Hello and welcome to Business Today. I'm Siddhad Zarabi and with me today is Campbell Wilson, the Chief Executive Officer and Managing Director of Air India, an airline that has been in the climb phase for the past three years. Campbell, welcome. Pleasure to be talking to you. Three years of what is clearly a very ambitious project of the Tata Group. I want you to summarize for our viewers: how's it been so far?
Good morning. It's been the most exciting job in global aviation, I think, and it's certainly one of the largest opportunities. We embarked on this five-year transformation program in 2022 shortly after the privatization, and for the last three years really we've been focusing on fixing the behind-the-scenes machinery that will allow for the future Air India. Most of that heavy lifting of the behind-the-scenes work has been done: merging the four airlines into one group with two brands, replatforming the IT architecture, moving everyone into the same world-class premises, inducting more than 100 aircraft into the fleet, taking it from less than 100 to now more than 300. Building training facilities, upskilling staff, all of the things that will go into the new Air India for the next couple of years. The focus is very much on consistency, consistency of service and consistency of product. We already have some world-class product on display in terms of the A350 that now flies from Delhi to Heathrow and to New York. It is, I think, comparable with any top airline in the world. But clearly we still have a large number of legacy aircraft that are yet to be upgraded. Domestically on the narrow-body side, we're about two-thirds of the way through the upgradation process. We will complete the fleet by the end of this year. On the widebody side, we have about 40 aircraft to upgrade. That process is starting. The first of the 787s enters the hangar next month in July. Once that comes out and the prototype is certified, we'll be doing two or three aircraft a month such that by 2027 or thereabouts, the entire Air India fleet will have been modernized to the standard of the A350. And I think we can declare that the transformation, at least the first part of the transformation into the new Air India, will have been done.
When I had last spoken to you, and our reportage subsequently, one of the issues that the airline faced, and it was not because of anything that you did, was the supply-side disruption. For the benefit of our viewers, how much of an impact did that have, and have you fully mitigated it, or is there still some sort of cloud that you're facing on that side of business?
Well, we now have a lot more certainty than we did a couple of years ago. And just for the viewers, seats and engines and some other components were very badly affected during COVID and it took a long time for the whole supply ecosystem to recover. As a consequence of that, there were delays to the seats that we have procured to enable the retrofit of aircraft, particularly first and business class seats. That delay has cost us between one and two years depending on the aircraft type. So we would have been far further down the path of the rehabilitation of our legacy aircraft than unfortunately we've been able to be. The good news is that the supply chain is now stable. It is accelerating. So we still have the initial delay but at least we've got clarity and I think confidence that the timelines that we're now working towards should be pretty fixed. Similar with the aircraft delivery process. When we committed to the 470 aircraft purchase that we announced in early 2023, we were expecting a certain delivery schedule. That has been pushed back a little bit, about six months on average. So we're receiving aircraft a little bit later than we had hoped, but of course the aircraft will come. We are in the queue. It's just that we need to wait a little bit longer.
Has this had any impact on the financial projections and the kind of models that you had worked?
Yes. Well, the fleet and therefore the network underpin the entire business and so when there is a delay to the receipt of aircraft or the upgradation of aircraft and therefore the configuration of first and business class and the like, it does affect the business plan, but it's just part and parcel of the world. We have to adjust where external events cause us such impact. But I think the trajectory remains very strong. We're very confident that by the end of the transformation period of five years, we will have delivered on all metrics: operational stability, customer experience, and financial performance.
Since you spoke about the end of the five-year transformation plan, what kind of market share are you currently working with? Is it as per earlier projections? Have you had occasion to scale it upwards? What's the status?
So domestically, Air India pre-privatization had a domestic market share of about 8-9%. With all of the consolidation and the ingestion of more than 100 aircraft and merger with the other airlines, we had brought that up to about 28-29%. We've subsequently taken some aircraft out of service for the purpose of refit and upgradation. So presently we're around 25-26%. And the aspiration for the five-year transformation period was to get around about 30%. So we're there or thereabouts. Obviously market share is a function of the speed that everyone else is bringing aircraft into the market too. But there's been a very significant increase on the metro-to-metro markets, which are the main commercial cities of India: Delhi, Mumbai, Bangalore and others. We have a 50% market share there. So I think we've been able to consolidate and strengthen our position in the key markets domestically and increasingly internationally with a couple of new airports coming on ground, particularly in Mumbai and obviously sometime later in Jabalpur.
What kind of impact do you see that for Air India? Because on the metro routes, I use them regularly, I think there's perhaps opportunity for you to scale up even further.
Well, absolutely and we have very close and good dialogue with the airport operators. We do intend to operate from Navi Mumbai. For us, it is a relatively complex transition because we are a hub carrier. We transport people into an airport and then disperse out through the rest of our network. So in moving some of our capacity from the existing Mumbai airport to Navi Mumbai, we want to take care not to destroy the effectiveness of the hub. So we're having those discussions internally as well as with the airport operators and we'll make some announcements soon. But certainly it is our intention to have a presence at both of the main city's new airports and continue to expand in other airports as well. So for example, Air India Express has recently made a significant commencement of operations at Hindon airport in the GI region.
In the future, what kind of mix do you see? And this is with regard to the government and the states' intent to increase the number of airports. So you've seen the multiple rounds that have happened. Some airports have worked well. Some perhaps need a bit more push. Broadly speaking, what would you like to see happen further when it comes to airport and airport infrastructure expansion in India?
Well, I think the number of airports increases by the day almost and I think that's great because it gives the opportunity for air travel to so many more parts of the country and so many more segments of society. Our principal interest is the development of the big hubs for now because we're largely an international operator. 65% of our capacity operates internationally. And so the continued development of the terminal infrastructure at Delhi, Mumbai, Bangalore where we've committed to have significant hub operations is important to us. And that also includes not just the physical infrastructure but also the administrative infrastructure: border security, the ease of ingress and egress to the country, the use of technology, visas and the like. You know, we think that all of that we can take a leaf out of how things are evolving overseas and apply the same learnings here so that India becomes very much competitive not just as a place to travel to and from but also as a place to travel through. The other piece of infrastructure that needs constant evolution everywhere but including in India is air navigation because the sheer number of new aircraft that are going to be entering the ecosystem here is a step change from what has been the case in the past and we need to make sure that the airspace is efficient, clearly that it's safe, and that it can accommodate many more aircraft than are presently flying.
Campbell, 65% as you said of your capacity operates on international routes, but we also have IndiGo as India's largest domestic airline now with an aggressive expansion plan on international routes. How do you view that from a competition point of view and what does it mean for your operations?
Look, I think India, the size of the market, the growth rate of the market, it is natural and good that there's more than one large player and that's both domestically and internationally. We want to bring more of the benefits of aviation onto Indian soil. There's a huge multiplier effect from having a home-domiciled airline employing crew, maintaining aircraft, supplying the ecosystem with tourists and making business connections. So we think it's good that there's more than one player performing that role. But as pertains to competition, you know, the fact that there's more than 200 airlines here for the IATA AGM attests to the competition that we as an international carrier face every single day and have done so for 92 years of our existence. So competition is good for the consumer. I think it's ultimately good for the industry and I think bringing more of the benefit back onto Indian soil with strong Indian airlines is good for India.
What about pricing ability? And we see what's happened to fares. There have been noises about fares particularly on certain routes and obviously in the busy season. But for our consumers, many of whom and our viewers who choose Air India as their preferred carrier, what can you tell them about how fares are likely to climb or maybe remain flat in the near future?
I think if you look at the facts over the past six or seven years, and IATA has produced some very good facts on this subject, fares domestically have not kept pace with inflation. They have significantly lagged inflation over the past seven years. Similarly, they've also lagged the movement in oil price, which means that in real terms flying continues to get cheaper. And I think that also attests to the fact that it does remain a competitive ecosystem notwithstanding that there has been some consolidation. Domestically is one story, internationally is another. I think perhaps Air India in its old guise was not really catering to a corporate market, for example. It was very much focused on a leisure traveler. But a carrier that's serving many of the key world destinations non-stop from India is a natural choice for corporate travelers. And so as we have moved towards a different market segment with a higher quality product and a much higher service level, we are introducing airfares that attract the corporate customer. So whilst we'll continue to have very competitive airfares at the lower end of the market, we will also be introducing higher airfares at the upper end of the market, recognizing that there is a whole new segment of the consumer that is now considering Air India when perhaps they didn't do so in the past.
