What’s going on with Air India and the Airline Industry?

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Air India is India’s national airline. It was started in 1932 by JRD Tata and then taken over by the government. It has a large fleet of relatively new aircraft and great landing spots at airports. However the airline has been struggling as has the airline industry in general. The government wants to now sell 76% of its holdings in Air India to Indian investors. It has asked investors to send in their bids, but no one responded.

Why’s that? Some say that since Air India has been struggling so much and has borrowed so much money, it would need a complete change in its way of operating. Only then will it be able to try and pay back its loans and start on its path to becoming profitable.

The government however, wants to keep  24% stake in the company. Some fear that this will mean that they won’t have the freedom to do what they feel will need to be done to turn the company around.

Let’s talk about the opportunities and challenges in the airline industry:

In general, the market for air travel has grown substantially as

  • people are able to afford more travel and
  • more places are being connected by airports

However, the airline industry is a tough industry to be in. Of course there are some that have made it work (Indigo in India, Southwest in America, for example), but the industry has some challenges. Here are some of the main ones:

Fuel: It takes a lot of fuel to fly planes, and the price of fuel goes up and down due to political situations, demand and supply. The cost of fuel is something the airlines cannot control.

Labour: There are many kinds of workers involved in the airline industry – baggage handlers, mechanics, the people who clean the cabins, get the food organised, the flight attendants, pilots, and many more. They have formed very strong unions or groups over time, and they negotiate higher salaries for themselves with the management of the airlines.

Continued investment in the airplanes: The planes that the airlines rent or buy need to be constantly maintained and kept current. This is a big cost for the airlines.

Renting space at the gates at the airport: The airlines have to rent landing slots and space at the gates at various airports. There are different rates and rules at various airports.

Insurance: They need to pay quite a bit for insurance to cover the planes in case they crash.

Competition: There are many airlines trying to undercut each other in prices and connectivity, to get you, the customer to fly their airline instead of the next one.

All of these factors need to be very tightly managed, and with a little bit of luck, can make or break the airline.

So let’s see what the Government of India tries to do with Air India next. Maybe they will have to think of a different deal to offer investors or even open it up to international investors. Let’s see what happens!

Written by: Sunaina Murthy

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