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Journal of Strategic Management Reviews

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The Case of Air India

*V. R. Srinivasan, *B. Y. Lim and *K. Quigley

Abstract
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Air India (AI) had financial losses for the last 9 years till the recent
announcement of becoming profitable this year. In the past, the airline was
unable to make profits that it seemed to be linked to the organizations
mismanagement of funds and dissatisfaction among employees. There is an
immediate needs for AI to carry out a strategic audit and develop strategies
to be economic sustainable on the long run. The information is captured
through a strategic auditing process which students will use it to analyze the
strategic factors, formulate and select strategic alternatives base on TOWS
matrix, recommend the appropriate strategic alternatives and finally
evaluate the control measures in place to ensure conformance with the
recommended strategic alternatives for Air india.
Keywords: Corporate strategic auditing, Environment, Strategy formulation,
TOWS Matrix, Evaluation and control.

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Authors Biography
*Viveck Raam Srinivasan is a Scholar at College of Business, Embry-Riddle
Aeronautical University
*Boon-Yeow Lim is a Professor of Business at College of Business, Embry-Riddle
Aeronautical University
PhD, MBA, MMRSA, MAOM, MSSRN, MOPA, MCUR, MSHRM, FACID

*Kathleen Quigley is an Associate Professor of Business at College of Business,


Embry-Riddle Aeronautical University.
PhD., D.M., PMP

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Case Motivation and Overview
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In the past 9 years, Air India (AI) was unable to has profit and suggested to be
linked to the organizations mismanagement of funds and dissatisfaction
among employees. There is an immediate needs for AI to develop startegic
alternatives to be economic sustainable on the long run. A strategic auditing
approach is adopted in the case to identify the opportunities and threats to
AI and also the strengths and weakness in term of resources and capabilities
which students will use the information to analyze the strategic factors,
formulate and select strategic alternatives base on TOWS matrix, recommend
the appropriate strategic alternatives and finally evaluate the control
measures in place to ensure conformance with the recommended strategic
alternatives.

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Global Airline Industry
The global airline industry has facilitated world trade, economic growth,
international investment, and tourism that is the central to globalization taking
place in many other industries (Stanford, 2010). It remains a rapidly growing
industry, but consistent and robust profitability has become an uncertain
(Clayton & Hilz, 2016). According to International Air Transport Association
(IATA), the airline industry has doubled in terms of revenue in the past decade
from US$369 billion in 2004 to a projected $746 billion in 2014. However, a
large portion of the growth has been driven by low-cost carriers (LCCs), which
makes 25 percent of the worldwide market and is expanding to the emerging
markets (Clayton & Hilz, 2016). IATA has announced the outlook for the airline
industry in 2016 with an average net profit margin of 5.1% being generated
with total net profits of $36.3 billion. It has noted that the strengthening of the
industry performance is being driven by lower oil prices, strong demand for
passenger travel, stronger economic performance in key economies, and
efficiency gains by airlines that are illustrated by increasing load factor (IATA,
2015).
The Indias airline industry is on a high-growth trajectory, and India aims to
become the third largest aviation market by 2020, and the largest by 2030
(IBEF, 2016). India is currently the ninth largest aviation market in the world with
a size of approximately US$ 16 billion. The Indian aviation industry seem to
have a huge growth potential due to large and growing middle class
population, higher disposable income, rapid economic growth, rising
aspirations of the middle class, and overall low penetration levels (Indian
Aviation, 2016). Airlines in India carry nine times as many passengers today as
they did before deregulation in 1994 and no-frills carriers provide two-thirds of
domestic capacity (Gulliver, 2015). One in every three domestic passengers
flies with IndiGo, being the market leader in the local aviation sector in the

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2014-2015 fiscal year (Cohan, 2016). IndiGo currently has a market share of
38.4%, followed by Jet Airways at 17.6% and Air India at 14.7% (DNA, 2016).
Recent statistics show that the demand for air travel is growing strongly, the
rising demand for air travel and the falling fuel prices is benefiting the industry
positively (Kannan, 2015).
Many airline companies have built brand awareness and enhance brand
equity by engaging in real-time with customers and marketing through social
media (Ashraf, 2015). Air India has only recently begun using social media in
this effort, and are updating their Facebook page more regularly for
marketing purposes and announcements (Air India, 2016). It is noted that AI is
active on Twitter but their presence on the social media platform is not very
strong (Air India, 2016).
The growing use of mobile devices by the general public has resulted in airline
companies developing their own mobile applications so that customers can
access information, book their flights, and carry out online check-ins all on the
mobile device itself (Edholm, 2015). AI has a mobile application but it only
allows for domestic flight booking.
India has seen a growth in their GDP in 2015, and it was reported that the
GDP grew at 7.4% in the third quarter of the year; this makes India the fastest
growing large economy on the world (Worstall, 2015). India will see an
increase in citizens who will be travelling by air, and foreign businesses will be
attracted to the country, which will lead to more travels by business personnel
for meetings and other business related purposes.
The smog problem in India has prevented tens of millions of people from
getting food, and it has damaged about 6.7 million tons of Indias staple
crops, including wheat and rice in just a year (Gowen, 2016). In fact, the air
pollution in New Delhi is the most polluted in the world. The Indian
government has enforced reducing the air pollution that will include
tightening emission standards and increasing emission monitoring and
enforcement (The Economist, 2016). This poses a threat to Air India, as they will
have to invest in research and developments to reduce their carbon emission
footprint in order to meet the emission standards. If Air India does not do so,
the government may terminate their license.
The recent election victory of Indias Prime Minister Narendra Modi, has
provided an economic and cultural revival for India (Burke, 2014). The country
has begun to see significant growth and possibly an increase in economic
growth due to the stability of the Indian government, which has created
many opportunities for Air India.

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Airline industry is capital intensive and there is a high fixed cost; new entrant
players require an enormous range of expensive equipment and facilities
such as aircraft, flight simulators, maintenance hangers, and crew members
salaries are some of the fixed cost associated with the airline industry (Avjobs,
n.d). Fuel is another cost for new entrants that is a barrier to entry, it accounts
for a significant amount of an airlines expenses and the fluctuation of fuel
prices can make it difficult for a start-up to even budget accurately (Evans,
2015).
With the government deregulations, airline industry has become more
competitive with low-cost carrier start-ups taking advantage of a new market
for cheaper flight by product differentiation (Unnikrishnan, 2015). Air India is
facing competition from low cost carriers based in India such as IndiGo,
SpiceJet, and GoAir that sell tickets at extremely low prices (Prabhakar, 2013).
More airlines have started joining the industry in India and many potential
customers who are concerned with cost of travel with pick these low cost
airlines instead of Air India.
In 2014, Jet Airway turned full service to compete with Air India (The Hindu,
2014). Jet Airways is a directly competitor and some customers have shown a
preference to Jet Airways as compared to Air India. In order to remain
competitive, Air India must begin investing in building their brand, and
establishing a lifestyle brand strategy, develops innovative product
differentiation to appeal to customers (Selvaggio, 2012).
The Indian Railways that is one of the worlds largest railway networks is a
substitute transportation mode for many Indians that intend to travel across
India. However, airplanes are by far the fastest form of travel, the railway
system in India has been existent before air travel was introduced to the
general public. In India, the railway system is also known for its overcrowding
because of the lack of trains. With India seeing GDP growth and with locals
having higher income levels, air travel may in fact become the more logical
choice of transport.
In the airline industry, customers have a high bargaining power since the
industry deals with a perishable product with limited options to differentiate
their services from services provided by their competitors. This can be
seemed in the case for Jet Airway provides very similar services like Air India
and not much differentiation. Both airlines have membership cards that
provide frequent fliers with discounts using a point system; both airlines have
various classes of seating for customers to choose from whether they are
business travelers or leisure travelers. Therefore, the bargaining power of
buyers for Air India is high and poses a very real threat to the airline.

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Suppliers to airlines consist of aircraft manufacturers, lessors, air navigation
service providers, travel agents, freight forwarders, and of course fuel
(Cederholm, 2014). Boeing and Airbus are the two firms that manufacture the
majority of airplanes that are purchases by commercial airlines (The
Economist, 2014). Fuel is another cost that airlines have no control over due to
few oil suppliers and the inelastic nature of it (Vu, 2015). Airlines profits are very
sensitive to changes in fuel prices, fuel price has doubled in the past and in
recent times the cost of fuel took a dive, which is good for the airline industry
presently, but that can change very quickly (Martin, 2016).

History and Overview of the Air India


Air India was formally known as Air-India was founded in 1932. The airline was
then called Tata Airlines, after its founder (Encyclopaedia Britannica, n.d). Air
India is now an international airline that is 100% owned by the Indian
government (CAPA, 2016). It is the state-owned national carrier of India that
has its main hub located at Mumbai Chhatrapati Shivaji International Airport
(Flight Global, 2016). Air India flies domestic and regional routes as well as
provide international services to Asia, the Middle East, Europe, and North
America (CAPA, 2016). On 11 July 2014, Air India became a member of the
Star Alliance, and has allowed the airline to reach a wider customer base
(Majumder A, 2016).
Air India has been experiencing losses since their merger with Indian Airlines
with financial issues and simmering disputes with staff was a recurrent issue
with the airline (Kannan, 2015). Last year, Ashwani Lohani took over as the
chairman and managing director of Air India, known as Mr. Turnaround for
reviving tourism in the state before taking up his new position, much was
expected of him and he seems to be heading the airliner in right direction
(Jha, 2015). Air India has just reported a modest operational profit for the first
time in a decade and two years ahead of the target as per the turnaround
plan (Bhattacharya, 2016).

Air India Company Audit


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The Vision of Air India (AI), To be the leader in Indian aviation and Indias
Ambassador to the world (Air India, 2014). The mission statement as follows:
Customer
Provide safe, reliable and on-time services
Deliver the highest quality of service around the world
Be the epitome of Indian hospitality

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Processes
Continuously improve standards of safety and efficiency
Operate and maintain a young and modern fleet
Provide the best and most efficient network
Create economic value
People
To be the employer of choice
Build a highly motivated and professional team
Maintain highest degree of transparency and ethics
Be a responsible corporate citizen
Indias Ambassador
Be Indias flag carrier in spirit and action
Provide seamless travel within India and the world
Connect Indians worldwide
Values
Zeal to excel and zest for change
Integrity and fairness in all matters
Respect for dignity and potential of individuals
Strict adherence to commitments
Ensure speed of response
Foster learning, creativity and team-work
Loyalty and pride in the Company
Air Indias Board of directors consists of 11 members under a corporate
structure with the Chairman and Managing Director Ashwani Lohani
taking the lead role. The key members of the board consist of 4 members
and the remaining seven members report to them. The board consists of
two female members of the board amongst the 11, and five out of the 11
board members are/were linked to the Indian Government (Figure 1).

Figure 1

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Air Indias board composition has a mixed of both inside directors and outside
directors which is typical of a publicly owned corporation, and all their board
member are from India. The board has a total of five members who have
been linked to the government either presently or before they were selected
to be part of the board. The following section will analyze each of the board
members to have an understanding of what benefits they bring to the board.
Ashwani Lohani. Ashwani Lohani is the current Chairman and Managing
Director of Air India and was appointed on September 3, 2015. Prior to being
appointed, he was the chief of Madhya Pradesh Tourism Development
Corporation, which is a government agency that conducts and regulates
tourism in the state of Madhya Pradesh (Sinha, 2015). Mr. Lohani holds four
engineering degrees, has authored two books and is accredited for the
turnaround of Madhya Pradesh Tourism Development Corporation. Mr. Lohani
started as a 1980 batch officer of the Indian Railway Service of Mechanical
Engineers and held the position of Chief Administrative Officer (Bhargava,
2015). With his proven track record of turning around Madhya Pradesh
Tourism and his acquired knowledge in the field of transportation from the
Indian Railway Service, Mr. Lohani seems to be a good choice for Air India
(Sanjai, 2015). From the secondary data collected, it is clear that Ashwani
Lohani has been working under departments in the government and has
good network with the Indian government, he does not hold any other
position in other firms and is categorized as an inside director of the board
(Bloomberg, 2016).
Ashwani Lohani, the CEO of Air India well known as Mr. Turnaround because
of the work he did at Madhya Pradesh Tourism Development Corporation
where he got the firm out from a bad shape. Mr. Lohani is known to be very
positive, approachable, cooperative, honest, and does not bow down to
political will. With his experience in the tourism industry and transport industry,
it seem that he has the required expertise to bring further growth to Air India.
Mr. Lohani can be seem to be as a catalyst in board involvement.
Vinod Hejmadi. Vinod Hejmadi is currently the Director of Finance and was
appointed that position since October 2015 (Bloomberg, 2016). The Public
Enterprises Selection Board (PESB) selected him after going through an
interview process with two other candidates (Economic Times, 2015). Prior to
being appointed as the Director of Finance, Mr. Vinod held the post of
general manager for finance at the national carriers office in Mumbai. Mr.
Vinod has no link known links to the government prior to taking up the
appointment and is an inside director in Air India (Bloomberg, 2016).
Prior to being appointed as Director of Finance, Mr. Vinod was working at Air
India as a general manager for finance in their Mumbai office. In my opinion,
Mr. Vinod must have had excellent performance as a general manager of

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finance and showed great potential for him to be selected by PESB through
an interview process. An assumption is that having had experience with the
finance department in Air India, he would understand the operation in
finance and be able to have an active degree of involvement and have
active participation.
Pankaj Srivastava. Pankaj Srivastava is currently the Director of Commercial at
Air India and has held that position since March 2013 (Bloomberg, 2016). He
has an interesting background of an employee who has climb his way up the
corporate ladder. Mr. Srivastava has a long and varied experience in the
airline since his career started in 1983 in Air India (John, 2013). He held
responsible positions in India and abroad as well, having been stationed at
Goa, been the head of the region in Gulf and Middle East and general
manager-sales marketing in various regions in India (Economic Times, 2013).
Mr. Srivastava was also the man responsible for successfully integrating the
sales and marketing functions after the merger of Air India and Indian Airlines
airlines (John, 2013). From the secondary data, it is clear that Mr. Srivastava is
an inside director, he is not involved with any other organization and was a
loyal employee in Air India since the start of his career, his experience and
knowledge in Air India will give the board an understanding of how the firm
operates from his perspective. He does not seem to have any link to the
government as well.
Mr. Srivastava has been working in the firm for about 33 years, where he
started as a general manager under the sales marketing department in
various regions. In my opinion, he having been stationed in many regions
would have allowed him to have a holistic understanding of commercial
sector, also being a loyal employee for 33 years shows that he has interest in
his job. It is assumed that Mr. Srivastava would have an active degree of
involvement but at nominal participation as he might not have the require
skills needed influencing mission, policies, and objectives.
N. Jain. N. Jain is currently the Director of Personnel at Air India and has held
the position from the latest date known at 2013 (Bloomberg, 2016). There is
close to no information about Mr. Jain except that he was a 1986 batch
officer of the Indian Railway Personnel Service, which operates under the
government (NBSB, 2013). Therefore, he is linked with the government, Mr.
Jain does not sit in any other board and is an executive at Air India, making
him an inside director to Air India.
There is very little information on Mr. Jain and what he has accomplished
other than being a batch officer of the Indian Railway Personnel Service. This
leads me to believe that he may not have accomplished anything significant
in his field. Though there is no definite way to know with secondary data and

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It is assumed that that Mr. Jain has a low degree of involvement likely at
minimal review.
Ravindrarai Dholakia. Ravindrarai Dholakia is currently a director in the board
for Air India and has held that position since May 2013 (Bloomberg, 2016). Also
known as Prof. Ravindra, he has about 35 years of experience in teaching at
post graduate levels and conducting and guiding research in the field of
Economics and Policies, and has worked with numerous communities
appointed by the Central Government of India (Investor Relations, n.d).
According to Bloomberg (2016), Prof. Ravindra also sits in board of four other
organizations. The secondary data shows that Prof. Ravindra does seem to
have some link with the government. He is mainly situated at the Union Bank
of India and is considered an outside director to Air India.
With Prof. Ravindras experience and expertise in Economics and Politics, it
seems that he will be involved in strategic decisions, but as an outside
director his involvement may not as much. It is assumed that Mr. Ravindra has
an active degree of involvement at nominal participation.
Renuka Ramnath. Renuka Ramnath is currently a director in the board for Air
India and has held that position since May 2013 (Bloomberg, 2016). Mrs.
Renuka Ramnath founded Multiples Alternate Asset Management Private
Limited in 2009 and currently serves as its Managing Director & Chief
Executive Officer (CEO). She was appointed the position to oversee the
financial restructuring plan for Air India (Bruhadeeswaran, 2013). Mrs. Renuka
Ramnath holds a bachelors degree in Engineering and an MBA with AMP
from Harvard Business School. The government aims to use her expertise in
investment banking, private equity, and structured finance to aid Air India
(Business Standard, 2013). Mrs. Renuka Ramnath is an outside director to Air
India and she is not linked to the government.
Mrs. Renuka Ramnath will mainly be involved in strategic decisions regarding
financial investments. With her position as CEO at her own firm, she might not
however have sufficient time to be fully involved. My assumption is that she
will be more motivated to work harder for her own firm as CEO and may not
be as involved in decisions for Air India, therefore she would have a high
degree of involvement at nominal participation at Air India.
Prem Vrat. Prem Vrat is currently a director in the board for Air India and has
held that position since May 2013 (Bloomberg, 2016). Prof. Prem Vrat is an
outstanding academic and is the Pro-Chancellor; Professor of Eminence and
Chief Mentor at ITM University Gurgaon (NCU, 2016). He was appointed
among five eminent personalities as part time Director on Board of Air India
for his specialized skills and valuable suggestions for achieving the objectives
set by the Government of India (Press Information, 2013). He has an extensive

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experience of more than 47 years in teaching, research, management
development and consultancy and has been on the Board of Governors of
many technical institutions and universities (NCU, 2016). Prof. Prem Vrat is an
outside director to Air India and he is not linked to the government.
Prof. Vrat has an excellent track record and has an extensive amount of
experience. It seems that Prof. Vrat will be very involved in most strategic
decision making, as board members will definitely want to hear his opinions
and get his advice on issues being faced. It is assumed that Prof. Vrat will
have an active degree of involvement at active participation.
Kishan Nohwar. Kishan Nohwar is currently a director in the board for Air India
and has held that position since May 2013 (Bloomberg, 2016). He is a veteran
fighter pilot and was appointed as the chief of the Indian Air Force (IAF). Mr.
Kishan is a qualified flying instructor, fight combat leader, and an alumnus of
Defense Services Staff College and Air War College in the United States
(NDTV, 2011). From the secondary data retrieved, Mr. Kishan works under the
IAF, which is government linked and is an outside director to Air India.
Mr. Kishan has experience in the aviation field and is the chief of Indian Air
Force. Mr. Kishan might be receiving orders from the government to ensure
that decisions made by the board align with military objectives. This might
cause misalignments in objectives for Air India as a commercial airline. It is
assumed that Mr. Kishan will have an active degree of involvement at
nominal participation.
Balwinder Bhullar. Balwinder Bhullar is currently a director in the board for Air
India and has held that position since latest known 2013; he is also Joint
Secretary in the Ministry of Civil Aviation (Bloomberg, 2016). With this
secondary data, it is clear that Mr. Balwinder has link to the government and
according the Bloomberg (2016), he is an inside director to Air India.
There is very little secondary data on Mr. Balwinder online other than him
serving as Joint Secretary in the Ministry of Civil Aviation. It seems that he is in
the board mainly to ensure that decisions made by the board are in line with
regulation set out by the Ministry of Civil Aviation, he would have a low
degree of involvement at minimal review.
Gargi Kaul. Gargi Kaul is currently a director in the board for Air India and has
held that position since latest known 2013; she also serves as Joint Secretary &
Financial Advisor for the Ministry of Civil Aviation and Director at Pawan Hans
Limited, which is a leading helicopter company (Bloomberg, 2016). Prior to
that, she served in Odisha as Principal Accountant General (Indian
Mandarins, 2015). With this secondary data, it is clear that Gargi Kaul is
government linked and that she is an outside director to Air India.

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Gargi Kaul is holding many positions at current; she seems to have the
expertise in the aviation field. However, it appears that she will be not be able
to contribute a lot because of her involvements in other firms. It is assumed
that Gargi Kaul will have an active degree of involvement at nominal
participation.
Gurcharan Das. Gurcharan Das is currently a director in the board for Air India
and has held that position since May 2013 (Bloomberg, 2016). Mr. Das is an
author, columnist, commentator and management consultant; he was also
the former CEO of Procter & Gamble India and Vice President in Asia. Mr. Das
graduated with an honors degree from Harvard University in Philosophy and
Politics and later attended Harvard Business School as well (The Insight
Bureau, n.d). According to Bloomberg (2016), he has 30 years of experience
working in six countries in advising companies on corporate strategies. With
the secondary data retrieved, it is clear that Mr. Das is not linked to the
government and is an outside director to Air India.
Mr. Das has 30 years of experience in advising companies on corporate
strategies; his experience and knowledge of business, the board will look to
him for his thoughts on strategic decisions it wants to carry out. It is assumed
that Mr. Das will have an active degree of involvement at active
participation.
Air India has diversified their business units in the aviation industry as well as
the tourism industry with their developments of hotels. In terms of directional
strategy, the most widely used are strategies designed to achieve growth in
sales, assets, profits, or some combination of it. The two growth strategies are
concentration and diversification, for Air India they have mainly focused on
the concentration strategy that deals with their current product line. Air India
achieved vertical growth by taking over the maintenance function, they
have their own infrastructure for MRO which helps them to reduce cost, and
gain control over what is considered a scarce resource and guarantee
quality of the MRO completed. Air India has also achieved horizontal growth
by expanding their flight services globally, this was achieved by them
increase the number of international routes they flew as well as their strategic
alliance with Star Alliance in 2014.
Air Indias philosophy is to continuously strive to achieve higher levels of
accountability, transparency, responsibility and fairness in all aspects of its
operations. Air India has remained committed towards the protection and
enhancement of its overall long-term value for all its stakeholders, which
include customers, lenders, employees and the society. The company also
understands its responsibility towards the society at large and actively
embarks upon various initiatives. Air India continues its pursuit of achieving

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these objectives through the adoption of competitive corporate strategies,
prudent corporate and business policies and plans, strategic monitoring and
mitigation of risks, while at the same time, creating checks and balances in
an organization that values people, propriety, equity and fair play.
Air Indias fleets size and age is one of its key resources, the airline has one of
the most updated fleet and plans to purchase more to remain competitive
among their rivals, Air India has a strong focus on continued fleet renewal
(Flottau, 2015). According to CAPA (2014), Former Air Indias director of
finance Srinivasa Venkat said that the Air India Group had a total fleet of 125
aircraft with the average age of 8.1 years as of 28-Feb-2014. As Air India
continues in its efforts to ensure the youthfulness of the fleet, they recently
announced their plans to induct 30 Airbus A320 aircraft, this is due to the
robust growth in domestic air traffic, which will make Air Indias total fleet size
reach to around 150 planes by the next three financial years (Jha, 2016). In
addition to this, Air India plans replace their older fleet with new fuel-efficient
A340 neos (new engine option). The addition of these planes with help Air
India to expand its operations, both domestic and international, with the goal
to increase profits by flying to more destinations and carrying more
passengers (Kundu, 2015).
Air India embodies the spirit of India by extending warm hospitality (Star
Alliance, 2015). Being the national carrier of India gives Air India a good
brand positioning among its local competitors such as Jet Airways, also they
have the competitive advantage called the first-mover advantage. It is a
competitive advantage that a company earns by being the first to enter a
specific market or industry as it allows the company to acquire superior brand
recognition and customer loyalty (Investopedia, n.d).
Air India joined Star Alliance in July 2014, in a move that has brought several
benefits for the national carrier (Star Alliance, 2015). Star Alliance has a
worlds largest network of airlines with 28 members working in harmony
globally. Air India members have been enjoying earn-and-burn miles on any
member carrier and more importantly the seamless connectivity across the
globe and having access to airport lounges when transiting (Sinha, 2014).
Joining the Star Alliance has opened 1,300 destinations that passengers flying
with Air India can go to, it has already paid rich dividends to the airliner as
passenger transfers from group members have more than doubled and
revenues from such transfers witnessed more than two-fold increase. In
addition to this, Air India has a joint venture with Singapore Airport Terminal
Services (SATS) with the acronym AISATS, it has an equity ratio 50:50 in
providing handling services to airlines at certain metro airports. At year end
31st March 2014, AISATS profited approximately USD$ 6.3 million (Air India,
2014).

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Air Indias key capability is in their expertise in repairs and maintenance, a
MRO facility has been developed by Air India Engineering Services Limited
(AIESL) at Rajiv Gandhi International Airport in Hyderabad, and exclusively
serves the Air India fleet, providing full Aircraft base maintenance service, line
maintenance, engineering and technical support, component and full
material support, aircraft engine services, and technical training services on
all major aircraft types (Press Release, 2015). This particular capability gives Air
India a competitive edge among their rivals in India.
In 2007, Air India set out to create six separate business units, the main airline
business, its low-cost carrier operation, cargo, engineering and maintenance,
ground handling, and related business like IT and security (Govindasamy,
2009). Each business unit operates independently with its own cost centers
and is accountable for its own profitability. The plan to do so was in an effort
to reduce cost to the National Aviation Company of Air India. According to
Govindasamy (2009), these are the core competencies that Air India has,
with separate business units, each division has greater autonomy to make
decisions that will result in lower cost, higher revenues and therefore better
overall profitability. This business structure is Air Indias strategic advantage
that allows them to remain competitive in its industry.
In terms of resources, Air India has 22,000 employees as of 2014 that seem to
have surplus of employees; the airline has been going through human
resource issues plagued by strikes by pilots and ground staff (Business
Standard, 2015). There are still unresolved issues since the Air India-Indian
Airline merger, which has caused low morale and internal factionalism
(Business Standard, 2015). There has been disparity in pay scales, allowances
and career progression, former Indian Airline pilots were mainly flying
domestic routes while the Air India pilots flew mainly international routes, this
meant that the latter group received additional incentives like international
allowances, stay and other benefits (Kannan, 2012).
Air India and Indian Airlines had a merger in March 2007 and has since seen
eight successive years of loss, with the accumulated loss reaching USD$7.3
billion (Patil, 2015). The merger turned out to be a joining of two incompatible
partners that led to bad blood and human resource problems as well. What
made it worse was that the merger coincided with a global recession and
rising fuel prices. Air India and Indian Airlines also decided to buy 111 planes in
the year 2006, which led to an acute cash-flow problem (Singh, 2012). In 2012,
Air India was expected to be the worst performer in the Indian airline industry
and reported a loss of USD$2.28 billion, in 2013 they managed to reduce the
lost they made and was estimated to have had a combined loss of USD$1.65
billion (CAPA, 2012). Air India started to show signs of recovery in financial
performance. Since then Air India has taken cost cutting measures that
included rationalization of its domestic and international route network, re-

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assessing its human resource, increasing base domestic fares, and cancelling
agent commission (CAPA, 2008). Lower fuel prices together with improved
operational performance has allowed Air India for post operating profits for
the first time in a decade. They are targeting for an operational profit of Rs. 6
crore, which is approximately USD$1 billion (Srivastava, 2015).
The issue regarding Air Indias cost structure is that its legacy cost structure
remains at a high while the domestic and international competition in the
India airline industry is increasing quickly (Jha, 2015). The raise of competition
has pushed fare prices down in the domestic market and while Air India can
offer cheaper fare prices as well, their operational cost will remain high, which
is cost them to make losses in the domestic routes (CAPA, 2013). In a market
where fares play a vital role in travel decisions, Air Indias high fare structure is
not going to survive unless its business model undergoes a change (Mishra,
2011). In order to reduce this high-cost structure, Air India will look into
rationalizing their domestic and international routes to cancel routes that are
less profitable for the airliner, with that they will also reduce spendings on
human resource by optimizing their operations and improving efficiency of
them.

Air Indias Liquidity Ratio


The liquidity ratio analyzes the ability for Air India to pay off both its current
liabilities as they become due as well as their long-term liabilities as they
become current.
Current Ratio = Current Assets/ Current Liabilities
= 61,172.9/263, 879
= 0.23
The current ratio helps investors and creditors understand the liquidity of a
company and how easily that company will be able to pay off its current
liabilities. The decimal of 0.23 shows the Air India has enough current assets to
pay off only 23 percent of its current liabilities, which means the organization is
highly leveraged and risky.

Acid Test Ratio = Current Assets Inventory/ Current Liabilities


= 61,172.9 20,916.2/263, 879
= 0.15
The acid test ratio is a liquidity ratio that measures the ability of a company to
pay off its current liabilities as they come due with only quick assets. The ratio
of .15 shows that Air India can only pay off 15 percent of it current liabilities
with quick assets.

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Air Indias Profitability Ratio
The profitability ratio compares income statement accounts and categories
to show a companys ability to generate profits from its operations. The most
commonly used profitability ratio is the Return on Investment (ROI)
Return on investment (ROI) = Net profit after taxes/ Total assets
= (62,796)/190,934.9
= - 0.33
The return on investment for Air India is a negative percentage of 33%, this is
because Air India did not make profits and is 33% worse off in investments. This
means the investments did not perform well.

Common-size Statement
The common-size statement is an income statement in which dollar figures
are converted and represented in percentages (Refer to Figure 2). The
statement is used to identify trends in each of the categories. Have done the
common-size statement for Air Indias Profit and Loss Statement, is can be
seen that 80.8% of Air Indias sales come from scheduled traffic services, it
can also be observed that the largest expense for Air India is on Aircraft fuel
and oil which makes up 35.7% of the companys expenses.

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Figure 2
It has long been the case that Air India has been losing millions of dollars due
to corruption and mismanagement in their outsourcing of repairs to overseas
vendors by its engineering department caused by the engineering team
failing to push though warranty claims properly and at times deliberately
delaying follow ups to allow the warranty period to expire (Pannu, 2012). In
addition to that, Air India have fired pilots as a result of the inquiry, which
uncovered that pilots falsified their flying records, cheated on flight exams
and paid bribes to testing officials (Timmons, 2011). While Air India has been
struggling to survive in the past few years there has been cases where
employees steal liquor, caviar, and other luxury goods from aircraft
(Mehdudia, 2012). And it gets worse, even top management have been
found to be misusing their power. Even though it has been officially prohibited
for Air India officials to occupy well-appointed flats of Air India Colony in
Delhi, they continue to do so. There have also been allegations of
embezzlement of funds that are collected yearly for maintaining these flats
(Singh, 2014). According to Ministers, large scale malpractice ran through out
the airline, in fact Minister of State for Civil Aviation Mahesh Sharma said that
as many as 133 cases were pending with regards to indiscipline,
mismanagement and corruption, among other complaints just in 2014 (CAPA,
2015).

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The Indian airline industry is highly competitive with airlines converging in
terms of pricing and product (CAPA, 2013). However, this poses an issue for Air
India, unlike the other airlines in the industry, Air India does not have a lowcost structure and it is not sustainable to them. Air India, which offers premium
travel is facing competition from low-cost carriers like Indigo, SpiceJet, and
GoAir (Govindasamy, Wilkes, & Chatterjee). The low cost carriers have
cornered two thirds of the domestic market in India (CAPA, 2013). If that is not
enough, Air India has to fight for its market share with the likes of Jet Airways,
Vistara, and many other airlines in the international market. In order to
counter this, Air India is adding more routes and look to improve on-flight
entertainment services in order to be remain attractive in its market (Nikkei
Asian Review, 2015). The airline is also looking to tap into the domestic market
as Indias GDP growth has led to rising incomes and has made air travel more
affordable.

Suggested Discussion to Case Requirements


Requirement 1. Analyze the strategic factors for AI.
National Carrier
Air India embodies the spirit of India by extending warm hospitality (Star
Alliance, 2015). Being the national carrier of India, it gives a good brand
positioning among its local competitors such as Jet Airways, also they have
the competitive advantage called the first-mover advantage. It is a
competitive advantage that a company earns by being the first to enter a
specific market or industry as it allows the company to acquire superior brand
recognition and customer loyalty (Investopedia, n.d).
Business Diversification
Air India set out to create six separate business units, the main airline business,
its low-cost carrier operation, cargo, engineering and maintenance, ground
handling, and related business like IT and security (Govindasamy, 2009). Each
business unit operates independently with its cost centers and is accountable
for its own profitability. According to Govindasamy (2009), these are the core
competencies that Air India has, with separate business units, each division
has greater autonomy to make decisions that will result in lower cost, higher
revenues and therefore better overall profitability. This business structure is Air
Indias strategic advantage that allows them to remain competitive in its
industry.
MRO Infrastructure
Air Indias key capability is in their expertise in repairs and maintenance, a
MRO facility has been developed by Air India Engineering Services Limited

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(AIESL) at Rajiv Gandhi International Airport in Hyderabad, and exclusively
serves the Air India fleet. This particular capability gives Air India a competitive
edge among their rivals in India.
Human Resource
Air India has 22,000 employees as of 2014 and it is overstaffed. There are still
unresolved issues since the Air India-Indian Airline merger, which has caused
low morale and internal factionalism (Business Standard, 2015). Air India is still
fixing issues regarding human resource by cutting employees off as of now,
but nothing has been mentioned about how they will improve the overall
morale of their employees.
Corruption/Mismanagement
Air India has been losing millions of dollars due to corruption and
mismanagement in their outsourcing of repairs to overseas vendors by its
engineering department (Pannu, 2012). It has been uncovered that pilots
falsified their flying records, cheated on flight exams and paid bribes to
testing officials (Timmons, 2011). Even top management has been found to
be misusing their power. Even though it has been officially prohibited for Air
India officials to occupy well-appointed flats of Air India Colony in Delhi, they
continue to do so. There have also been allegations of embezzlement of
funds by them.
High-cost Structure
Air Indias legacy cost structure remains at a high while the domestic and
international competition in the India airline industry is increasing quickly (Jha,
2015). The raise of competition has pushed fare prices down in the domestic
market and while Air India can offer cheaper fare prices as well, their
operational cost will remain high. Air Indias high fare structure is not going to
survive unless its business model undergoes a change (Mishra, 2011). In order
to reduce this high-cost structure, Air India will look into rationalizing their
domestic and international routes to cancel routes that are less profitable for
the airliner, with that they will also reduce spendings on human resource by
optimizing their operations and improving efficiency of them.
Indias GDP Growth
India has seen very promising growth in their GDP in 2015, it was reported that
the GDP grew at 7.4% in the third quarter of the year (Worstall, 2015). As GDP
growths, India will see low unemployment rates, wage increases
(Investopedia, n.d). As such, India will see an increase in citizen who can
travel by air, businesses will be attracted to the country, which will also lead to
more travels by business personnels for meetings and other business related
purposes.

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Political Stability
India saw to victory of now Indias Prime Minister Narendra Modi, the Hindu
nationalist won by a landslide and has promised economic and cultural
revival for India (Burke, 2014). Having political stability will open many doors
for Air India, as the country begins to see significant growth and possibly an
increase in economic growth due to the stability of the government.
Competition
Air India faces competition from low cost carriers based in India such as
IndiGo, SpiceJet, and GoAir that sell tickets at extremely low prices
(Prabhakar, 2013). It is a critical threat to Air India if more airlines start to join
this already stifling competition in India as potential customers who are
concerned with cost of travel with pick these low cost airlines instead of them.
Jet Airways are their direct competitors and some customers have shown a
preference to Jet Airways as compared to Air India. In order to remain
competitive, Air India must begin investing in building their brand, and
establishing a lifestyle brand strategy, develops innovative product
differentiation to appeal to customers (Selvaggio, 2012).
Lack of Differentiation
In the airline industry, customers have a high bargaining power since the
industry deals with a perishable product with limited options to differentiate
their services from services provided by their competitors. This is the case for
Air India as airlines such as Jet Airway provide very similar services and not
much differentiation. Airlines in the industry can differentiate themselves
through providing consumers with a variety of services such as food, on board
bars, customer service, lounges, and more.

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Requirement 2. Formulate and select strategic alternatives base on
TOWS matrix for AI.

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Strengths and Opportunity (SO).
India has seen a GDP growth of 7.4, having the highest increase in growth. In
a stronger economy, disposable income is high, unemployment is low, and
consumer confidence prompts people to spend their money back into the
economy (McQuerrey, n.d). As such, Air India should take advantage of its
strength to diversify business units to look into not only concentric
diversification and conglomerate diversification where Air India explores
unrelated markets through acquisitions. !
Strengths and Threats (ST).
The airliner has been facing increased competition in the region from low cost
carrier and also airlines with similar product such as Jet Airways. These airlines
have been able to keep their cost structure low and therefore sale their flight
fares at a lower price. Air India is known to have a high-cost structure for
various reasons, but if they take advantage of Air India Engineering Services
Limited (AIESL) that serves the Air India fleet, the airliner can reduce
operational cost and gain a competitive advantage.
Weaknesses and Opportunities (WO).
Air India is the national flag carrier of India and it represents the sovereignty of
India. Narendra Modi is very serious about creating a corruption-free country
and believes that strong steps must be taken to remove corruption (IANS,
2014). By improving and enforcing rules and regulations in Air India, it will be
possible to remove corruption and mismanagement of the organization; this

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will reduce the issue caused by an internal weakness through an external
opportunity.
Weaknesses and Threat (WT).
Air India has been facing challenges regarding employee satisfaction and
morale since the merger with Indian Airlines, and they have also been
overstaffed, which is common in government owned corporation in an
attempt to keep unemployment rates low. The inefficiency and
ineffectiveness of the employees will affect the competitiveness of Air India as
it is not performing optimally. In order to minimize this weakness and avoid the
threat, Air India will have to cut jobs and reduce the number of employees
they have hired, the funds recovered from the reduction in organization size
can be used to fund beneficial incentives for the remaining employees,
which will improve their morale and job satisfaction. With employees working
more effectively and efficiently, they can remain competitive in the industry.

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Requirement 3. Recommend the appropriate strategic alternatives
for AI
"
The Strengths and Opportunity (SO) strategy involves taking advantage of the
external environmental opportunity in India, which is their recent rapid growth
in GDP of 7.4%. The increase in GDP growth also means that India will see an
increase in disposable income among citizens, unemployment rates will
decrease and as such more people will have money to spend. Air Indias
core competency is their ability to diversify their business. In 2007, Air India set
out to create six separate business units, the main airline business, its low-cost
carrier operation, cargo, engineering and maintenance, ground handling,
and related business like IT and security (Govindasamy, 2009). Each business
unit operates independently with its cost centers accountable for its own
profitability. These are the core competencies that Air India has, with
separate business units; each division has greater autonomy to make
decisions that will result in lower cost, higher revenues and therefore better
overall profitability.

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Requirement 4. Evaluate the control measures in place to ensure
conformance with the recommended strategic alternatives
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With the implementation of the diversification strategy for Air India, undesired
performance results may occur possibility because the strategic
management processes were inappropriately used. As such, managers must
know about it so that they can correct the employee activity. In order to
evaluate the performance of the certain activity, a proper measure must be

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in place that is specific to measure that functional performance. The balance
scorecard (BSC) approach is one method of linking performance measures of
different perspective and putting strategy and vision at the center, its has
been adapted for R&D management to measure the link between the R&D
done and the results that it brings to the organization. The BSC approach
ensures that management develops goals and objective in each of the four
areas, financial, customer, internal business perspective, and innovation and
learning (Wheelen & Hunger, 2012).
Additionally, Air India can implement primary measures for functional
performance, where each functional area has a specific measure to
determine its performance. For instance, a good indication to evaluate R&D
performance is the number of patents obtained. A good measure for
marketing performance is the market share that a company has in an
industry. An indication to evaluate operations is unit costs. For the human
resource management, it is the turnover rate in the organization. Having
specific measures in the functional areas required to obtain Air Indias
implementation of the diversification strategy recommended with ensure that
management can monitor the performance of the strategy from the point of
view of each functional area (Wheelen & Hunger, 2012).
To ensure congruence between the needs of a corporation as a whole and
the needs of the employees as individuals, management and the board of
directors should develop an incentive program that rewards desired
performance. Incentive plans should be linked in some way to corporate and
di- visional strategy. Research indicates that SBU managers having long-term
performance elements in their compensation program favor a long-term
perspective and thus greater investments in R&D, capital equipment, and
employee training.

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