Was there a simpler solution to Air India – Indian Airlines merger?

A week ago, for the ninth time – the guidelines for sale of Air India were changed. The airline would be recording a loss in the tune of INR 8,000 crore this fiscal year. Time and again, the losses are blamed on the merger of Air India and Indian Airlines – the AI – IC merger as it is popularly called! 

Following the merger, there have been committees, CMDs, Ministers and governments who have tried hard to get the airline to profitability or breakeven but have consistently failed. While the biggest problem is debt – which was accumulated due to the aircraft which were ordered from Boeing and Airbus – there is no denying the fact that both the airlines were in dire need of new aircraft to expand and keep competing with other airlines.

The other problems which are often cited for taking so long to merge well are work culture, areas of operation, compensation, working conditions, entitlements and more. The merger had resulted in massive discontent and frustration amongst the staff due to the pay difference at the same grade, different allowances and in the pilot community on seniority and selection for moving on to the wide body and other newer generation aircraft. What compounded the problem was subsequent demerger of ground handling and engineering companies!

A step back – Why was a merger necessitated?

Air India and Indian Airlines were both government owned. Along with it, there was Alliance Air – which operated with the older B732s of Indian Airlines and was envisioned as a lower cost feeder network.

Primarily, Air India operated the international routes with the widebody aircraft comprising the B747s and A310s. The airline also operated certain trunk routes within the country as part of multi-stop international flights or swapping bases for engineering requirements. 

Indian Airlines on the other hand was primarily domestic with its early fleet consisting of F-27s, HS-748s and later the B737-200s and A320s (double bogey). Indian Airlines also had a few A300s in its fleet which operated the trunk metro routes in the country as well as to nearby international destinations in the middle east, Nepal and South East Asia. These were operated by a mix of A300s and A320s.

With identical roles and responsibilities across airlines and both airlines not in the pink of health, a need was felt to merge the two so that there won’t be two CMDs, two heads of each function and so forth! While this was on the human resources front, there also was a need on the route rationalization front with both airlines operating to certain routes like Singapore or Dubai within hours of each other. A well spaced network with feeder traffic from the heartland could well change the fortunes for the route and the airline as a whole! 

A feeder network would also help Air India cater to its long haul services with traffic from other destinations in the country and neighboring countries. 

Rationalisation of workforce?

The reasoning of workforce rationalisation would fall flat if one considers that just before the merger plans in 2007, another airline was started as part of the group – Air India Express. A low cost subsidiary, the aim was to cater to the traffic to the GCC region, primarily from South India with focus being Kerala. 

Likewise Air India Regional or the revamped Alliance Air continues to operate as a separate entity with a separate IATA code and set up including a CMD of its own. So rationalization of the workforce hasn’t really happened in true sense! 

A stepwise approach?

While the genuine need was to avoid two sales teams fighting for the same passenger on the same route for a similar service, the easier solution could have been to first integrate the schedules in a manner that they complement each other and not compete with each other. The numerous committees which were setup for integration of the two airlines could well have been set up before to integrate schedules! 

A simple codeshare between Air India and Indian Airlines would have solved the problem to begin with. Passengers on the domestic route can connect on Air India’s global network from Mumbai and Delhi and vice versa. Likewise the common destinations like those in the gulf and south east asia could have seen both the airlines place code on each other’s flights giving more preference to the customer!

Only when the schedule integration is successful, could the entire entity look at a merger. Would a piecemeal integration work better than a big bang merger? 

What are your thoughts about this?

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