When Tata Group regained control of Air India a year ago, the airline was beset with problems—mounting losses, an ageing fleet, and dismal cabin service and on-time performance—and it had been losing its customer base at a rapid pace. While domestic fliers flocked to Indigo, the runaway market leader that offered excellent connectivity, overseas fliers were lured by the cash-rich Middle East carriers that offered good service at competitive prices.
Tata Group, however, came with a plan, and has been taking one step at a time in addressing the challenges. Campbell Wilson, who had decades of experience at Singapore Airlines and its low-cost arm Scoot, was appointed as CEO, the grounded planes were all fixed and put back in the air, and new planes were leased to augment near-term capacity and restart suspended routes.
But, the biggest statement of the group's intent came on February 14, when Air India placed an order for 470 aircraft, the largest in aviation history. It included 70 wide-body aircraft and 400 narrow-body ones from Airbus and Boeing. “Air India is on a large transformation journey across safety, customer service, technology, engineering, network and human resources,” said N. Chandrasekaran, chairman of Air India and Tata Sons. “Modern, efficient fleet is a fundamental component of this transformation.”
Air India has not disclosed the cost of the full order, although it is estimated to be around $80 billion. A huge bill even for the Tatas. But the aircraft delivery will be staggered. And Air India could explore a sale and leaseback model, in which an airline buys the aircraft, sells it to a lessor for a profit and immediately leases it back. It helps free up cash and is a widely used practice in the industry.
Air India’s massive order was reminiscent of that by Indigo in 2005. The then little-known Interglobe Enterprises placed an order for 100 Airbus planes. It was the biggest order ever by an Indian company at the time.
Indigo started flying in August 2006. Now it is India’s largest airline with a market share of 55 per cent in January. In contrast, Air India’s market share stood at 9.2 per cent. Adding on the other airlines in Tata Group—Vistara and Air Asia India—the market share is a sizeable 25.4 per cent.
Tata Group has already set a plan in motion to merge Air India and Vistara. Singapore Airlines, a partner in Vistara, will hold a 25 per cent stake in the merged entity. Air India’s low-cost arm Air India Express and Air Asia India are also being merged, and Tata will essentially operate two strong airlines, one each straddling the full-service and the budget space.
Currently, Air India, Air India Express, Vistara and Air Asia India have a combined fleet size of 220 aircraft. The new order will help the group add capacities on the existing routes and services to newer destinations. “Air India was essentially an international carrier before the merger [with Indian Airlines] and it could not grow due to government ownership and being fund-starved. So, Indian aviation in a way lost out to the Gulf and South East Asian carriers for international travel. That weakness will now be overcome with the new aircraft being inducted by the Tatas,” said Jitender Bhargava, former executive director of Air India.
Taking on the Gulf carriers—Emirates, Etihad Airways and Qatar Airways—however, is not that easy. They enjoy favourable government policies, the advantage of the Gulf region's geographical location, a relatively young fleet and an efficient hub-and-spoke model. Air India is getting around this by offering non-stop flights, negating the cost advantage these carriers are offering with the time advantage.
Earlier in February, it began non-stop flights to Vienna and Milan, boosting its connectivity to Europe. It has also launched new services to London Gatwick and non-stop flights between Mumbai and San Francisco. The non-stop services between Bengaluru and San Francisco, and Mumbai and New York JFK have restarted as well.
“Once Air India has new aircraft, it can expand its network, particularly in areas where there is a large concentration of Indians. With the Tata brand name, J.R.D. Tata nostalgia, better connectivity and a quality product, it could become the airline of first choice for Indians flying abroad,” said Bhargava.
However, augmenting the fleet is one thing and getting the product quality right is another. The last time Air India ordered new planes was in 2005. Its old aircraft are fraught with issues like broken seats and non-functioning seat-backs and broken inflight entertainment systems. The new planes will start arriving only in late 2023 and bulk of them will arrive only in 2025. Till then, Air India will have to make do with the existing fleet.
As a first step, many of the grounded aircraft have been serviced and put back in the air. The existing wide-body Boeing 787 and 777 aircraft that it uses for long-haul international operations will be given new seats and inflight entertainment systems. This refurbishment will cost around $400 million. It has also leased 11 Boeing 777 aircraft and 25 Airbus A320 aircraft to accelerate its network expansion.
Domestically, Air India is working on network optimisation along with other group airlines. Wilson said it allowed Air India to better match routes with the most appropriate airline business model, focusing the full-service airline on metro-to-metro markets and high connectivity routes, and the low-cost airline on more leisure-oriented or price-sensitive markets.
How Air India wins back customers who had started preferring other airlines will be key to its medium-to-long-term success. “Air India must fix legacy issues that have plagued the airline in its government-owned avatar. The service, amenities and food and beverage offering, for instance, need to be spruced up. Some of this have been worked up, but more need to be done to bring it in line with the best in the world,” said Vinamra Longani, head of operations at Sarin & Co, a law firm specialising in aircraft leasing. Longani frequently flies Vistara and is full of praise for the service standards it has set. He recently flew Air India—while the website booking experience and the departure and arrival of the flight went on smoothly, he feels the onboard experience could do with a lift.
Air India's Vihaan.ai transformation plan is focusing on things like the overall customer proposition, on-time performance, technology and talent. The airline is working closely with other Tata Group companies. Work is on to integrate Air India on Tata's super app Tata Neu. The airline has also leveraged expertise and talent from group companies. Nipun Aggarwal, Air India's chief commercial officer, was earlier senior vice-president at Tata Sons. Suresh Tripathi, its chief human resource officer, was earlier managing human resources at Tata Steel.
Air India's big plans is also a reflection of the turnaround in the aviation sector after the long slump forced by Covid-19. According to the latest DGCA data, passengers carried by domestic airlines surged 95.72 per cent year-on-year to 1.25 crore in January 2023 from 64.08 lakh in January 2022.
And all players are upping their game. Indigo, which currently has 302 aircraft, has already ordered 500 more. It flies to 104 destinations, including 78 domestic ones. Through its codeshare partnership with Turkish Airlines, Indigo is also offering one-stop flights to several European countries.
Akasa Air, which began operations in August 2022, now flies to 14 destination. As per Akasa's launch plans, it will induct 72 aircraft over five years.
At the same time, airport infrastructure also is improving. The terminal two of Kempegowda International Airport in Bengaluru began operations earlier this year. The terminal expansion at Indira Gandhi International Airport in Delhi is expected to be completed this year. A second airport opened in Goa recently and new airports are coming up in various cities.
Despite these, India is a severely under-penetrated aviation market. “The total commercial Indian fleet of around 700 aircraft is smaller than some of the world’s largest individual airlines. Given the immense potential that exists, it stands to reason that there is a need to induct more aircraft,” said a report by aviation market intelligence provider CAPA India. It expects Indian carriers to place orders for 1,500 to 1,700 aircraft over the next two years.
