The conspiracy against Air India

Part I

Chapter 4 – The conspiracy against Air India

Fifteen years ago, I used to go to the newsstand every week to pick up the latest copy of “India Today” and “Outlook”. I used to wait for the film reviews every Sunday, but more often than not it was to compare notes with mine as I had already seen the movie on Saturday. A Three Star review meant Three Stars.

And then, the Internet happened. And Five Day tests and One day matches in coloured clothes moved to three hours of excitement in 20:20 Cricket. Our world was divided into three – Our social circle, our Facebook friends and the others.

We have moved beyond the email forwarding age to the Facebook and IPL age. I don’t need to go home to dial up and check the review of a movie. It’s pushed onto my mobile and my iPads when I’m moving from MG Road to Jayanagar, by content providers who are vying for the few seconds of my attention to turn into advertising opportunities and email databases. Everything today is just one status update or one tweet old, and our memory is limited to just forty overs. Everything is instant, and Sunday is too late for a movie review – Thursday night is the night to bash the movie, or make sure the paid media praise the movie no end.

And we are bombarded with these status updates, tweets and apps. Bombarded with information, that is still growing at an exponential rate, because an eyeball is worth money. With Facebook and Twitter, our first reaction to anything is to convert it into a smart-aleck status update or tweet, and hope that someone, anyone, “likes” it. We are judged by the number of likes and comments on our updates. A few clicks of an iPhone from the cinema hall and movies are bashed and murdered mercilessly, and most importantly, effortlessly. Everyone is empowered to become a critic on movies and cricketers, and wants to stake his claim to become a talking head on television or just have more “Likes” on his update. Saying something nice about Abhishekh Bachchcan in this age would completely destroy the credibility of a film critic, even if the actor has turned in (yet) another wonderful performance.

We don’t stop to think or sieve out the information or the millions of status updates and associated comments. Yesterday, google was the gospel truth. Today, Facebook updates are the gospel truth, and the paid media that push products and movies to us as content. We may find it absurd that the previous generations used to believe in a whole host of mumbo jumbo and traditions, which are fast changing. The next generation may find it absurd that we believed status updates and google results. The next generation will have no choice but to sieve out the noise from the actual music, because there will be way too much noise in the future. To stop and analyze an issue without the media hyperventilating or talking heads drowning each other out in order to make a point.

Air India is a victim of this age. The national carrier is caught in a vicious cycle of phone taps, mounting losses and email forwards. The media has found enough fodder to fill up half a page every couple of days and they are not going to let go easily. Air India too is at fault. Air India may be corrupt. But Air India has an important role to play, and if it is allowed to play that role within the environment of corruption and the private players, it can contribute positively. Air India may be making losses, but which private full service carrier is making money? Jet Airways has never reported a profit since 2006. Kingfisher Airlines has never reported a profit, ever.

Let’s stop, breathe and look at the conspiracy against Air India.

Benefiting private players

There is an argument that Air India withdrew from profitable routes to favour the private players. In an article in “Governance Now” entitled “Murder of a Maharaja – The very short story of how they killed Air India”, Sweta Ranjan has pulled out an email sent by the Air India representative in Doha to F J Vaz, AI’s regional Director in India protesting against the decision to withdraw the “profitable” Cochin Doha IC 997/998 flight and hand it over to Air India Express.

Mails from Sales offices to the Head office are fairly common, and are blown with emotion once a decision is made to withdraw a flight. It is more of an ego issue than a commercial issue. I remember my sales team writing to our head office about the proposed withdrawal of a Chennai to Singapore flight, giving them analysis and numbers. But at the end of the day it’s simple – You’re sending this fancy huge piece of metal across burning tons of fuel, and the passengers don’t add up. Ego issues and emotions run high even when a subsidiary (Silkair in the case of Singapore Airlines) or a low cost subsidiary (Tiger Airways) are sent on the route as additional flights. It’s not easy for the sales staff of a full service carrier to accept such decisions. So there was nothing out of the ordinary with what the Doha rep of IC did, but using it in an article proving that corruption killed Air India won’t hold good in a court.

And Indian Airlines wasn’t withdrawing from the route. It was replacing a two cabin Business and Economy aircraft with the low cost subsidiary Air India Express, offering more Economy seats rather than just splitting up the aircraft with a Business Cabin that hardly went full.

The beneficiary was supposedly Jet Airways. Let’s look at Jet Airways figures on this route. Jet for the last one year from June to May 2011 has carried an average of 3 Business Class passengers on the flight every day. On an aircraft carrying 16 Business Class seats occupying a lot of real estate, this is clearly not a good indicator. For twelve consecutive months ending May 2008, IC carried a grand total of one genuine business class passenger every four days. The largest carrier in Business Class at that time was Qatar Airways. In the twelve consecutive months ending May 2009, IC carried a grand total of 11 genuine passengers in Business Class. (Source: IATA Passenger Intelligence System). There is no way of getting accurate information on Air India Express loads on this flight.

Putting aside all the emotions that go with pulling out a flight or the ego tussles of Air India staff having been glued together with Indian Airlines staff, it was a logical decision to move the flight from Indian Airlines to Air India Express. After all, that was the whole purpose of the merger – to rationalize routes and to target routes that had heavy Economy Class content at low fares to move to a low cost subsidiary.

Also, a “95% load factor” doesn’t mean anything in the airline industry – A hard profit in the balance sheet is the only parameter that walks to the bank, not a bunch of passengers who fill up a flight at cheap fares. I remember visiting our office in Shanghai and they were pressing for re-introduction of the failed Mumbai-Shanghai-San Francisco route. They said “it clocked load factors of 90%”. Yes, but it was also a huge 312 seater Boeing 777 that flew and burnt around INR 6 lakhs worth of fuel every hour in its 10 hour flight across the Pacific. The flight was also carrying eight First Class seats that took up a lot of real estate on the aircraft but they didn’t have enough bums on them. And Eight seats will hardly distort a Load Factor when the total number of seats is 312.

Let’s move point by point on the other allegations against Air India withdrawing flights. The same flight above IC997/998, Cochin Bahrain was supposedly withdrawn to favour Jet Airways. It was transferred instead to Air India Express. And the supposed beneficiary, Jet Airways, has realized that it is bleeding red on the flight and has withdrawn from the route altogether!

According to the article, Cochin Muscat was withdrawn to pave way for Jet Airways. Cochin Muscat was actually handed over to Air India Express. Jet Airways, for perspective, carried an average of four genuine Business Class passengers per flight, leaving the remaining 12 seats empty or with upgrades.

IC925/926 Calicut-Muscat was withdrawn to pave way for Oman Air and Qatar Airways. Erm, Qatar Airways hubs in Doha. And as for Oman Air – Around 50% of its passengers between Calicut and Muscat transferred to flights beyond Muscat, to the rest of the Middle East and Africa, which won’t be possible on a point to point carrier like Indian Airlines. On average, only around 70 passengers a day flew on Oman Air purely to Muscat, so if IC flew with these loads at the prevailing fares, it would definitely bleed red.

According to the article, Calicut-Doha-Bahrain was withdrawn, but it was transferred from IC to Air India Express. The beneficiaries were supposedly Emirates, Qatar Airways and Bahrain Air. Erm, Emirates hubs in Dubai. Qatar Airways carries an average of 80 passengers a day from Calicut to Doha, the remaining 40% of its flight transferring flights to the Middle East and Europe. Which explains why Air India flies three times a week instead of daily. And also explains why Jet Airways pulled out of the route in 2009.

IC595/596 Mumbai Calicut was not withdrawn but transferred to Air India Express. And the supposed beneficiary, Jet Airways, didn’t even operate on the route. It was always Jetlite, showing that there was commercial sense in transferring the route from IC to Air India Express.

IC993/994 Calicut To Kuwait was not suspended as the article reports, but transferred to Air India Express. The supposed beneficiaries, Emirates and Air Arabia, don’t even hub in Kuwait. Even if Emirates carries passengers from Calicut to Dubai and transfers them to its Kuwait flights, it only carries 30 such passengers every day.

Moving down the list, the article talks about withdrawing IC737/738 Chennai Bangkok to favour Thai Airways, and withdrawing Bangalore Singapore to favour Singapore Airlines and Tiger Airways. Tiger Airways is no longer operating this sector, and Singapore Airlines and Thai transfer around 50% of their passengers to flights beyond Singapore and Bangkok.

The article mentions Air India Express having cancelled IX343 from Calicut to Dubai, IX 373 from Calicut to Bahrain benefiting Qatar who doesn’t even hub there, IX 363 from Calicut to Abu Dhabi benefiting Etihad Airways, IX 337 from Calicut to Muscat benefiting Qatar and Air Arabia who don’t hub there and IX 351 from Calicut to Sharjah benefiting Air Arabia. There’s no need to look at the numbers for this one – The Air India website shows that these flights are operating!

There are more flights mentioned, especially on the domestic circuit, but having gone through the international flights, it shows that the article and the allegations against Air India are baseless. There may be more to the withdrawal of the flights than what we see, but most of the decisions seem to be based on commercial sense. Airlines continually review their routes and chop flights or change to low cost subsidiaries as the case may be. Singapore Airlines used to be the king of the Singapore Kuala Lumpur sector, but with the opening up of the skies to low cost entrants like Air Asia, decided to move seven out of its ten flights to Silkair. That doesn’t mean that it benefits Air Asia – It just means that the market dynamics have changed.

The second part of the article by an ex-director of Air India, Jitender Bhargava, headlines “A series of dubious decisions dressed up as big thinking have hastened Air India towards what looks like certain death”. Very morose, but not untypical of the media headlines today. It talks about Air India, in the post NDA days and the first few days of the UPA government, was told by Praful Patel to think big and look beyond ordering 24 aircraft – ten long hauls and 14 narrow body aircraft. Air India reviewed its requirements and upped the order to 68 aircraft – 50 long haul and 18 short haul. The Comptroller and Auditor General report on Air India has dug out that AI executives wanted to place firm orders for 35 aircraft and keep the remaining 15 as options, but the government decided to place firm orders on all 50 aircraft. In the days of Lalit Modi and the complex web of the 2G scam, there may be more to this than meets the eye. But from a commercial perspective, even 50 aircraft for a decently run Air India is peanuts, representing one of the biggest aviation markets in the world. Emirates currently has around 150 widebodies and Singapore Airlines around 100. And both these airlines have a home base population of less than Bombay or New Delhi. So there’s nothing stopping Air India, decently run and with the support of the government, from replicating a Singapore Airlines or an Emirates model. And to do that, even 200 widebodies won’t be sufficient. An India Today report (Source: http://indiatoday.intoday.in/site/story/praful-patel-plummeted-air-india-into-financial-mess/1/137466.html) states that “the inflated purchase order was not backed by either a viable revenue plan or expansion of routes.”. Fair enough, this seems plausible given that it’s Air India, but it is difficult to come up with a concrete route plan five to seven years before taking delivery of an aircraft. The five year plan of one of the carriers I worked for changed every six months. The market dynamics of the industry change every few months, and today operating a particular route may make total economic sense but three months later, competition, a recession, fuel prices and / or an earthquake may force a change of plan. One of the other carriers I worked for didn’t have a five month plan, let alone a five year plan. This carrier had no idea where it was going to send its aircraft till the spanking new bird was taxiing into the airport upon taking delivery. The article also mentions “Between January and August 2004, there wasn’t much change in the aviation scenario – either by way of load factor or growth in traffic. Yet, the meeting presented a bizarre justification for the purchase of new long-range aircraft.” – Aircraft orders are not made for changes in a span of eight months. Aircraft orders are made based on planned growth for the next eight to ten years, and more often than not the airline route planners get it wrong. So although Praful Patel may have had his own dubious reasons for ordering these aircraft, looking at the explosive growth in Indian aviation in the last seven years, he may have coincidentally been proven right.

The article by Bhargava also talks about the then Chairman Thulasidas using “all ploys to create an environment within the company that everything was hunky dory… To dress up the balance sheet, some of the owned aircraft were sold and leased back. In such an arrangement, the lump sum recovered from the sale is shown as income while the lease rental… is shown as expenditure”. Every airline does this as a standard practice to free up the value of their assets in bad times and get cashflow to run operations. There was nothing unusual about what Air India was doing. True, the AI balance sheet is dripping with red ink today, but so are the balance sheets of the private full service carriers. Using these “ploys” is standard operating procedure.

The article goes into a whirlpool of emotions, talking about board members and bureaucrats “destroying the foundation of Air India” and “joined in the annihilation of the airline”. But beyond this and a clear ego battle, there is nothing concrete in the tirade against AI.

A third article by Susmita Dasgupta talks about how AI is making way for Jet the same way BSNL made way for Airtel. “There have already been murmurs about Jet heavily bribing the national carrier to hand over operations”. It’s a free market and both Air India and Jet have a role to play. Both are bleeding and Air India (with Air India Express) is still the largest carrier operating internationally out of India today. There are very few routes that Jet operates that AI doesn’t and AI operates many more routes that Jet doesn’t. In principle, a conspiracy theory about Jet and Kingfisher benefiting from AI may well make sense in today’s scenario, but the actual fact is that no one has “benefited”, as we have seen in the flight by flight analysis. It’s a free market and both Air India and Jet have a role to play. PSUs need to survive in this free market, and compete against the private carriers.

Back to the India Today article: “Additions were made in the Boeing order. That included Boeing 777 LR (long range), Boeing 777 ER (extra range), and Boeing 787 Dreamliner.”. Jet Airways has ordered the Boeing 777 ER (which by the way is Extended Range and not Extra Range), so there’s nothing unusual about ordering the aircraft type. The way the article puts it, it makes it look like Air India has ordered a one engine propeller boat instead of an aircraft. Today, Air India is the only Indian carrier to offer nonstop flights to the USA. Thanks to it’s Boeing 777 LR aircraft. “Shockingly, the Dreamliner, which did not meet the delivery schedule was selected, for which Air India is now seeking compensation from Boeing.”, continues the article. There is nothing shocking about the Dreamliner not meeting its schedule. In 2004 a lot of airlines ordered the Boeing 787 as one of the most exciting next generation of aircraft that promised to offer unparalleled fuel efficiency with much lighter composite materials as its base. The first delivery for All Nippon Airlines was supposed to be in 2008 and was delayed, so there was no way that Air India could have predicted this in 2004.

And here’s where a lot of hype around the aircraft orders arises: “How an organisation, whose annual turnover was around Rs 7,000 crore, could place orders worth Rs 50,000 crore”. First, INR 50000 crore is the list price of the aircraft and AI (or any other airline) would have negotiated substantial discounts. Secondly, that is the nature of the airline industry – Your turnover may be X, but you order aircraft worth 3X or 5X because they have to be delivered over five to ten years. Your cashflow and loans will fund the aircraft orders, but your turnover and the value of the order have nothing to do with each other. Case in point: Indigo’s 180 aircraft order worth 67500 crores. The combined turnover of all the airlines in India won’t hit this number.

Let’s stop and breathe, and allow Air India to breathe. Let’s not kill it off with conspiracy theories, Facebook updates and Breaking News talking heads.

Corruption and the assembly elections

Realized my blog can’t sustain on aviation topics alone ha ha ha.

There’s been enough newsprint and virtual space dedicated to the recent assembly elections and the Anna Hazare issue and the people’s verdict. The articles seem to stating about the same thing – The people have rejected corruption.

Who are we fooling?

Corruption is a way of life in India. The so called public “anger” against corruption is nothing but hypocrisy, because we are all a part of it. We talk about the 5 digit crore scam in 2G, we talk about crores here and there and we are all “angry”. We light candles and sign petitions when someone goes on a fast to end corruption.

END corruption? Ha ha, maybe world peace will be easier to achieve. When was the last time you paid the cop 100 bucks for speeding on an 80km/h highway at 110? Sure you may think 80 km/h is a ridiculous limit for a super smooth 6 lane highway, but the 100 bucks is not the solution. When was the last time you paid 200 bucks for drunken driving, even though you weren’t drunk, just to avoid the harassment, or even the long drawn process to go to court and fight your case? Why don’t you argue when the sub registrar asks for a cut when you register your house, just so that he can pull out some daft rules and delay your registration?

Corruption just in the public sector? Why don’t you refuse to pay the capitation fee or donation or whatever else they call it these days for admission for your kid in that prestigious school you want him to go to? Or the 8 digit fee to get into that private medical college?

All these would add to much more than the 64000 crore or whatever crore of the 2G scam… And the blah blah blah crores of the other scams put together. And we’re angry that Raja made so much money!

So the assembly elections have proved that the Indian voter has outright rejected corruption. Since when do we have a “clean”, non-corrupt option to vote for? Or do we vote for the lesser of the two evils? But of course when we vote the lesser of the two evils in, they get the power to correct that imbalance, and make more money using their power!

And we’re talking about a state which has perennially voted in the opposition election after election. I was in Tamil Nadu when JJ got voted out of power in 2006 and MK took over. The electorate in 2006 used their power to vote out corruption and vote MK in. And what did he do? Made potloads of money!

But lets not forget what else MK did – Madras got some of the best infrastructure the country has seen, in roads and flyovers and whatnot. The stretch from Madras to Sriperumbudur has seen Hyundai, Nokia, Motorola, Dell, Samsung, Caparro and a host of other companies either enter or expand. The stretch from IIT to halfway to Mahabs has seen a planned IT boom, making Madras the second largest IT exporter in India (and not their overhyped cousins in Hyderabad). The stretch from the airport to halfway to Pondy has seen IT parks mushroom up and companies like Nissan and BMW set up shop. The best roads in the country outside of Lutyens Delhi are in Madras.

True, the administration rakes in moolah in terms of bribes to construct these roads and let the Hyundais and the Nissans of the world come in, but the bottomline is that the roads are constructed and the Hyundais and Nissans provide employment and make the state grow. Of course JJ also did her part when she was CM. To me (I haven’t seen Gujarat), TN was the most progressive state at that time in terms of economic growth.

Moving forward I guess we have to accept corruption as part of our lives and not fight it or display “anger” when we ourselves are a part of it. And governments on their part should also accept that corruption is rampant but give back to the state. Look at China, look at Indonesia, look at Malaysia – countries where there is corruption but the economies and the infrastructure has developed.

Sure we can look at increasing the salaries of the government officials, sure we can look at easing the processes to pay fines, sure we can look at the laws and increase speed limits to 120 on a superhighway, but we can never get rid of corruption. If we try and fight it, we’ll probably get nowhere. If we accept it but demand that we get something back in return – Maybe we’ll get somewhere.