Hello and welcome to the CEO Dialogue. I'm Shireen Ban, and today we are here at the Air India Experience Center in Gurugram, and we're in conversation with the Managing Director and CEO to talk about the flight path in light of the fact that we now have that mega merger of Air India and Vistara underway and in fact completed. Campbell, always a pleasure. Many thanks for joining us here on SC. It's great to have you back, almost a year since we last spoke, and a lot has changed. Then, Vihaan was in the takeoff phase, and today it's in the climb phase, and the Air India-Vistara merger is now done. I want to start with that. It's been a massive exercise, not just the Air India and Vistara merger but also of course Air India Express. What have been the big complexities, the big challenges as you've tried to get these mergers done in the last two years?
Well, I think an airline merger is probably amongst the most complex of any corporate merger. You've got the regulatory side of things in addition to the legal side of things. There's a lot of staff and you're a 24/7 operation, so you've got aircraft in the air even at the point of merger. So we've been working towards this for two years, aligning the operation procedures across the four airlines, aligning the regulatory approvals that the four airlines hold, aligning the terms and conditions of all of the employees – and that was five groups of employees because there was the old Indian Airlines group that had not been regularized even now. Systems needed to be brought into harmonization, the customer proposition to the best we could. It's been a long, multifaceted process, and I'm pleased with the way it's gone. It's never perfect, it takes a while to fully stabilize, but we're now a 300-aircraft, 30,000-person group organization, carrying 60 million people a year on more than 300 routes. I think the team and all the supporting agencies like the DGCA and the ministry can take some pride that what takes airlines in other countries 5 to 8 years was done in India in little over two.
So that then begs the question: have you taken on more than you can chew? Because if it traditionally takes 5 to 8 years or maybe 10 years in other aviation markets to pull a merger like this through, you've been able to do it in a little over 2 years. So from a customer's point of view, how much longer will the customer have to wait for operations to stabilize now between Air India and Vistara and to truly be able to get that experience?
Well, operations have effectively stabilized. We actually did the merger on the 12th of November, deliberately to avoid both Diwali and the fog season. Unfortunately, on the 13th of November we got very unseasonable smoke and fog in Delhi, which caused disruption for all airlines, which came at a very fragile time for us, and so it did take a couple of days to fully recover. But I think from an operations perspective, we are now operating normally. From a customer perspective, it really starts allowing us to strengthen the proposition. Effective first of December, we will be deploying all of the Vistara aircraft on the metro-metro routes – more than a thousand flights a week. All the flights between Delhi and Mumbai, Delhi and Hyderabad, Bangalore and Delhi, and so on are going to be offered by the Vistara aircraft, so the customer proposition is now more consistent, more quality. I think people can come to the Air India group with more confidence than they were able to before.
And this is on account of the feedback that you got, because there was this sort of complaint of inconsistent performance across – people used to Vistara now moving to Air India.
Yes, we've been very deliberate about when we deploy Vistara aircraft. We denote them with a specific fleet number that starts with AI2. It has Vistara crew, obviously Vistara aircraft. The catering is the same across both airlines – we adopted Vistara catering across both. But now by deploying the Vistara aircraft on the main metro-metro routes, it makes the product much more consistent. Let's not forget that business people like consistency and frequency. On Delhi-Mumbai we offer 27 flights a day, so I think now people can really have some confidence that the Air India business proposition is one that is credible and consistent.
You talked about the inflight meal service and where that now has been consolidated. If you take me through what you've been able to successfully consolidate at the vendor level, on the back end how much of that is work in progress still, how much is completed?
All of the systems are now harmonized. The consumer interfaces – call centers, websites, apps – are harmonized. The loyalty program is now one – the New Maharaja Club. All of the Vistara members now have access to a much larger network than they previously had. So as far as the customer interface experiences other than the aircraft, it is the same. The aircraft are going to be made progressively the same. A third of Air India's legacy narrow-body fleet has been upgraded, and by the middle of 2025 it will be fully upgraded, so that everything is of a similar standard. We still have work to do with the wide-body aircraft – about a third of those aircraft have been upgraded. It will take another couple of years to complete that process because of the supply chain and regulatory requirements of seats and the installation of them. But we're making good progress.
So what is the delay that we're talking about, especially on the widebody because that impacts your international operations? Is it a year or longer in terms of a delay that we're going to see as far as the retrofits are concerned?
We committed more than $400 million to the retrofit program back in 2022. We also selected the seats back in 2022. There is a regulatory design certification and subsequently a manufacturing process that we need to go through, and that is where the supply chain constraint has hit us. Two different manufacturers came back to us and said they just cannot deliver to the timeframe they had committed. In one case it was 6 months, in the other a little longer. So the program that actually should have physically started on the aircraft already will now not start until next year. The first of the 787 aircraft retrofit ship sets will come in April. It'll take a few months to install and be certified; first aircraft hopefully in service by October next year. The 777s will have a refresh next year, but then go for a full retrofit starting in 2026.
So that $400 million that you spoke of that was committed as far as the retrofit program was concerned, do you believe you may need to now allocate more capital towards the retrofit exercise?
The sad fact is yes. In one case we've had to change seat vendors. This refresh I talk about, which is an interim step on the 777s, is something we hadn't provisioned for originally and is only necessary because of the delay to the seat deliveries. But we've made this decision to invest more because we realize that we can change everything else about the airline – and we nearly have changed everything else about the airline – but until we change these last 40% of our legacy wide-body aircraft to the standard that we expect of ourselves and what customers expect of us, I think people will not consider the job complete, and we won't consider the job complete.
So how much more are you going to have to spend over and above the $400 million which have already been committed?
I won't say, but it's in the tens of millions. In terms of capital allocation to ensure that you deliver on the promise and the service that you have outlined as far as creating a global airline with an Indian heart is concerned, what are we talking about now outside of the retrofit? In terms of annual capital outlay, what kind of numbers are we talking about?
We don't reveal, but I think we've previously said the 470 aircraft that we've committed to have a list value of $70 billion US. The $400 million we've talked about with a little addition now for the retrofit, the $200 million odd that we've spent on completely revamping the IT landscape, the investment we're making in turning around Air India is significant. It will take some time to turn around the airline from a financial perspective, but if you look at our reports, we are making very good progress. We always said this would be at least a 5-year turnaround. There was a reason why we said that. There was a reason why the Economist said it was the Everest of corporate turnarounds. I think what we've achieved in a little over 2 years is significant. It's certainly not finished. We are as impatient as anyone to bring it to closure, but progress is occurring.
Yes, progress is being made, and as you point out there is a long distance to go, and not everything is in your control at this point in time. But do you believe that that 5-year transformation plan under Vihaan that you'd put together, and where now in the climb phase as you call it, are you going to have to stretch this out further given the fact that there are delays both in terms of possibly aircraft arrival as well as on the retrofit side?
No. Things that are in our control, I think we've done almost exactly on time. At this juncture, we don't think we would need to stretch it out. For things that are not under our control, well, things that are not under your control are not under your control.
Let me ask you about the issues that customers seem to be facing. We've seen headlines over the past few weeks in terms of delays – an 80-hour delay, passengers being stranded at Fukat and so on. I mean, what do you attribute? An 80-hour delay is a long time. Is this an issue of aircraft? Is it an issue of lack of crew? From a customer's point of view, people would want to understand what's going on.
Look, aviation is aviation. There are all sorts of external events and all sorts of internal things that contribute to these issues. We fly 8,300 flights a week, and we use machines and fly into weather and different geographies. Aviation will always have these oddball events. It's more important how we handle them when they happen. In this particular case in Fukat, there was an aircraft that had a technical issue. We believed it had been fixed by the local engineers; it turned out that it hadn't. Then as we tried to disperse the passengers on other flights back to India, there was a shortage of capacity because it was a holiday season. The headline is 80 hours; a very small number of people were impacted for a long time. The vast majority were able to be brought back very quickly. But unfortunately, that is the nature of aviation. We want to make it less and less frequent, but it's not going to be eliminated forever.
Speaking of oddball events, I want to talk to you about what we saw happen over the last three months with these bomb hoax threats. They disrupted aviation across the country, across airlines including Air India. Indigo got the maximum number of hoax threats, and second was Air India. Dealing with that, do you have any ideas now on what really transpired, what was going on, who was behind it, and dealing with it on a daily basis?
We're a private enterprise, so we can only go so far in determining who and why people are doing such things. There is obviously very clear guidance, both internal and regulatory, of what we do when we do receive such a threat. It is disruptive to the operation and clearly disruptive to customers. During this spate of events, which was unprecedented globally in terms of number and duration, we all learned a little bit about how we can handle such things more consistently. I mean also the regular regulatory environment. It's just malicious and frustrating, but thankfully now we seem to be through it.
The government has responded in Parliament today, saying that of course they have been in conversation – the regulator with airlines and the government – and so forth. Is there a new SOP that's been put in place to deal with this kind of a situation? Hopefully it doesn't come to pass again, but if it were, is there a new SOP that's been put in place on how to handle it?
The airline SOP remains the same. We take every threat seriously. We've got an assessment committee, we have reporting obligations to the regulator, and there are certain actions that we are required to take if there is a threat that is deemed sufficiently serious. At the government and regulatory level, I believe there is the constitution of a new group with some extra members so that there can be a faster, more informed, more consistent assessment of such threats. But that would be more for the government to give you.
I would imagine that this is a stress test of the worst kind, not just for the airline but for all agencies involved. I'm curious to understand what it must have been like for you and your team in that time period when on a daily basis you're just getting these sorts of tweets and calls and threats, without knowing how you cope with this. What was that period like?
Again, I hate to say but that is aviation – it's a 24/7 business. In this particular case it was hoax threats, but you've got weather events, snow storms in New York, labor strikes in Paris. We're used to getting woken up at 3 in the morning by a phone call saying something is happening. That's just a regular day for you? I wouldn't say it's a regular day, but it's not an infrequent occurrence.
But what has been the cost of that? Because I would imagine the cost implications have been significant – flights being disrupted, reimbursing passengers, rescheduling them. What ballpark number, or what it could have cost you and the industry?
I don't have that ballpark number, but it's not cheap. We had one particular aircraft, for example, have to land in remote Canada, and that obviously incurs a significant cost. But the real frustration is more about the impact to the customers, the impact to our employees, both those flying and those dealing with the disruption. I'm glad that there seems to be stability and new structures in place to ensure we hopefully don't see a repeat.
You talked about the Middle East and the crisis in the Middle East. This has also impacted airlines across the world. It's had an impact as far as your flying hours are concerned, which also automatically impacts your costs. As you look at geopolitics and the way it's reshaping how airlines do their business, what has been the impact and how do you address this in terms of routes, networks, how do you respond?
In many cases there's no choice. For example, if missiles are being lobbed around certain parts of the world, we have to reroute aircraft. There are some cities that we've suspended operations to because we don't believe it is either safe for our crew or we don't believe that the constant change of whether it is safe is operationally something we can cope with. But again, it is aviation – we deal with this all the time.
I want to go back to the integration itself, as well as talk about future plans. On integration, the people integration is perhaps one of the most complex aspects of ensuring the integration is a success. Where do things stand? Because there were complications linked to compensation and HR policies on both sides, especially Vistara and Air India, including even things like retirement age. Where do things stand on ironing out those issues?
I think almost entirely there. There are a couple of things we've parked for the time being, retirement age being one. But we brought four airlines together, really five if you consider Indian Airlines' unfinished business. In all such combinations, it's not just picking all the lowest or all the highest; there is a denominator. There are some pluses and some minuses, but on balance we feel that everyone benefits from this consolidation, not least because of the huge new opportunities now open to people with the massive expansion and growth we are undertaking. If you look at things in isolation, some people have positives or negatives to comment, but on balance this is hugely beneficial for all involved.
On the expansion and growth plans you alluded to, at this point in time one of the questions being asked is that as your supply side issues continue to work themselves out, as you wait for seats to be refurbished and retrofitted, does it make sense to look at perhaps pausing and taking stock of operations, not expanding beyond a certain point, so that you can give customers what they truly deserve in terms of experience? Is there thinking at this point to not spread yourselves too wide, to focus on the routes you currently operate so that customers can get the experience they are looking for?
Absolutely, both by design and also by circumstance. We won't be receiving a huge number of aircraft over the next 12 months by virtue of the fact that those we leased early or were able to acquire that had already been made but never delivered to others – most of those have now arrived. The aircraft that come off the production line come towards the end of the next calendar or early next financial year. So there is this 11-month window that exactly allows us to do that. We've added 100 aircraft at the group level over the last 18 to 24 months. So it is an appropriate time to consolidate, take stock, get the refit programs underway. The narrow-body refit will be complete by the middle of '25. The wide-body refit will be underway in 2025. We're rolling out Wi-Fi, entertainment to people's own devices, upgrading service ware and meals. The crew uniform rebranding is coming. The lounges are opening. The A350 is now flying to Heathrow and New York. There's a lot we've introduced, and now is the time to stabilize, make things consistent, and ensure the customer proposition is what people expect.
Would you be looking at reviewing the number of connections you offer today? Any route rationalization at this point?
