Challenges posed by merger of carriers not insurmountable: Thulasidas

Challenges posed by merger of carriers not insurmountable: Thulasidas
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First Published: Mon, May 07 2007. 01 59 AM IST
Updated: Mon, May 07 2007. 01 59 AM IST
New Delhi: V. Thulasidas, the chairman and managing director of Air India, the country’s state-owned international carrier, is the man in the hot seat at the ministry of civil aviation these days. Not only is he tasked with working out the details of the merger between Air India and Indian, he is expected to be the first chairman of the merged entity, which will be the fourth-largest airline in Asia.
In an exclusive interview Thulasidas talks about how critical it is for Air India and Indian to merge and keep upgrading their fleet to be able to remain in the business; plans of combining Alliance Air, a unit of Indian, and Air India Express, Air India’s international budget airline, to form a low-cost carrier with international operations to take on India’s current crop of no-frills airlines; and rationalization of overlapping routes of Air India and Indian. Excerpts from the chat:
Q: Can we talk about the big merger first?
A: There was a time when Air India was an important airline. But now there are so may other airlines. Small countries like Singapore have bigger airlines. We are the opposite of their airlines in many ways mainly because of the size and fleet that we have. We as an airline have to match the capacity and ask: do we want to survive or get completely knocked out? What is being attempted in India in terms of merger and related issues is something really big. A merger of this magnitude that is being attempted is just not important for the size but for the importance of the two companies as a national symbol. What is going to be created through it is something that is going to be very big not only in India but in Asia.
Q: How would you tackle the technical problems that you are facing with the old fleet?
A: There are times when we get criticized for the now famous ’technical snags’. We admit, we accept, we have a problem. But they occur partly because we have an old fleet but that does not mean that they are not being maintained; there has not been any major safety issue involved in it. It’s happening with new fleet of other airlines. An aircraft is only a machine at the end of the day. We talk about Indian (formerly Indian Airlines) having a hydraulic problem – that is the industry problem with this plane (A320). Airbus Indsutrie has been working on it.
Indian and Air India have the largest number of aircraft in the country and so we will have more problems when compared with other airlines. In the recent Air India technical snag, the plane landed safely it allowed passengers to disembark, after which it was towed away with the tractor for a kilometre before the nose wheel collapsed. But it was not as if that happened when the passengers were on board.
Q: So what portion of your fleet will you discard? And how many of them will be discarded this year?
A: Air India has about 32 aircraft currently, apart from Air India Express (Air India’s low cost carrier), which are all brand new. Of these (32) we plan to keep only six aircraft. These six are the big jumbos with an average of 10-13 years and owned by us. We are retaining them but only after refurbishing them. One is already being refurbished in Mumbai right now.
This calendar year we will receive seven wide-bodied aircraft but we cannot phase out an equal number, we already have some shortage of aircraft. So it will be a gradual process, we have to continue to operate them for sometime before phasing them out. Also some of these aircraft will not be completely phased out but only be taken off passenger service and converted for our cargo operations. Two of them have been sent to Dresden, Germany at the EADS facility, which is the only facility to convert the A310.
Q: There will be separate unit for cargo operations. How do you plan to expand your cargo operations through the new merged entity?
A: Air India currently has about 8-10% of cargo business in India, which is not much. With growth in the economy it will be a good business and we want to be a serious player as we go along. Indian has already recommended about six aircraft to be converted as freighters. They will have six aircraft and we will have some medium-haul aircraft. If you have some more long haul aircraft you can tap the Indian, US, Middle East and Europe cargo market. We hope to have 20 cargo aircraft and we may look at leasing some of them.
Q: What are the biggest challenges for you at hand with the integration process in the merger?
A: When we talk of culture there is not much of a cultural difference. I agree that Air India has largely had international operations and Indian has mostly domestic operations barring some in the Middle East but you should see that culture difference more if the two airlines are of two different nationalities, two different owners. Here the conditions of service are largely the same. There could be a bit of difference certainly when integrating two large bodies of people. We have 15000 employees in and Indian has about 18,000. That’s a fairly large number. Seniority and remuneration can throw up challenges but these are not insurmountable; they can be tackled.
Both airlines will actually be able to offer a complementary route network through synergies. And, passengers are going to be the test of our success. A passenger from a small town who wants to fly far off will have seamless connectivity through our network: you only clear emigration once and everything else including your baggage is taken care of on the entire route.
We expect 5% rise in traffic as a result of this after combining them (routes) starting with the winter schedule (October) this year. So there will be no duplication: barring a few flights, largely domestic operations will be taken care of by Indian and Air India will be largely international.
Q: Do you think the unions at both these airlines will become defunct after the merger? There has been widespread controversy over payment of arrears to employees at Indian?
A: It’s for them to decide. All my life I have been working with them and I enjoy working with them; in fact, it is through them I can reach out to all the employees. After the merger what kinds of unions are there, whether they want to have a separate identity or come together… it’s for them to decide. When we combine into one airline the emoluments will also have to be have be by and large same. It can’t be that in the same company some people will get less and some will get more. There can’t be a difference in that at all.
Q: Are Alliance Air, which is mostly flying to the North East right now, and Air India Express that flies international going to compete with the low-cost carriers (LCC) in India?
A: That is a great possibility -- both will combine together to form a subsidiary as an LCC. Right now Alliance Air is not an LCC, it’s a subsidiary of the airline (Indian). Unlike the low-cost carriers in India they will compete with existing LCCs with the international advantage. And mind you our business model (Air India Express) has been a great success.
It (the merged Alliance-Air India Express) will compete with all of the existing LCCs and it will fly on routes not just in North East but all over in India. For this we will need smaller aircraft – more ATRs, CRJs, Embraers. There could be more of them. Indian is already leasing seven-eight of ATRs and it will then decide whether we need to buy them. So that addition of aircraft has to be there for the combined LCC.
Q: Are there any plans for placing additional aircraft orders for Air India this year?
A: I firmly believe Air India is not going to be satisfied with the 68 aircraft that we have already ordered. We have to continually keep fleet planning under review with the market growing steadily. The present order will be completed by 2011 and even if we want more aircraft we will not get it before that time as the delivery is all booked till then.
But even to get aircraft after that, we need to start booking for it now. A composite group of the two airlines is already working on the requirement and we will have the results of that group in the next three months.
Q: How important do you think is an A380, which most of the large airlines have bought, in your scheme of things? Will having a mixed fleet be a concern for the airline as most of the planes will now be Boeing?
A: It’s a very good aircraft with lots of new technology. On certain routes perhaps you need an aircraft like it. But why did Air India not look at it when we were buying 68 aircraft? That’s because we had to catch up on all the lost opportunities for so many years, so we wanted more aircraft even if they are smaller as we wanted to cover more cities. Then the Indian market has changed. Earlier most of the international market was in Mumbai and Delhi now that has changed. Amristar, Chennai, Bangalore, Hyderbad, Kolkata are now big on travel.
Having done that, in the future we can look at a larger aircraft. Air India even today has more than half is fleet on Airbus so that’s not an issue. There are many other airlines which have a mixed fleet; there is nothing unusual in having both. The decision will be based on what we have already ordered and what the market projections are. A380 can be strategic - lets see how New York flight works out for us.
Q: When will you finally start non-stop flights to US and where do you plan to use the other new long-haul aircraft being delivered this year?
A: We will be fixing a firm date soon but it’s likely to be in the second half of June or early July. Four of the seven wide-bodies coming this calendar year can only fly to US so they would be flights from Mumbai and Delhi to New York and Mumbai and Delhi to Chicago, then we will look at San Francisco from Bangalore. Apart from these cities we want to go to Washington DC, Houston and Dallas/ Fort Worth and in Canada we want to go to Vancouver. In Europe we fly four cities, we certainly want to go to Milan in Italy and Zurich, Switzerland.
Non-stop flights are going to be a major innovation that we will offer to passengers. Most American carriers are flying into India non-stop with an old fleet that is not even meant for that kind of ultra long-haul travel. Our new fleet instead will additionally offer a great timing: our flight will leave in late evening from India and you reach New York early in the morning. No Indian airline is offering that and they are unlikely to do so in the near future because they haven’t ordered such a aircraft.
Q: How do you look at the future international travel and increasing international competition?
A: I would like to see working in close cooperation with the Indian carriers. There is scope for cooperation amongst Indian carriers in the long haul sectors. If we work together we can offer better service and a wider network. We have been talking not just with one airline but several though there is nothing concrete to say. There have also been talks on how we can share our resource pool, engineering services and ground handling. We can minimize cost through this and it will be good for all.
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First Published: Mon, May 07 2007. 01 59 AM IST
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