Raghu Menon, a 1974 batch Indian Administrative Service officer, on 1 April took over as the chairman and managing director of the state-run National Aviation Co. of India Ltd, or Nacil, which runs the Air India-branded service. A special secretary and financial adviser in the Union ministry of civil aviation and a Nacil board member just prior to this appointment, Menon is widely seen in the government as the correct choice to turn around an ailing Air India, which reported a Rs700 crore loss in fiscal 2007, the last audited results for the airline, and is estimated to double that loss in the fiscal year just gone by.
In an interview, Menon tells Mint how he intends to steer Nacil out of losses and integrate two state-owned airlines — Indian and Air India — into a strong and competitive airline. Edited excerpts:
Three days into the new job what are your first impressions of Air India from the inside? And, your priorities...
Air India is really India’s biggest brand abroad. And I think it is necessary that we keep this brand very strong, because it is a question of our image.
My top priority is to focus on the customer. Being in a service industry, an airline is only as good as the confidence that the customer reposes. It is only when customers come to us that our load factors will increase, our revenues will increase, yields will increase and we can face the competition.
Pilot project: Raghu Menon, the new chairman and managing director of Nacil, says customers will be his top priority, followed by the completion of the integration process of Air India with Indian.
The second challenge is to complete the integration process following the merger of the two airlines. Merging two giant organizations with a combined strength of almost 33,000 employees is not an easy task. It is a time-consuming process — sometimes painful and there are very hard decisions to be taken. I give myself about a year’s time to see that at least 75-80% of the integration process is done.
The third area which I would like to concentrate on is performance. I think it is necessary that we match service standards — on-time performance, ground-handling standards — of not only the competition on the domestic sector but even competition in the international sector.
The fourth area that is important — very, very important in fact — is the financials of the airline. We haven’t had a great year in 2006-07 due to various factors — some of which were within our control, many of which were not under our control. Prices of aviation turbine fuel, for example, is one major major area of concern for us because almost 35-40% of our operating expenses is expenditure on fuel.
The financial health of the company is something on which I will be giving a great deal of attention. Although it is a difficult task, I still feel their are ways to strategize and increase revenues and cut down costs. In the latter area particularly I think the merger has been of great use to us because there are areas of duplication which we can now reduce. For example, stations abroad, even stations within India where we had duplicate officers, duplicate staff—we will be able to cut down on those.
I will have to discuss with our unions, give them the correct picture of our financials and hope that they will also cooperate with me in seeing that we do no incur cost that can be avoided.
What are the levers that you have with you to reduce costs?
It’s not just the manpower strength but a great deal of other assets that are duplicated. We can try and bring down those. The other cost that we can bring down is fuel (where) we can think more actively of hedging fuel so that we are not hit adversely with steep increase in fuel prices. Some attempt has already been made and it provided good result. We are also thinking of engaging International Air Transport Association for doing a study on possible reduction in fuel consumption. They have done this with some other airlines with very good results and this is an area where I am very keen where we can bring down costs of actual consumption it will be greatly beneficial to us.
And, for revenues given that load factors have fallen to lowest in recent years?
Yes, our load factors have come down substantially (to around 63%). Here again, if we focus on customers, we can attract customers and retain the clientele with us and load factors will increase. On-time performance also, I think, is crucial to our customer. The first and foremost thing for a passenger is to take off on time and land on time. I think he is willing to forgive a great deal of other shortcomings as long as he is on time and that’s the essence of any transportation industry.
Then, of course, we will have to look at new routes with new aircraft coming in—that is a great advantage—because these new aircraft have a lot of passenger appeal and we will also be able to take care of some of the other shortcomings like technical snags and other things by having the new aircraft. For example, on the Delhi-Mumbai route we have all the new aircraft now...with excellent in-flight entertainment, all brand new aircraft and none of them are more then a year old. We have been getting very positive feedback on this.
Do you see your operations or strategy impacted by a 100% government holding?
Our constraints are more internal than external. There may be areas where a private airline does not have to bother, but that’s not a very core area that is affecting our performance. We have to pull up our own socks. We take our own decisions based on commercial considerations. As far as other external factors are concerned, being a public sector undertaking we are answerable, rightly so being owned by the government, to Parliament. (Parliamentary) committees have given us support because they believe there is a place for an airline in the public sector.
Is there any internal reorganization planned other than the recently formed strategic business units (SBUs)?
Well, we have already done quite a bit of this by forming SBUs and that's already in place. People are in place. But there are areas where integration needs to go faster. For us, a crucial area, especially on the IT (information technology) side, is that for joining the Star Alliance we would have to have an IT platform which is compatible with a large number of airlines we will be having cooperation with.
(Star Alliance is the world’s largest grouping of airlines that shares passengers, allows customers to swap air miles and accounts for nearly a fourth of air passenger traffic.)
Another integration issue which is very important is the HR (human resources) side because there are issues of seniority, promotion prospects, career prospects among our employees. Here again some work has already been done but many areas still need attention and I think I will be giving it high priority. Operational synergies are the core of a merger because the passenger should have a seamless experience whether he is travelling on a domestic sector or an international route. A person who wants to travel Lucknow to New York should not feel he is travelling with two different airlines.
You have had losses the last few years and on top of that interest on debt from buying new planes will kick in this year. How badly will it affect you?
The debt servicing is a major expenditure for us but I don’t think we will be defaulting in any way. We are absolutely sure that we will serve the debt that we have taken.