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The man behind IA's rebirth
A K Bhattacharya in New Delhi
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May 25, 2005

Five years ago, Indian Airlines, a state-owned company, was tottering on the brink of a financial disaster. Competition was hotting up, with privately-owned Jet Airways [Get Quote] taking away its market share.

Passenger confidence in Indian Airlines was on the decline, with one of the planes belonging to its subsidiary crashing at Patna in July 2000.  Its net cumulative losses had crossed Rs 1,200 crore (Rs 12 billion).

If this was not enough, the Vajpayee government had announced in Parliament that Indian Airlines would be privatised.

So, no decision was taken to augment and modernise its fleet capacity. Worse, no decision was taken on privatising the airline, either.

The price of aviation turbine fuel, which hovered around Rs 13,200-15,200 per kilolitre between 1992 and 2000, shot up to Rs 18,000 per kilolitre in March 2000 and to Rs 22,500 per kilolitre six months later.

And then came September 11, 2001, which dealt a big blow to air travel.

The number of passengers it carried per year was on the decline -- from 78 lakh (7.8 million) in 1999-00 to 76.95 lakh (7.69 million) in 2000-01 and further down to 70 lakh (7 million) in 2002-03.

The man at the helm of Indian Airlines then was Sunil Arora, a 1980-batch IAS officer who was appointed as chairman and managing director sometime in the middle of 2000.

By Mr Arora's own account, the challenge was formidable and he, therefore, focused on four areas: Cutting costs without compromising on safety and the product, increasing the use of capacity, launching an aggressive marketing drive, and enhancing the quality of the product by improving on-time performance, the behaviour of front staff, ground-handling services, and reservation systems.

So, how did Mr Arora go about his new job? He took advantage of the ban on fresh recruitment and embarked on outsourcing (call centres were set up in six metropolitan cities to handle customer queries) and redeploying the existing staff drawn from non-operational departments like finance and stores to commercial divisions to handle front-line activities.

Last year, he redeployed 250 such employees. And thanks to superannuation and a voluntary retirement scheme, the total employees strength declined from 20,554 in 2000-01 to 18,213 in 2004-05 -- a drop of 11 per cent.

This is expected to further drop to 17,697 by the end of March 2006.

But the good news was that even though its manpower strength and the cost went down and there was no increase in its fleet capacity, the number of hours its aircraft flew in the sky (or aircraft utilisation) kept rising.

In the last five years, aircraft utilisation went up by 29 per cent -- up from 146,000 hours in 2000-01 to 188,000 hours. In the current year, this is expected to cross the 200,000 mark.

This is what gave Indian Airlines a fresh lease of life. While the induction of 17 A320s through leasing in the last five years accounted for two-thirds of the increase in aircraft utilisation, the remaining one-third of the increase came from better use of the existing fleet and through improved engineering performance.

The last five years also saw Indian Airlines launch aggressive sales and marketing initiatives. The sales teams called the shots at internal meetings when it came to responding to the market challenge.

At one meeting, Sunil Arora asked the sales team to name a gift that an IA passenger would value most. An E-class Mercedes car, said an officer.

The same day IA launched a scheme under which the winner of a contest among its passengers would take home an E-class Mercedes car.

With similar drive, IA strengthened its relations with the travel agents through various incentives including one that replaced the need for bank guarantees for agents with only an insurance cover.

What's more, IA introduced a centralised reservation system and brought it on a par with its private sector competitors.

Flexible market-driven fares were not the only new initiative IA introduced during these years. It expanded its customer base by tying up corporate house relationships (under which special fares are offered to a group of companies) with more groups -- from 40 in 1999, the number of such arrangements has gone up to 800 today.

Investments in improving the ground support facilities also increased to over Rs 85 crore (Rs 850 million) in the last five years, compared to an annual expenditure of Rs 2 crore (Rs 20 million) earlier.

Today, IA provides ground-handling services to 19 airlines and is planning a new joint venture with Singapore Airline Terminal Services.

The results are for all to see. The number of passengers IA flew in 2002-03 increased to about 71 lakh (7.1 million). This went up further to 74.82 lakh (7.5 million) in 2003-04 and to 79.84 lakh (7.98 million) in the 2004-05.

The march continues as during the current year IA is expected to fly over 89 lakh passengers -- a jump of 26 per cent over the 70-lakh passenger figure recorded in 2001-02.

Also, IA was on way to financial recovery, with its losses of Rs 247 crore (2.47 billion) in 2001-02 declining to Rs 197 crore (Rs 1.97 billion) in 2002-03. And in 2003-04, it notched up a post-tax profit of Rs 44 crore (Rd 440 million), while its estimated net profit for 2004-05 might be a little lower at Rs 17 crore (Rs 170 million).

Indian Airlines still has many problems as an airline. But the way it has taken on competition and staged a financial turnaround is a remarkable achievement particularly in view of the many handicaps it faced as a public sector entity and because of the ministerial bosses who were not particularly kind to it.

Ask Sunil Arora, how he achieved what he did, his answer is simple: I tried to forget that I am a bureaucrat. I tried to function not like a chairman, but more like a CEO and I relied both on corporate feedback and the feedback from the field.

In about a fortnight from today, the government has to appoint a successor to Mr Arora, who will then complete his tenure.

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