Why Can't Governments Run Air India Effectively and What Impact Does It Have?

Seemingly paradoxical, when it comes to Air India, a state-owned airline in India, governments often struggle to run it effectively due to inherent constraints and inefficiencies. This is particularly noteworthy given the numerous unprofitable operations that the airline undertakes for the sake of public service.

Government’s Role in Airline Operations

Contrary to common perception, Air India is not solely run for profit. Since it is a government entity, its primary function is to provide essential services. As a result, it often incurs significant losses to maintain these services. However, this model has its drawbacks, especially when faced with increasing competition from private players like IndiGo, GoAir, and SpiceJet.

The Impact of Overhead and Management Issues

One of the central issues facing Air India is the considerable overhead and management inefficiencies. Government intervention often leads to a proliferation of secondary departments while marginalizing the main operational departments that are critical for the successful management of an airline. These include operations, engineering, and marketing divisions. The end result is a slowdown in decision-making processes and a lack of focus on core functions.

Struggles with Profitability

Running an airline is inherently challenging due to stiff competition from other Indian and international carriers. Modern aircraft, such as those used by IndiGo, offer superior fuel efficiency and service quality, which puts traditional state-owned carriers like Air India at a disadvantage. This leads to frequent price cuts to remain competitive, often resulting in a loss of revenue that cannot cover operating costs.

Legacy Fleet and Maintenance Costs

Moreover, Air India's outdated fleet is a significant burden. Most of its aircraft, excluding the A320neo and B787/777 models, are at least two decades old and require frequent maintenance checks. This not only adds to operational costs but also limits the airline's efficiency. The consultancy IndiaSpend reported that only about 10-12 out of 300 domestic and international routes were profitable, with routes like Delhi-Kathmandu, Cochin-Jeddah, Delhi-Tokyo, and Delhi-San Francisco being the most profitable.

Overstaffing and Fuel Price Fluctuations

Another major issue is overstaffing. The high salaries of the staff, combined with rising fuel prices, significantly impact the profitability of the airline. IndiGo, for instance, has managed to stay competitive by leveraging a leaner structure and lower costs, making it difficult for Air India to match its efficiency.

Furthermore, Air India Express, a subsidiary of Air India responsible for Gulf route operations, has faced significant challenges. With a substantial portion of its routes allocated to the Gulf region, the demand on these routes has declined since 2017, largely due to the entry of low-cost carriers and the saturated market in the Gulf region. This situation has contributed to losses for both the express subsidiary and the parent company.

The Solution: Private Sector Involvement

Due to these systemic issues, it has become more advantageous for the government to divest its stake in Air India and hand over management to private entities. Private players are more adept at making timely and decisive operational changes that are necessary to improve profitability and efficiency in the airline industry. This shift would allow the airline to compete more effectively in the market and better serve its customers' needs.

Conclusion: While state ownership can provide crucial services, it can also introduce inefficiencies and costs that hinder long-term sustainability. For Air India to thrive, it makes sense to lean on the expertise and efficiency of the private sector.