies and for cooperation with the potential
partners. The core group is headed by Mr. K. M. Unni, Director-Engineering, Air India.
Air India is also taking various additional measures to conserve energy and help in saving
environment. As part of this programme, initially a project is being undertaken to save energy
and conserve water in Air India Building at Nariman Point. This Building is proposed to be
converted into a Green Building with the help of the Ministry of Environment & Forests and
TERI.
Air India has been following a close collaborative agenda on environmental issues with
TERI. Air India has become a member of the Business Council for Social Development. Mr.
Thulasidas, CMD, Air India has been appointed as the Chairman of the Council.
Hosted international Ozone Day celebrations with press conference along with the Ministry
of Environment and Forest of India.
Halon banking for Airlines – participated in UNEP Ozone Action meeting Airline forum for
developing country airlines (proposed).
Air India has placed order for GEnx Engines for its fleet of B787 Aircraft. These Engines are
expected to be 20-25% more fuel-efficient. This is a major step not only for conservation of
fuel but also makes business sense for the Airline. As a follow up Air India has signed an
MOU with GE as part of the Eco Imagination Programme of GE.
Strategic Control Issues
8.1 Control systems in the company:
• Route rationalization and route profitability: NACIL focuses on LCC for high density
domestic/international routes and will undertake an aggressive route restructuring for
seamless connectivity facilitated by 6th freedom traffic rights, Star Alliance network
and other code shares with Airlines for routes where NACIL has nil or insignificant
operations.
• Revenue generation through better revenue and yield management, greater customer
segmentation and adoption of more effective CRM practices.
• Creation of subsidiaries for Maintenance, Repair & Overhaul (MRO) , Ground
Handling and Cargo to fully leverage existing capabilities, reduce overheads on
airline operations and create new sources of long term revenue generation.
• Manpower rationalization to achieve industry benchmarks. Utilization of assets and
operating/ technical crew as per DGCA /FAA.
• Monitor Operational Quality and Efficiency by initiating business process, inventory
and IT audits through independent agencies.

21. 8.2 Effectiveness of Control:
Even though suitable control systems have been established, Air India has not been
able to exercise effective control in most areas of their operations.
The main area where this occurs is in the manpower division. Air India has a massive
workforce of over 300 employees per aircraft which is very high compared to industry
standards and other competitors who achieve less than half of this figure. This leads to
higher costs and when combined with ATF prices, account for more than 60% of the
carriers operating costs as compared to about 40% for competitors.
There are many problems with Air India's HR policies -- some of these are
unavoidable due to its public sector character. But the productivity-linked scheme,
introduced in the 1990s, was perhaps the most ridiculous scheme ever introduced by a
company. So much so that one former MP famously described the scheme as nothing
but legalised bribe.
Another area for concern is with maintenance of the aircrafts. The aircrafts are not
maintained well enough and have been found to be in pitiable conditions in the past.
Long term SWOT summary of Air India
India's aviation industry presents some considerable opportunity, but has been dragged
down by red tape and, more recently, excessive airline capacities amid the downturn in the
global economy. Steps are being taken to address the shortcomings, but the industry does face
a considerable test over the next 12-18 months.
9.1 Strengths:
• Liberal Environment: India's airlines operate in a liberal environment in both the
domestic and international spheres. With three major airline groups and four smaller
carriers all operating domestic routes, there is no shortage of competition, although
this factor combined with excess capacity has tended to depress yields. Nevertheless,
carriers are free to operate any domestic routes without seeking permission from the
government, and without restriction on pricing. One condition that airlines find
onerous however, is the requirement to operate a proportion of ASKs to remote and
underdeveloped regions of the country.
On the international front, the Indian government has pursued an increasingly liberal
approach to bilateral air services agreements with key overseas markets, resulting in greater
access for foreign carriers. Emirates for example, the largest foreign carrier by capacity into
India, will operate 185 weekly frequencies to ten cities across the country by the end of 2009.
India's carriers have a combined international capacity share of just over 36% but face strong
competition from foreign carriers, both full service and low cost.

22. • Modern Fleet: In light of the fact that much of the growth in Indian aviation has
occurred in the last five years, the country's airlines operate a relatively young and
modern fleet, ensuring a high quality passenger experience, improved safety and good
operational reliability.
• High Quality: India's airlines offer a good quality product in each of the operating
models in existence. Jet Airways and Kingfisher Airlines are competitive in terms of
their in flight service against the leading carriers in the world. Kingfisher for example
is one just half a dozen global carriers such as Singapore Airlines and Cathay Pacific,
with a Skytrax 5 star rating. In fact it could be argued that the full service product on
domestic routes is excessive for the sector lengths involved and results in a higher
cost structure, which the passenger does not necessarily see value in paying for. The
LCCs too, by and large, offer a comfortable, efficient and reliable service. Until a
couple of years ago, Air Deccan was one carrier that had developed a reputation for
poor on-time performance, flight cancellations and overbooking, however since being
acquired by Kingfisher, most of these operational issues appear to have been resolved.
• Economic Growth: Economic growth has historically been the primary driver of air
traffic, and the relationship has generally been even stronger in developing countries.
Between 2004 and 2007, India enjoyed four years averaging 9% per annum GDP
growth. This slowed to 6.5% in 2008, however against the background of a global
economic recession, this was a creditable performance. The increased business
confidence following the general election result in May 2009 has eased concerns that
growth may slow further. The stock market has soared 25% in the last month and the
outlook for growth and consumption has improved, which is a positive for the
aviation industry.
• Political Stability: The re-election of the Congress Party, with a stronger majority is
expected to allow the new administration to push ahead with further economic
reforms, which had to date been blocked by coalition partners. The prospect of a
government which has the ability to last its full term and pursue its agenda is
extremely encouraging. In addition, Minister Praful Patel, who was the architect of
the dramatic transformation of the aviation sector, has retained the portfolio, which
brings experience and stability to the aviation industry.
9.2 Weaknesses:
• Airport Infrastructure: The rapid growth in air traffic over the last few years exposed
the deficiencies of airport infrastructure across the country. After decades of neglect,
many of India's airports were forced to operate well above design capacity. The
resulting congestion in the terminals and on the runways delivered a poor experience
for the passenger and a costly, inefficient operating environment for the airlines.
However, although a weakness today, it is also fair to say that it is becoming less so,
as the airport modernisation program starts to deliver results, with new airports in
Bangalore and Hyderabad, and improving facilities at Delhi and Mumbai. The
upgrade of non-metro airports remains behind schedule so it may be another 3-4 years
before we see good quality facilities across the country, but there are tangible signs of
improvement.
• Airways Infrastructure: Although congestion on the ground is relatively visible,
another current area of weakness is the limited investment that has taken place in
improving infrastructure for air traffic management. This too results in expensive
aircraft holding patterns, indirect flight paths and sub-optimal use of runways.

23. • National Carrier: The state-owned carrier, Air India, is in a dire situation. The carrier
is estimated to have posted losses of close to USD1 billion in 2008/09, and morale
within the bloated workforce is at a low. With no clear direction, management
instability at the top and continuing issues with the integration of Air India and Indian
Airlines, the carrier is in need of radical restructuring. It is imperative that the
government develops a turnaround strategy for Air India as an urgent priority.
• Deep Pockets: Over the last three years, India's carriers have accumulated billions of
dollars in losses and debt. Ironically, a characteristic that would normally be
considered a strength - namely deep pockets - has resulted in carriers remaining afloat
that would perhaps in other circumstances have failed. With the backing of either the
government or large corporations, several carriers have been able to access funding
that they might have been denied on a strictly commercial basis as standalone airlines.
As a result of the intense competition which has been perpetuated, airlines have
struggled to raise fares to breakeven levels.
• High Cost Structure: India's airlines operate in a relatively high cost environment,
primarily due to the punitive taxation structure. The greatest impact is felt in the area
of sales taxation on fuel, which can increase the cost to 60% above the international
benchmark. The limitations of airport infrastructure also increase costs due to the fact
that carriers are unable to schedule fast turnarounds, resulting in reduced aircraft
utilisation. In addition, the fact that high quality ancillary services such as MRO and
training are not currently available in India, means that aircraft and personnel have to
be sent overseas.
• Skilled Resources: Domestic air traffic in India tripled in the five years to 2008, while
international passengers doubled. This rate of growth far outstripped the capacity to
develop skilled technical and management personnel. The gap was partly addressed
by employing expatriates, particularly as pilots, and by learning on the fly. This
means there is a lack of in-depth experience and knowledge at all levels. Furthermore,
there is an absence of high quality training infrastructure in-country to deliver the
resources to support future growth. This lack of personnel affects the government as
well and the FAA has expressed its concern at the shortage of qualified safety
inspectors within the Directorate General of Civil Aviation (DGCA). India has been
put on notice that unless this issue is addressed, it may be relegated to a Category II
nation, which would mean that Indian carriers would not be permitted to increase
services to the US.
9.3 Opportunities:
• Market Growth: Despite the rapid expansion of recent years, India has only just
scratched the surface of the potential for the aviation sector. Trips per capita remain
low even by the standards of other developing countries. China's domestic market is
more than four times the size of India's 40 million passengers. Even, Australia, a
country with a population of just 21 million, compared with India's 1.1 billion, has a
market 25% larger. Similarly on the international front, less than 1% of Indians travel
overseas each year. Inbound visitor numbers at 5.4 million in 2008 for the entire
country, were less than for Dubai or Singapore. It is not difficult to see the expansion
potential from such a low base as economic growth continues apace.
• Geographic Location: India is ideally positioned as a major aviation hub at the
crossroads between Europe, the Middle East and Asia Pacific. The fact that aviation
was a neglected sector for so long has allowed airports such as Dubai and Singapore
to effectively establish themselves as offshore hubs for Indian passengers, and they

24. now have a significant head start. However, as India's airports improve, and its
airlines receive international awards for their service, there may be an opportunity to
leverage its huge home market to compete with these longer established hubs.
• Lower Costs, Higher Quality: India has already managed to develop a dynamic
aviation sector despite, and not because of, its environment. The improvements in
airport and airspace infrastructure, the development of indigenous training and
maintenance facilities and the potential for fiscal reform, all point to the potential for
Indian aviation to increasingly operate in a lower cost, higher quality and more
efficient manner. This could in due course lead to an opportunity for India to develop
as a global outsourcing hub in areas such as aerospace manufacturing, MRO and
training.
9.4 Threats:
• Middle East Aviation: The carriers of the Gulf are aggressively expanding in India,
with high frequencies from multiple destinations to their hubs, from where passengers
can access extensive global networks. The ability for a passenger for example to
travel one-stop from Ahmedabad to Hamburg, or multiple daily frequencies from
Mumbai to London, connecting at an attractive hub, is a strength which Indian
carriers simply cannot match at present. It will take time and the question is how far
ahead will the Middle East carriers be by that stage.
• Terrorism: India has seen frequent terrorist activity in recent years. The country has
shown great resilience in bouncing back after each attack, however inbound
international traffic in particular is sensitive to such events. Similarly the potential for
India to develop as a global traffic and services hub is contingent upon it being seen
as a safe and attractive destination.
Conclusion
While some public enterprises like BHEL, ONGC, and Indian Oil have become
internationally competitive, Air India has failed to become an efficient organization. Air
India's problems are well known. The airline is highly over-staffed, and has strong unions
that fight to protect their own interests. The airline is not run on commercial lines and it suits
politicians and bureaucrats to have it that way. The management is not given the authority
and support to take tough decisions. Over and above all this, the airline industry is a brutal
industry and airlines all over the world have lost money in recent years.
Recommendations
• Change the way their services are looked at as their reputation has been taking a
beating due to impoliteness and unprofessional attitude of the employees in customer

25. contact. In today‟s world, while competitors are concentrating on building customer
relationships and loyalty, Air India seems to be regressing
• Increase the fleet size further and invest in aircraft maintenance.
• Reduce the number of employees per aircraft. The current figure of 400+ employees
per aircraft is simply too high and takes its toll on the overall costs. When the number
of employees is excessive, they become lazy and unproductive, jobs are taken for
granted.
• Come up with new strategic mission and vision as there is an absence.
• Adopt strict cost control measures.
• Air India should promote the cause of diversity. Air India should be seen as the
United Nations of the sky. Diversity is a unique position for airlines. It is memorable
and relevant to a world that is forced to fit in.
• It should seize the opportunity of a rising number of business travellers and create an
identity of being the preferred airline for business travellers.
• Limit government control and policies for AI and its staff.
References:
• airindia.in (official website)
• dgca.nic.in
• http://www.wikinvest.com/industry/Airlines
• http://www.marketing91.com/positioning-strategies/
• http://www.ehow.com/facts_5242839_airline-industry-key-success-factors.html
• http://www.investopedia.com/features/industryhandbook/airline.asp#axzz1XHyCnBq
K
• http://w303.com/495/u-s-airline-industry-case-study/
• http://www.docstoc.com/docs/14534885/AIRLINE-INDUSTRY
• http://www.slideshare.net/jignesh145/marketing-mix-6501824
• http://www.staralliance.com/assets/doc/en/press/media-
library/pdf/General_Presentation_APR09.pdf
• http://tejas-iimb.org/interactions/03.php
• http://www.scribd.com/doc/13366134/Air-India-Analyst-Report
• http://www.marketing91.com/value-chain-porter/
• http://www.fastcompany.com/articles/2007/09/buckman.html
• http://www.frontendofinnovationblog.com/2009/04/air-india-uses-innovation-to-save-
16m.html
• http://business.rediff.com/column/2009/jun/25/how-air-india-dug-its-own-grave.htm
• http://articles.economictimes.indiatimes.com/2011-05-09/news/29525220_1_india-
chairman-arvind-jadhav-air-india-airline/2