Business and corporate strategies for the future in the Indian airline industry

Abstract

The airline industry in India since liberalization has been plagued by infrastructure bottlenecks, shortage of quality pilots and lack of focus on specific strategy by the major airlines. This has led to most of the airlines suffering from below optimal profit levels compared to their counterparts in other countries. In addition, lack of distinction of full service airlines and low cost airlines has resulted in many of the airlines try to balance both the strategies under the same umbrella brand. In this project, we attempt to first chart down the history of the airline industry in India so far. Then we moved on to discovering the profitability of the industry using Porter’s five forces and overall growth prospect of the industry in future. Attempt has also been made with regard to finding out the business strategies of the players and a perceptual map of the various players have been drawn to find out the strategies with respect to each other. The next stage involved identifying the major players in the industry and the strategies of each with respect to operational efficiency, service, marketing strategy and cost effectiveness. In the next phase, we look at the recent trendz and developments in the airline industry and in the end we offer our recommendations to help these airline companies solve the problems they are facing currently. One of the main issues of the air carriers currently is that they are bleeding profusely with most of the airlines suffering losses and only few of them having reached breakeven. The case of Kingfisher Airlines and Air India can be brought up to illustrate the fact that these carriers have been destroying shareholder value by increasingly taking debt from the market and asking for bailouts from governments. Kingfisher is currently in a tight situation with banks like SBI refusing to raise their debt levels for fear of default, debt level of about 7000 crore and air turbine fuel companies stopping supply of fuel unless the company pays on a daily basis. Air India on the other hand has been the cry baby to the government with no clear strategy, vintage staff and archaic aircrafts. The accumulated losses of Air India have reached to about 22000 crores and still the government is reluctant to sell the carrier to other domestic players or foreign players. A major breakthrough in the form of allowing FDI in the airline sector is required even if in a phased manner so that these carriers can be restructured and turned upside down to have the potential to make them profitable. Many of carriers are on the other hand are lobbying for not allowing FDI in airline industry as foreign players would be acquire domestic players easily, even the profitable ones. So the government will have to make a tradeoff and think about whether to allow FDI in the sector. Another possibility which may be able to save the airline companies is mergers and acquisitions. Smaller carrier companies can merge if their strategies are aligned. If mergers and acquisitions sound too far-fetched, one solution within the reach of the carriers is to have strategic alliances to complement their capabilities with each company fulfilling its role in the value chain depending on its core competency. Indian carriers need to also outsource non-core activities to specialized companies which can do them at a lower cost and with greater efficiency than themselves. This path has been followed by the US airline industry given that it is in its maturity stage. Through our analysis we came to the conclusion that airline industry is a very difficult industry to survive and earn substantial profits. Clear cut strategies both in terms of business and corporate strategies are thus required to survive in this industry in the long term.