The Indian Government will be selling 100% of its stake in flag carrier Air India. The news came on Thursday, as Civil Aviation Minister Hardeep Singh Puri said that Air India Specific Alternative Mechanism (AISAM) approved of the “strategic disinvestment”.
Many have actually called for the government to sell its stake in the airline. Whether through mismanagement or the simple nature of running a legacy carrier in a price-sensitive and budget-airline-heavy marketplace (or both), things at the airline need to change quickly.
“It is not feasible for the government to continue to operate a loss-making airline like Air India by infusing taxpayers’ money into it even as the carrier’s accumulated losses grow bigger with every passing year. As things stand, it seems that this airline can never make money under government control. The only options are to privatize the airline or shut shop.” – An anonymous New Delhi-based aviation consultant via LiveMint
The airline has faced heavy competition domestically from Indian budget airlines as well as internationally with legacy carriers from other countries. The airline is made more unappealing given its high rate of denied boardings – accounting for roughly 75% of all flights in India for the month of October.
With the government’s exit from Air India, this leaves the door fully open for private investment. However, whether or not the airline will find new suitors is a whole other challenge. Barring this, the airline could fold as it is heavily burdened with debt and far from being profitable.
“After the formation of the new government, Air India Specific Alternative Mechanism (AISAM) has been reconstituted and the re-initiation of the strategic disinvestment of Air India has been approved. AISAM has approved the 100 per cent sale of government of India stake in Air India for the re-initiated Strategic Disinvestment of Air India,” -Hardeep Singh Puri, Minister for Civil Aviation via Business Traveller
The prospects of finding willing and suitable investors look bleak. In fact, the airline itself isn’t all that appealing. According to Business Traveller, the airline hasn’t turned a profit since its creation in 2007. The airline is actually US$11 billion in debt.
The government made the decision to put Air India up for sale last year. And, at the conclusion of the process, there was not even one signal of interest from any prospective buyers. Even after the government altered some of the structure of the deal, there has been a notable lack of buyers interested in the ailing flag carrier.
Survival of the fittest
As mentioned above, the airline has seen a lot of competition domestically and internationally. Whether it’s budget airlines like SpiceJet, IndiGo, GoAir, and Vistara, or international airlines competing on its long-haul routes, a great deal of market share has been lost from Air India. In fact, even alliance partner United will be competing as it will also fly a San Francisco-Delhi service.
Air India would then seem to be in a downward spiral and negative feedback loop. Clearly, it lacks the capital to invest in better service for its passengers. This would lead to a further loss of market share to other, better-performing or cheaper airlines. Furthermore, the prospect of collapse may scare passengers away from booking with the airline as they look to avoid potentially canceled flights.
Conclusion: The next Jet Airways?
Sadly without any private investors in sight, Air India may find itself following in the footsteps of collapsed-carrier Jet Airways. Many commenting on our Air India-related articles have called for the airline to be shut down as it has become quite unpopular with Indians.
Do you think there is hope for the survival of Air India? Or should it succumb to market pressure and fold and its’ assets liquidated? Let us know in the comments!