Tata's Challenge
One of the highlights of working with Qatar Airways was the fantastic Indian food in Doha. Within easy reach of Qatar Airways Tower was everything from lunchtime essentials like thali to fine dining. My particular favourite, Chingari (pictured), was the restaurant I ate at after my first day of work at the airline.
The Middle East’s cultural and economic links to India are substantial, hence the great food. Dubai-based Emirates has been called the unofficial airline of India and in Qatar Airways’ revenue management department the sub-continent was never far from our minds. So the new owners of Air India, Tata Sons, who paid 18,000 crore Rupees ($2.5 billion) for the privilege, will have their work cut out to compete.
Air India’s brand & network strength are promising
Air India is one of the world’s great aviation brands. Famous industrialist JRD Tata, who founded the airline in 1932, paid great attention to details like the distinctive “palace” livery and the uniforms and catering that bring the unique styles of the sub-continent to the air. As a member of Star Alliance they have easy access to perhaps the deepest and broadest of networks across any alliance globally.
Air India should be in a good position. But unfortunately decades of mismanagement have made the airline a basket case. In 2019 they lost $1.2 billion on $3.7 billion revenue (32.4%). I am sure that the new owners will try to cut out costs, but this alone will not be enough. To be truly successful, they must earn that $1.2 billion and more on revenue account. It will be hard, but as I will explain I think they have a good chance.
Some traditional revenue generation strategies can work with Air India, but will not be enough
The traditional prescription for airline revenue growth is:
1. Increase density in economy class (read reduce comfort);
2. Replace premium cabin capacity and galley space with additional economy seats; and
3. Sell ancillary products and services, everything from advance seat selection to food and drink.
Increasing density in economy is a no-brainer. Air India’s 777s are 9-abreast with about 18.5” cushion width yet their 787s and many of their competitors offer 16.9” wide seats. Air India can squeeze an extra seat into every row of their 777s, most likely without any tangible impact on demand or willingness to pay. I am sure that we will see them do this.
I do not think that they should reduce seats or galley space serving the premium cabin though. India has an emerging middle class with willingness and ability to pay for these seats, and inbound demand is strong. With a concerted investment and branding effort to convince travellers that Air India business and first class is truly outstanding I think that they can exceed the demand and yield performance currently experienced in the market. Such a strategy will rely on product investment and integration of passenger experience data into a super-app, which I will explore later in the article.
Air India also currently lacks a premium economy product. Incredibly successful at most airlines, this would be top of my list if I were designing the seat map for Air India’s planes right now. In premium economy Air India can expect double the economy revenue for 30% to 50% more space.
The third point, selling ancillaries, can be a success too. Traditionally ancillaries do not sell well in the Indian market because people are reluctant to be seen to be spending money on themselves – I call this the “culture of humbleness”. But when I was working with Vistara, also part-owned by Tata, we realised that this can be overcome by presenting the benefits of the ancillary services as valuable to others rather than the traveller. For example, “get that presentation finished early for your boss with a bigger table in business class” or “buy a meal on the plane so you have more time to play with your kids when you get home”. The boss and the kids benefit, not the traveller, so it is OK to spend the money.
For this reason Tata should be cautious about reducing galley space. They should consider galleys as revenue generators, not cost centres, even on shorthaul.
The new gate of India will be a super-app
It is my view that whatever Tata does in the airline operations and sales space, it will not be enough to make Air India turn a profit. Instead I recommend that they build a super-app like AirAsia, targeting all the people in the world travelling to and from India. Such a product would allow Air India to earn commission on feeding travellers into the entire Indian economy, everything from hotel rooms to restaurant meals, meeting facilities to Taj Mahal tickets and elephant sanctuaries to rail tours.
While the air travel market to India is remarkably competitive, with some of the lowest long-haul fares in the world, India is a desirable origin and destination for both premium leisure and highly capitalised business travel. Willingness to pay is high though ticket prices are low. Even when passengers do not travel in the front cabins they might still spend a large amount compared to their air ticket price on hotels and activities. With a good super-app, I reckon Air India can expect to double their money on every economy passenger and earn a good slug more in the premium cabins too.
If done well, the super-app will not only help to earn revenue for the airline, it will also use their especially strong name to build long-term confidence in their brand, especially in premium cabins. In 2019 it was not uncommon for BA, Lufthansa and Air France-KLM to charge double the Air India fare in business and first class. A super-app done well will first allow Air India to match their competitors’ net receipts and in time, perhaps a decade or so, turn the Maharajah into the market leader by net revenue per passenger.
India may be the perfect place to build a travel super-app
We know from history that India is good at tech and bad at airlines. There are plenty of highly skilled developers ready to build the super-app. India’s culture, heritage and economy are translatable into compelling bite-size marketing pieces that work well when distributed by mobile. So my recommendation for Tata would be to try and take the best of both industries, tech and airlines, and combine them at Air India to create a tech company with aircraft rather than an airline with technology.
oliver AT ransonpricing DOT com