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Sunday, October 6, 2013

WHY INDIA'S AIRLINE BUSINESSES STRUGGLE AND WHAT COULD BE DONE


Hello World,

Having gone over a couple of aerospace topics in my previous posts, I have been attracted to look into the reasons behind the continuing struggles of India’s airline businesses. This idea of airline operators in India, choking themselves for profit and scrambling their way through their operations, trying to stay afloat is something that is worth pondering about. After all, commercial aviation is an industry that is branded with huge investments and is visibly famous for being very lucrative for investors and an increasingly sought after travel service, world over.  The risks and troubles of this industry are often exposed by shut-downs and mergers among the airline operators.

I am, by means of this research attempting to bring out certain set of “obvious-yet-overlooked” facts that otherwise would lead to viable solutions for struggling airline businesses and the allied businesses that together make the commercial aviation industry in India. I am of the opinion that the Indian aviation industry has spent more than required time pondering over the problems without even acknowledging the underlying root-causes and attempting to create solutions. I am taking the privilege of suggesting the players of the commercial aviation industry in India, a few solutions that may help each member of the industry in preparing themselves for sustainable growth and development, possibly without having to beg or fight against regulatory bodies. The cure is there but it has ingredients and they need to come together and blend themselves. When they don’t, something has to be done to get them together. The rest of this post is going to deal with those certain set of causes, patterns and the corresponding ideas for a state of sustainable growth and development of the commercial aviation industry in India.
Introduction

It is a popular opinion among almost anyone even aware of the Indian aviation industry that the policies enforced by regulatory bodies are restricting airline operators from making profits. This opinion coexists with the counter argument that accuses the airline operators of pricing their tickets too low for the sake of market share. For a brief industrial overview, you may watch the following videos:

BBC:
Bloomberg:

The civil aviation regulations and taxation policies alone cannot be held responsible for the “Sick” nature of the airlines trade. There are other significantly influencing factors pertaining to airlines such as routine operational behavior, management style, crisis-response, requirement-capability assessment and so on that tend to combine with the regulatory hassles to cause the trouble faced by airline operators.

The analysis of airlines’ performance with respect to their “Response-to-Market-Forces” and “Influence-on-Market” aspects would help us get a bird’s eye view of their interaction with the air travel market. This view is necessary to identify and assess the operational pattern that would describe the airlines’ response to and influence on the market.

Departures Made vs. Passengers Carried

If we are attempting to see what troubles a system, we need to know how the system has performed so far and gain a good understanding of the performance pattern. When it comes to commercial aviation, especially with passenger airlines, this idea narrows down to the concept of resource utilization in pursuit of meeting service demand.

I collected the appropriate data, compiled, computed and plotted them into Departures Made & Passengers Carried comparative graphs. These graphs can depict the Supply vs. Demand characteristics of the concerned airlines. In this case, I used last year’s (2012) data.

As for the mathematical component of this analysis, I intended to do it in the comparative sense and therefore chose to compute the percentage difference on a month-to-month basis for both the “Departures Made” and “Passengers Carried.” This way, the graph can carry the comparison of the variation of the parameters under study.


Snapshot Overview

The table given below in Fig.1 gives a big picture view of the comparative analysis. The highest values have been highlighted in yellow.

 Table 1 Comparative Snapshot: India's Airline Operations (2012)

Table.1 given above can be used as a big picture capture of the Indian commercial aviation market with respect to the scheduled carrier domain. The highest values of each column had been highlighted in yellow for reference. The first distinct feature that captures the eye is the average monthly departures that give a clear first estimate view of the market share held by each of the airlines captured. In that regards, it has to be noted that excluding Air India and Indigo, the rest of the airlines put together would not match the departures of Jet Airways. A private airline has the largest market share beating the other private and government run airlines.

The second distinct feature that may be important for the discussion later on would be the monthly passengers carried by each airline, where Indigo, on average, has transported at least 25000 passengers higher than that of jet Airways, while still having done around 1600 departures lesser than jet Airways. This difference points at the capacities at which competing airlines had operated.

In terms of passengers per departure, Indigo’s international service holds the highest average of 150 which is just 1 greater than that of Jet Airways (International). But the distinction here is that Jet Airways (International) has maintained 149 with a monthly departure count of 3144, which is 2565 departures greater than that of Indigo’s international service.

Freight revenue is auxiliary yet important revenue for airlines. Cargo wise, Jet Airways seems to hold the majority of the market share by transporting over 12000 tons of cargo every month internationally and over 6000 tons every month domestically. However, excluding the international carriers, the domestic airlines have had a rather low cargo per departure value ranging between 0.03 to 0.77 tons.

It is also clear from Table.1 that the Indian airline industry has multiple players of varying sizes. Therefore the scale, scope and depth of operations vary to great extents from airline to airline. The variation range however gives us an idea of volatility in terms of revenue. The departures and passengers carried have varied significantly to all airlines which indicate that the revenue generated by the airlines would have had corresponding variations depending upon the pricing and operational strategies of the respective airlines.

A comparative look at the variation in departures and passengers carried, on a case-by-case basis would help us get a closer look at each airline individually. Let’s go ahead with the graphs and discussion.


Air India (Domestic)

 Fig 1 Air India Domestic (2012)

Average departures per month:
8375 (approx.)
Average No. of passengers carried per month:
773310 (approx.)
Average No. of passengers per departure:
93 (approx.)
Average mass of cargo carried per month:
5532 tons (approx.)
Average mass of cargo carried per departure:
0.66 tons (approx.)

The graph shown above in Fig.1 indicates that Air India (Domestic) has, for the most part, maintained a consistent trend. The highlight of the graph is the Sep-Oct region, where the passenger traffic has increased by over 25% that had to be served with a corresponding 8% increase in the departures. This had been the airline’s peak/busy season.

Every departure is a cost center for airlines and the revenue generated from each departure (one way flight) has to ideally exceed the cost so as to help the airline make profits. Now, in the real time scenario, each departure does not end up being profitable owing to various reasons with the most prominent one being the number of passengers and mass of cargo carried by the airline. In this case Air India Domestic, with over 8300 departures every month, handling 93 passengers per departure (on average); it may be assumed that the airline had been busy with its share of the market. Transporting over 77000 passengers per month indicates a steady source of revenue. Transporting over 5500 tons of cargo every month is another indicator of steady freight revenue. The overall trend as described in the plot given above in Fig.1 indicates that the airline had maintained its departures with a certain degree of fluctuation while its passenger traffic has fluctuated more with a steep rise during the Sep-Oct time period.

Air India International (2012)

 Fig 2 Air India International (2012)

Average departures per month:
2694 (approx.)
Average No. of passengers carried per month:
373662 (approx.)
Average No. of passengers per departure:
140 (approx.)
Average mass of cargo carried per month:
5143 tons (approx.)
Average mass of cargo carried per departure:
2 tons (approx.)

The graph shown in Fig.2 above shows that the airline (from Apr-Oct), had kept its departures with minimal variation (within +/- 10%). The first quarter however had seen a steep rise in passenger traffic by over 10% with a corresponding increase in departures.

The Nov-Dec region of the graph given above indicates that in the last two months, the airline has increased its departures by over 45% in order to meet the 40% increase in passenger traffic. Did the airline have to increase departures so drastically to meet the increase in passenger traffic or it chose to continue with the regular schedule irrespective of the passenger traffic? If the airline had increased departures due to increase in demand, then the tickets in Air India International around the end of 2012 would have been priced very high, even to match the cost with the revenue. This peak season for Air India would have seen an increased frequency of flights by the airline to meet the demand.

The average number of passengers per departure is significantly high at 140. That indicates a situation of steady ticket revenue. Assuming most of the aircrafts used for international long haul flights take about 150-180 passengers, average of 140 is not a bad number at all. The cargo carried per departure is 2 tons on average, which is substantial as there may not be sufficient room, load wise, in international flights owing to heavy passenger luggage. Transporting over 5100 tons of cargo through international flights, on a monthly basis is definitely an indicator of moderate to high air freight revenue.


Alliance Air Domestic (2012)

 Fig 3 Alliance Air Domestic (2012)

Average departures per month:
990 (approx.)
Average No. of passengers carried per month:
35067 (approx.)
Average No. of passengers per departure:
36 (approx.)
Average mass of cargo carried per month:
26 tons (approx.)
Average mass of cargo carried per departure:
0.03 tons (approx.)

The average values given above indicate that this airline operates in a smaller scale and therefore its operational performance has limited scope and depth. The graph shown in Fig.3 above depicts the volatile operational performance of the airline. The departures have varied erratically every time the passenger traffic has fluctuated. This is because, for smaller airlines, the wiggle room for extra departures is almost non-existent. They have to operate at capacity and maintain regularity at the same to keep the incoming revenues steady. The Mar-May time period, as shown in the graph, indicates that the airlines had reduced its departures well below the dipping rate of passenger traffic. This indicates the volatility of small-scale airline operations. The average number of passengers per departures is a meager 36. The average mass of cargo handled every month is a paltry 26 tons. With such low numbers, the airline has to follow a strict cost-cutting and revenue management system to keep the operations profitable at least in the long term if not in the short term. Departure wise profit may not be a valid number that can be used to make operational decisions owing to the small scale of operations.

The Sep-Oct time period has seen a peak in passenger traffic and a corresponding increase in departures. It is these peak times when small-scale airline operations can make up for the regular losses they take during the off-season times.

GoAir Domestic (2012)

 Fig 4 GoAir Domestic (2012)

Average departures per month:
2678 (approx.)
Average No. of passengers carried per month:
350646 (approx.)
Average No. of passengers per departure:
132 (approx.)
Average mass of cargo carried per month:
1424 tons (approx.)
Average mass of cargo carried per departure:
0.5 tons (approx.)

The graph shown in Fig.4 depicts an erratically varied operation, departure wise. The airline has not matched the passenger traffic as closely as the others discussed above. A quick look at the average values tells us that the airline has had an average of over 2600 departures every month, transporting about 132 passengers per departure. The airline has also transported over 1400 tons (per month) of cargo for most of the year. This indicates that the airline has modeled its operations with an element of versatility so as to allow room for cargo and ticket revenue. This may also be one of the reasons behind an erratically varied operation with respect to the variation in its passenger traffic as depicted in the graph shown above. The peak season seems to be the Sep-Dec time period with a significant increase in passenger traffic and departures.

Indigo Domestic (2012)

 Fig 5 Indigo Domestic (2012)

Average departures per month:
9761 (approx.)
Average No. of passengers carried per month:
1230788 (approx.)
Average No. of passengers per departure:
127 (approx.)
Average mass of cargo carried per month:
7558 tons (approx.)
Average mass of cargo carried per departure:
0.77 tons (approx.)

The Indigo operations as depicted by graph shown in Fig.5 seem to be almost steady with the reduction in departures not exceeding 3% with the passenger traffic varying by greater amplitude. The beginning and the closing end of the year has seen steadily increased passenger traffic while the mid-term has seen a slump from the average. A look at the Jun-Jul region of the graph tells us that in spite of decreasing passenger traffic, the airline has either kept steady or increased its departures. The fact that the airline has not reduced its departures by over 3% indicates the operational strategy of continuous flights to capture the market share by means of the regularity. The ticket prices however might have risen during the mid-term owing to reduced passenger traffic.

The amount of cargo transported by the airline clearly tells the reason. The airline has, like the previous one, a steady source of freight revenue apart from ticket revenue. The ticket prices however may have risen sharply during those off-season days. Transporting about 127 passengers per departure tells the otherwise steady passenger traffic. Another highlight is the steep increase in the departures from Aug-Oct, also in coherence with the increase in passenger traffic. For any scheduled carrier to have such fluctuating departures pattern is a burden that is unavoidable, especially to those airlines that operate in the small-to-mid scale.


Indigo International (2012)

 Fig 6 Indigo International (2012)

Average departures per month:
579 (approx.)
Average No. of passengers carried per month:
86225 (approx.)
Average No. of passengers per departure:
150 (approx.)
Average mass of cargo carried per month:
455 tons (approx.)
Average mass of cargo carried per departure:
0.80 tons (approx.)

A trend similar to that in the previous graph is captured in Fig.6, which captures the international operations of Indigo. The first thing catches our attention is that the international passenger traffic had not decreases beyond 10% from the average. The departures have remained significantly higher than the passengers carried while still following the variation. The Jul-Aug region of the graph shows a steep increase in passengers carried (over 27%). It is interesting to note that while other airlines discussed so far have their busy seasons during the beginning and end of the year, Indigo’s international operations had been busy during the mid-term of 2012. A steep increase in departures (over 30%) indicates the attempt made by the airline to capture the market share during that time. It had transported on average, 150 passengers per departure while executing 579 departures a month. From the revenue standpoint, this should have been helpful. The cargo carried is not very high but 450 tons per month is a steady mass, given the restrictions imposed by heavy passenger baggage in international flights.

Unlike the other airlines, Indigo has kept a “one peak season” trend in its operations. This means that Indigo’s international operation got one chance to make up for the losses made during the remainder of the year.

 Jet Airways Domestic (2012)

 Fig 7 Jet Airways Domestic (2012)

Average departures per month:
11298 (approx.)
Average No. of passengers carried per month:
980130 (approx.)
Average No. of passengers per departure:
87 (approx.)
Average mass of cargo carried per month:
6454 tons (approx.)
Average mass of cargo carried per departure:
0.57 tons (approx.)

Fig.7 shows the Jet Airways (domestic) operations for the year 2012. The pattern of peak/busy season during the end of year with a slow season in the mid-term is evident from the graph. However, it is also very clear that the variation in departures followed the variation in passengers carried to some extent. The Sep-Oct region on the graph indicates a steep rise in passenger traffic and a corresponding rise in departures. It is interesting to note that the airline has maintained operational trends similar to those of the others discussed so far, given that Jet Airways is a privately owned and well established domestic and international airline in India. The airlines made over 11200 departures on average every month, clearly beating the rest of its competitors. The passengers and cargo transported per departure are 87 and 6454 tons on average. The high number of departures indicates the availability of a large fleet of aircrafts and an operational strategy of widespread connections and regular flights to keep hold of the market share and establish a state of steady revenue. This way, the airline would get multiple opportunities to make up for the losses made during off-season and unprofitable flights.

 Jet Airways International (2012)

 Fig 8 Jet Airways International (2012)

Average departures per month:
3144 (approx.)
Average No. of passengers carried per month:
468191 (approx.)
Average No. of passengers per departure:
149 (approx.)
Average mass of cargo carried per month:
12846 tons (approx.)
Average mass of cargo carried per departure:
04.09 tons (approx.)

Jet Airways (International) operations as depicted in the graph shown in Fig.8, tends to follow a pattern similar to those that have been discussed above. The beginning and end of the year had been the peak seasons with the mid-term as a slow season. The highlight is the May-Sep region of the graph where the departures have maintained a decreasing trend with a similar trend in passenger traffic. The overall variation however had remained within +/- 10% throughout the year, indicating the airline’s hold on market share.

Again, numbers wise, Jet Airways had handled most passengers in its international flights. Transporting an average of 149 passengers per departure and over 12800 tons of cargo every month indicates that the airline had steady ticket revenues as well as freight revenues.  Freight revenue might have been significantly higher as the price for international air transport is higher.


Jetlite Domestic (2012)

 Fig 9 Jetlite Domestic (2012)

Average departures per month:
3268 (approx.)
Average No. of passengers carried per month:
338732 (approx.)
Average No. of passengers per departure:
104 (approx.)
Average mass of cargo carried per month:
1611 tons (approx.)
Average mass of cargo carried per departure:
0.50 tons (approx.)

Fig.9 depicts Jetlite Domestic (2012) operation which indicates that the airline had a steady departures and passenger traffic with minimal variation for the first half of 2012 and the second half of the year began with a dip in passenger traffic followed by a spike in the same around Sep-Oct time period. Unlike the other domestic airlines, this airline has only one peak season characterized by the steep increase in passenger by over 30% with a corresponding increase in departures by over 20%, spanning over the Aug-Nov period of the year.

The passenger per departure is around 104 and the cargo transported per month is over 1600 tons which indicates a rather steady yet moderately occupied operations. Given the fact that this airline is owned by Jet Airways, it may be assumed that this second unit may have been deployed to capitalize on the marginalized sections of the market that is otherwise not captures by the bigger establishment.

Spicejet Domestic (2012)

 Fig 10 Spicejet Domestic (2012)

Average departures per month:
8313 (approx.)
Average No. of passengers carried per month:
884075 (approx.)
Average No. of passengers per departure:
107 (approx.)
Average mass of cargo carried per month:
5205 tons (approx.)
Average mass of cargo carried per departure:
0.63 tons (approx.)

Fig.10 above depicts the operations of Spicejet Domestic (2012) where the variation trend is similar to those of most other domestic airlines discussed above. The second and fourth quarter had been the peak/busy seasons for this airline. Transporting over 8 lakh passengers per month at a rate of 107 passengers per departure, the airline had a steady operation. The amount of cargo transported per month being over 500 tons indicates that the airline had steady freight revenue too. Over 8000 departures every month indicates moderately spread connectivity and high frequency. It also indicates that the airline operates outside the scope of small-scale operations.

The variation in departures however is not exactly matching the variation in passenger traffic dipping only once below the 5% mark. The fluctuation may be indicative of the idea that the airline’s operations are more regular with respect to the variation in market characteristics. The pricing during the mid-term where the passenger traffic significantly reduced, would have had major impact on the revenue.

Spicejet International (2012)

 Fig 11 Spicejet International (2012)

Average departures per month:
257 (approx.)
Average No. of passengers carried per month:
33479 (approx.)
Average No. of passengers per departure:
133 (approx.)
Average mass of cargo carried per month:
126 tons (approx.)
Average mass of cargo carried per departure:
0.76 tons (approx.)

Fig.11 above depicts the international operations of Spicejet, which has had a “one peak season” trend in 2012 with the highlight being the mid-term being the peak season. Unlike the other international airlines discussed above, Spicejet has had a sudden spike in passenger traffic of 100% complimented by over 90% increase in the departures. The fact that this sudden increase has happened after a decrease in passenger traffic by 42% makes it even more interesting. This sudden increase in number may be attributed to reasons such as addition of aircrafts to the fleet or increase in the frequency of flights or connecting newer destinations. There is also a possibility of ticket price reduction that may have attracted the large number of passengers. The last quarter also has seen a significant increase in passenger traffic. The number of departures and passengers transported per month are comparatively low in terms of numbers which indicates that the airline’s international operations had been in smaller scale compared to other international airlines. The average passenger per departure being 133 explains that the airline had a moderately occupied operation.


Issues Faced by Airlines 

The comparative analysis given above indicates that the airline operators have varied operational trends but face very similar market trends in terms of passenger traffic. They depend greatly on their operational strategies for revenues and have their pricing methods designed accordingly.

To get a close look at the issues, I spoke with a good friend of mine who happened to be an airline employee in the past, working in the technical services department of an airline that is not in visible operation anymore. I thank him for his constructive contribution to this research. The issues based on the data collected from the interview and secondary research are as follows:


Loss of Market Share owing to High Pass-On Cost

The ATF prices and related sales taxes levied in India take up a major chunk of revenue generated by airlines in the form of fuel cost. The ATF price has a very volatile nature in the Indian market and the airlines have no other way but to bear the cost and pass it on to the passengers. This translates to increased ticket fares that in the long run forces passengers to switch airlines on the basis of ticket cost. The sales tax for ATF roughly varies between 25% and 30%, maintaining an average of 28%. Few states in India have 0% sales taxes on ATF but those are states that are least connected by airlines owing to very low passenger traffic to and from those regions.

The airport charges, as per the airline operators are very high, especially to those airlines that have a rather small scale of operation. The demand for take-off and landing slots in busy airports is high and therefore the cost of connecting busy airports becomes naturally higher for airlines. Again, the cost is passed on to passengers leading to an eventual loss in market share.

Owing to regulatory restrictions, airlines are forced to begin with a minimum number of aircrafts that is greater than one (depending on the category of aircraft). This forces the airline to lease more aircrafts and the cost of leasing, added to the related minimum equity requirements that have to be satisfied for operational eligibility poses a big entry barrier to those operators who wish to enter the airline industry with a low-cost or small scale business model. This increased initial cost motivates the operators to pick up revenue oriented pricing methodology that ends up resulting in loss of market share. As a result the airlines have to go through a longer gestation period before they realize a profit-earning operational trend.


Lack of Technology and Technical Expertise

As per the cancellation data of scheduled domestic airlines, released by DGCA, 47.9% of cancellations as of May, 2013, had been due to technical reasons. It has also been established that, excluding the large, established airline operators, those that have small-scale operations do not have enough technical expertise or infrastructure to meet the technical issues at all destinations connected by the airline. There are times when aircrafts face technical snags at destinations where the airline does not have technically qualified personnel or equipment ready to resolve such issues. The airline borrows the equipment from other equipped airline and sends its technical personnel from its home base. This forces a delay in operation as well as an increased cost of renting equipment along with transportation of personnel. Also, there is a popular opinion among aviation professionals that there is lack of technically skilled personnel to meet the technical requirements of newer aircrafts that are being introduced in the Indian aviation industry. This lack of technically skilled and certified personnel forces the airlines to have a weakly structured maintenance process that eventually fails to avoid technical snags that causes most of the operational delay.

Aircraft maintenance is an important aspect of the airline business and it needs careful assessment and suitable investment of resources. Maintenance works such as engine overhaul & repair tend to be an expensive affair for airlines and often times engine-related technical issues cause large financial losses to airlines. Lack of personnel and equipment only worsens this scenario.

The aircrafts used by airlines are for the most part, mid-sized to large jet aircrafts. Pilots capable and certified to fly these aircrafts are not easily available as all the training institutes that operate in India are not equipped to provide the necessary flight training with jet aircrafts. Select govt. aided training institutes have a few jet trainer aircrafts and only those pilots graduating from those specific institutes get ample opportunities. This in turn poses the restrictions on airlines from choosing the ideal aircraft for their business, forcing them to choose from select categories of aircrafts, based availability of certified pilots and related certified technical personnel.

Reduced Market Penetration due to Revenue-Based Pricing Strategy 

As per the DGCA statistics, as of 2012, the total number of passengers transported by the Indian airline industry (including domestic and international) amounts to 7,00,49,250 which is roughly about 5.84% of the Indian population. With an increasing middle-class population with increasing spending power, the Indian airline Industry is yet to tap the entirety of the air transport market in India.

A large portion of travellers choose other means of transport owing to the fluctuating and high air ticket fares. Although airlines with small scale operations and a low-cost model attract passengers, they eventually fall back into the trend of revenue-based pricing strategy in order to cover their losses in the short run. This in turn restricts the airlines and the airline industry in general from further penetrating the air transport market.

Expert Contribution:

An experienced aircraft engineer, who wishes to remain anonymous, has taken time and efforts to look into issues discussed here and contributed some real-life insights and instances from his experience spanning over 40 years and many airlines. I thank him for his expert advice and suggestions. Here is a brief mention of key insights he shared with me:

1. Lack of Training:
Apparently, many airlines do not take the efforts to train all their personnel. It is an almost industry wide trend to assume that only the flight crew and signing engineers need to be trained. In reality every person, in any airline, needs to be qualified and trained to do whatever he/she does. because of this lack of training, a lot of mistakes happen, resulting in losses that the airlines have to bear.
2. Lack of Proper Planning:
A lot of times, scheduled maintenance activities are not planned elaborately. The planning must cover every detail including allocation of manpower, spares and so on, so that no unforeseen reasons cause any delays to the Aircraft-On-Ground activities, which directly results in revenue loss to the airline. Now a formality sake plan and an actual detailed plan that is feasible would be two different entities altogether and it takes knowledge and courage to understand and implement the right one.
3. Wastage of Resources:
It has been noticed that many a time, the expensive aviation greases and fluids (consumables) are not properly stored and instead left open/lid-less resulting them getting spoiled by dust and rain. Also due to improper methods of storage and transport of expensive spares, they have been damaged beyond repair. A mere effort to design processes that enforces usage of IATA/ATA specified packaging may save the airlines a lot of money by not letting those damages from occurring. Enough manpower needs to be allocated to ensure every task is accomplished as per the industry standard (in the real sense).
4. Improper Inventory Management:
There had been regular instances where a lot of components would be replaced as a "Precautionary Measure" and the removed units would end up in the inventory as "No-fault-Found" but never recorded into the accounting system. Such spares being held by inventory only adds to the "Dead Stock" of useful material that has no purpose. Such items should be properly accounted and excess inventory should be salvaged on timely basis. This will provide running money for the stores department and also make space for more spares of actual value.
5. Unplanned Procurement Methods:
There had been an airline that did not streamline its purchase process and ended up with a big inventory of aircraft tail-assemblies (Empennages) that it could not salvage until the airline formally shut down. All purchases made must be thoroughly planned and scheduled.

Expert Opinion:
This experienced aircraft engineer sincerely believes that all personnel of the airline must be trained in their specific tasks, industry standards and company policies, irrespective of their qualifications and experience. Regular training can keep the workforce updated with the latest trends and techniques that can help the airline in many ways.

What Can Be Done

Fuel costs, taxes, duties and regulatory restrictions are part of the market characteristics that all airlines have to endure irrespective of their scale and scope of operations. It is therefore required to create a solution mechanism or platform that can serve the airlines and other members of the aviation industry by means of collaborative ventures while not hampering the scenario of competitive coexistence. This mechanism shall not be based on the availability of regulatory exceptions but in fact be independent of the same.

This may be segregated into Synergies or Consortiums, where multiple players participate to help each other out. Each system may be established as separate collaborative entrepreneurial ventures. These systems would in no way enforce any type of mandatory participation from any member of the aviation industry. The willing participants will make appropriate contributions and share the benefit with the other members in a mutual manner.

Consortium I: Operator-Trainer Joint Venture

The first consortium of such kind would be that of the airline operators and technical training institutes that train personnel for the flying and maintenance streams of commercial aviation. Most flight schools and AME academies do not have access to jet aircrafts owing to high cost and therefore the personnel trained by them are dependent on the operators to hire them and train them further for appropriate certification before deploying them into their operations. This imposes a heavy recruitment and training cost on the airline operators. This situation is synonymous to both the flying and maintenance streams. The pilots who graduate out of most flight schools are trained on propeller driven aircrafts and therefore do not have any jet aircraft experience while they join any airline as a trainee pilot. Very few flight schools that are aided by govt. funding have jet aircrafts and only their pilots graduate with jet aircraft experience.

This consortium may be a multi-partner joint venture business based on what may be a viable “Operator-Trainer Synergy” philosophy. In simple terms this would be a joint venture where the participating operators would collectively fund the establishment of a jet-aircraft related training infrastructure and the participating training institutes will fund the related civil/academic infrastructure. In exchange for the funding contributed by the operators, they will get custom-trained pilots and maintenance technicians trained by the participating training institutes and flight schools. The institutes will customize their regular course modules to suit the specific needs of the contributing operators. The jet aircraft and related maintenance training equipment shall be provided by the operators. The Fig.12 given below gives an overall schematic of this consortium:

 Fig 12 Schematic of Proposed Operator-Trainer Consortium

Scale, Scope and Depth:

The initial scale of this consortium may be as minimal as possible, featuring just one jet-aircraft (trainer) and related equipment. The academic institutional infrastructure may be one institute built with a dedicated air strip. Leasing out an unused or abandoned airfield may be an option to begin with. Depending upon the operator requirements, operator specific training equipment shall be installed in the institute in a minimal scale but of complete and comprehensive nature. The scope of teaching may be subjective of the technical expertise requirements of the operators in the technical and flying streams respectively. These specialized courses may be regular coursework added with additional modules involving the concerned operator specific requirements. The students recruited shall be allotted specific operator upon admission based on the training and release commitments decided by the consortium. The recruitment of students may be subjected to both the operators’ and institutes’ collective supervision so as to enable transparency and avoid the corruptible institutionalization of the consortium by external parties.

The depth of this consortium may be restricted to the regional level to begin with and it may be gradually expanded to a national level, as per the growing demands and increased participation of operators and training institutes from other regions. The consortium may however have its management comprising of third party executives with the participating operators and institutes being represented by their own selected executives who may contribute but not control the executive management of the consortium. The training programs shall be designed such that they do not end up cannibalizing the stand-alone training programs of the participating institutes. This way, organizationally, the consortium may function as an independent entity to ensure an element of fairness in its operations. The detailed organizational design falls out of scope of this research and therefore not included.

Benefits:

The operators can design, alter or expand their operations without much hassle as they have an independent body working in sync with them to produce their required technically skilled workforce. Newer aircrafts may be chosen for operations depending upon the availability of its related training infrastructure available with the consortium. As the consortium will have an evolutionary design, it may be expected to grow over time. Its growth would directly reflect on the extent of diversification/expansion of operations by the respective airlines. Institutes may benefit by receiving suitable training fees from the consortium for training the personnel with custom-designed courses. This way the operators get their regular supply of skilled workforce and the training institutes get an opportunity to invest and generate steady revenue apart from their individual stand-alone training operations. The stand-alone training programs by the participating institutes would benefit by getting access to additional training modules and related infrastructure helping the institutes grow further.

Consortium II: Operator-Operator Joint Venture

The initial analysis of airline operations reveals that scheduled airlines, both domestic and international, depend on ticket revenue as well as freight revenue. Now air freight has its own restrictions on the means, modes and materials involved. A major disadvantage of transporting cargo via air is the fact that it is an airport-to-airport affair. The sender and receiver have to engage themselves to submit and retrieve the cargo from their respective airports on a timely basis. Although there may be independently operating businesses that handle gate-to-gate shipping, such services are often out of reach owing to cost and accessibility issues and the mere existence of such businesses do not hold any significance with respect to the freight revenue generated by airlines. Also shipping through airlines imposes a restriction of timely delivery at the destination airport and any delay in collecting the cargo may put the operator, customer and the airport resources in trouble.

This second consortium would be an integrated supply-chain mechanism with participating members being land-based logistics operators and airlines. The consortium would establish itself as an end-to-end shipping service provider connecting destinations that have an access to airports. The cargo may be picked up from the customer point, shipped via air through an available airline and delivered to the target destination. The service will provide an end-to-end shipping service to the customers. The Fig.13 given below provides a schematic of this supply-chain mechanism:

 Fig 13 Schematic of Proposed Collaborative Supply-Chain Mechanism

The infrastructure to be established would be the respective cold and dry warehouses suitable to hold different types of cargo. The trucks and trailer-tractors may be provided by the participating shipping service providers. The consortium may comprise mostly of service contribution from the airlines and logistics operators, other than the warehouses at each connecting destination.

Scale, Scope and Depth:

The scale of operation may be large enough to accommodate the participants and the operational constraints. The prime operational feature of this service may be the transfer of cargo from the airport to the warehouse/customer point as per the delivery requirements, thereby relieving the airlines of the burden of timely cargo clearance from airport premises. The scope of this consortium would be limited to those materials that qualify for air-transport. The depth of this consortium again shall remain regional to begin with and depending upon addition of participants, suitably expanded.

This consortium being a collaborative supply-chain mechanism, would require detailed design of each link of the supply chain, complimented with a robust scheduling methodology that enables all the airlines and logistics operators, a fairly-shared opportunity to carry cargo, while providing the customers of the service with a one-stop shipping solution at their doorstep.

This consortium, like the previous one, shall have an independent management with equal representation of the participating members.

Benefits:

The airlines will have an externally operating system (consortium) that may collect and provide sufficient amount of cargo on a regular basis such that the participating airlines always operate at their preferred load-factor range. The airlines will get an opportunity to compensate their sparely occupied aircraft with suitable amount of cargo and thereby can make up for the loss of ticket revenue by the freight revenue generated. On a flight-by-flight basis, this may not be very visibly profitable but in the long run, airlines would be able to reduce losses by the addition of this marginal revenue on a recurring basis. The initial investment in this case would also be minimal as the participating members may be higher in this case.

The logistics service providers who would contribute by providing their trucks and tractor-trailers would benefit by getting a source of continuous business, enabling them to have their vehicles profitable occupied. The trouble of price negotiation on a case-by-case basis is also significantly reduced, allowing the operators to effectively estimate their revenue and plan their operations accordingly.

The customers, mostly businesses, will have a new mode of shipping service that they can choose to ship cargo without having to coordinate with multiple operators. More businesses will come forward to ship through such services allowing the airlines and logistics operators to further penetrate the shipping market while still operating in their respective domains. The consortium being an independent body, would handle the burden of coordinating the elements of this collaborative supply-chain mechanism.

Pitfalls to be Aware of

Both the above mentioned consortiums are nothing but an optimized version of otherwise existing business models around the world. The participating members, their relationships and their contributions however make these consortiums unique. Such widespread entrepreneurial collaboration can bring together the otherwise segmented business world in India and can help the airlines in many different ways. The risk of such consortiums is that, over time, they might evolve to establish an unfair monopoly that may contradict the laws that protect fair competition. It is therefore a necessity to ensure a systemic control over the mechanism of such consortiums so as to ensure it does not enforce monopoly or harbor unfair oligopoly. The objective shall remain to be focused on the benefits of the participating members without destroying existing or growing opportunities that may benefit everyone. This is the prime reason, I propose to keep the managements of these consortiums, an independently operating body, constrained by the binding agreement over performance levels and duly delivered benefits, financial and operational.

Simple Steps for a Safer Future

The airlines that have small-scale operations with a low-cost model need to assess their capabilities and constraints clearly and use the information obtained to design their operations. Following an already existing operational methodology with revenue oriented strategy will only force the airline to adopt the ticket pricing model quite similar to their competitors and other established airlines. This may eventually lead to an unintentional “Cartelization” of the ticket pricing, which may end up charging the passengers more to compensate for the empty seats that airlines operate with. This may in turn restrict many flyers from choosing other modes of transport, leaving the airlines to just meet the existing demand from those passengers who can afford to pay the high prices. This way market penetration remains a restricted strategic move for most of the airlines. The pricing methods must be developed based on the airline’s cost estimates calculated through real time analysis of operational data rather than following a randomly developed software system or following the competitors on a regular basis.

Establishing better aircraft maintenance programs with enough trained personnel, supported by suitable Annual Maintenance Contracts with MRO’s and manufacturers for expensive and sensitive aircraft components (such as engines). These maintenance contracts can help the airline weather any sudden technical snag that may otherwise cost more in the form of an incidental expense. Also the airlines need to make sure that they have sufficient manpower and equipment at all connecting airports, so that they can handle their technical issues management on their own instead of depending on other operators for equipment and other resources. These establishments should never be considered auxiliary as they are essential for the airline’s trouble-free operations.

It is a popular opinion among professionals in the commercial aviation industry that in any airline, the certified engineers get paid handsomely but the remainder of the technical and non-technical workforce handling the maintenance and ground operations are being paid very low salaries, because of which there is a high employee turnover. Continuous recruitment and training adds significant financial burden and to avoid that the airlines need to pay the workforce, suitable salaries. When the market is unstable and unreliable, there is no reason to follow market trends without a fact-based decision.


Conclusion

Having gone over the operations of airlines, we were able to identify and understand the operational volatility faced by the airlines and their corresponding issues that hurt the airlines financially. Although there are many regulation-based issues hurting the survival of India’s airlines, in my view, there are many issues that can be solved with changes to operational behavior. The proposed consortiums may help the airlines and related businesses coexist in a collaborative yet fairly competitive environment in spite of the restrictive regulations, taxes and infrastructure deficiencies.

Thanks to all of the professionals who gave their insights that formed the basis for this post. A special thanks to the experienced aircraft engineer, who took time to share his knowledge with me regarding this topic.

Having analyzed India’s airline industry in my own little way, I feel that I have reached a point in my thought process where I am prompted to wish that if I had the money to get such big business models moving, someday, I will.

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http://www.businessreviewaustralia.com/sectors/why-joint-ventures-should-be-part-every-corporate-strategy-0
http://en.m.wikipedia.org/wiki/File:Airport_symbol.svg
http://openclipart.org/detail/25362/aiga-rail-transportation-bg-by-anonymous-25362
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Regards,