Rise and Fall of Air India: Flag Carrier of India turned into Fiasco

Top Reasons for Fall of Air India after Rising to the Top

By Sameera Redkar Apr 24 2021 9:22PM 615 Read
Top Reasons for Fall of Air India after Rising to the Top

In India, travelling by aeroplane is still considered to be a luxury as not everyone can afford to pay the hefty prices for a ticket. India is known to have strong railway connectivity across the country that lets people travel cheaply and comfortably.

But that doesn't mean that the airline industry in India is dead. There is a certain class of people in India that prefer aeroplanes over every other means of transport because travelling with a famous and reputed airline like Indigo and Vistara has its perks.

It was the same with Air India, which was considered the best Indian airline back in the time, but today the reality has flipped, and once a reputed airline is now in extreme debt. So, what went wrong for Air India?

About

The flag carrier of India, the Air India airline, is a government-owned enterprise that serves 120 domestic and international destination. The headquarters of Air India is situated in New Delhi at Indira Gandhi International Airport. It is the largest international carrier and has an 18.6% share in the market.

Foundation

In 1932, JRD Tata, a 25 years old aviation fan and former Royal Air Force Pilot, Neville Vincent, launched Tata Air Mail. The airline had only two pilots, three ground engineers, four coolies, and two security guards. The duo would ferry passengers and mail from Karachi to Bombay and later expanded their services to Madras. For the initial first year, the airline flew 2,60,000 km carrying 155 passengers and 9.72 tones of mails, resulting in a profit of Rs. 60,000.

In February 1960, Air India became the first Asian airline to induct a jet aircraft Boeing 707, which was named Gauri Shankar.

History

After six years, the company changed its name from Tata Air Mail to Tata Airlines, and with that, it even started operations in Delhi, Goa, Hyderabad, and Colombo.

This expansion was marked as the airline's success, but little did the entrepreneurs know that after India's independence in 1947, the success of the airline was going to reach new heights. Soon the airline became public, and it was renamed Air India. Being a public company, the government acquired a 49% stake in the airline.

Just a year after independence, the airline took off its first international flight to London. This flight carried famous names like Cricketer Duleepsinhji, Diplomat Krishna Menon, and cyclist headed to the London Olympics. Air India gained popularity as a respectable carrier and a symbol of Indian hospitality.

Later in 1953, the airline was nationalized, and the Government of India obtained a majority stake in Air India from Tata sons. For the next few years, the airline mainly focused on expanding its international operations to Europe, North America, Asia, and Africa. It even expanded its cargo operations.

In the year 1962, Air India became the world's first all-jet airline. Passengers chose the airline for its fine services as the then chairman JRD Tata personally looked after the services of each flight. But later in 1978, Morarji Desai took JRD Tata off the board for unclear reasons, and so began the airline's downfall.

Reasons for Downfall
  • Decrease in the Passenger Revenue: In FY16, the airline could meet its load factor targets, but despite that, the company earned 20% less passenger revenue than expected. The estimated revenue was Rs. 15,773 crores, whereas the airline targeted a revenue of Rs. 19,000 crores. The reason being, lack of aircraft availability, faulty deployment, and low utilization of human resources.
  • Increasing debt: As of January 2021, the airline is indebted with Rs. 60,000 crores. The government acquired nearly 111 aircraft for Rs. 70,000 crores, and to fuel these aircraft, they approached investors, but it was unable to generate revenue to pay off these debts. Lack of working capital and not leasing the aircraft are the other contributing factors to this increasing debt.
  • Decrease in the Profit Margin: Over the years, the company's expenses increased while the revenue declined. In FY16, the company incurred a loss of Rs. 38.37 billion, and by the end of FY19, the company's loss was increased to Rs. 85.56 billion. The major reasons believed are rising fuel prices and employee expenses such as insurance, retirement.
  • International Operations: Air India's Rapid expansion came at a cost. Although the company added new international destinations to its lists, the flights could not recover the expenses. In some international flights, the occupancy is less than 77% resulting in extreme losses. For example- flights to North American and European continents results in an estimated loss of Rs. 2,323.76 crores.
  • Under Utilization of Human Resources: As per March 2019, the airline has 9,993 employees. Excess of pilots and cabin crew led to losses as the company could not pay them their salaries on time which further resulted in strikes.

In 2007, to combat the crisis of increasing debts, the company planned to merge with another airline, namely Indian Airlines. Even after the merger, the company reported a loss of Rs. 2,226 crores.

Privatization of Air India

In the early 2000s and 2001, the company attempted to go under privatization but eventually dropped the plan. After incurring huge losses in 2007 after the merger, the only way to pay off the debt was privatization. In 2013, the government of India decided to privatize the airline but due to the interference by the then opposition parties, the company failed to do so.

Finally, in 2018, the government of India approved the plan of privatization of the airline. Soon in March 2018, the government issued an expression of interest to sell a 76% stake of Air India, but it failed again as it was unable to attract private sector buyers due to the increased debt of the company.

After failing to sell the airline partially, the government of India decided to sell a 100% stake. In January 2020, the government yet again released an expression of interest, and two months later, the government shortlisted SpiceJet, MD Ajay Singh, along with his consortium of Ras Al Khaimah Investment Authority and Bird Group's Ankur Bhatia and Tata Group as final bidders. The Indian government has planned to complete the process of privatization by FY22.

Final Words

Air India was once considered to be one of the best airlines in the Indian Market as well as in the world, but due to the above-listed reasons, the airline lost its glory. It is hard to predict the future of the airline, but with plans of privatization, there is still hope. This is the only chance for the airline to survive. Privatization will be a deciding factor whether Air India will soar or be no more.

Sameera Redkar
Sameera Redkar View More Posts

Sameera Redkar is an 18 years old BMS Student from Mumbai. She is an introvert but she always try to get out of her comfort zone. She aspire to specialise in the Marketing domain. She is currently studying German (B1) and a proud PASCH scholarship holder. Her dreams are big and it includes traveling and exploring the world.

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