Air India Shifts From Growth Mode To Cost Cutting Mode, As Losses Mount

I wish I could say I’m surprised by this development, but it seems like this was bound to happen, and some really bad luck along the way didn’t help either…

Tata Group focuses on curbing Air India’s record losses

In late 2021, Air India was privatized by Tata Group, which was Air India’s initial owner when the company was first founded. Since then, executives at the company have been working hard to transform the airline. The issue is that this has been no small task.

As I said from the beginning, it would almost be easier to start an airline from scratch than to fix Air India, given the extent to which the airline was broken, particularly when it comes to passenger experience.

To Air India’s credit, the airline has been trying to turn things around, and the announcements have been impressive. Air India placed one of the largest aircraft orders ever, committed to reinventing the passenger experience, and genuinely wanted to grow, taking back market share that has gone to Gulf carriers over the years.

However, well over four years after being privatized, Air India doesn’t actually have that much to show for this transformation. This past financial year, the airline reported a record $2.8 billion loss. As I see it, this comes down to several factors.

For one, while Air India has started to improve its passenger experience, with new cabins and new lounges, the reality is that most long haul passengers are still experiencing the carrier’s old product. For that matter, the airline has also had some bad luck, from the crash of flight AI171, to Pakistani airspace issues, to increasing jet fuel costs, all of which have posed a challenge for profitability.

That brings us to the latest development. Bloomberg is reporting that Tata Group is tired of funding the losses at Air India, and has instructed management at the airline to focus on reducing losses rather than growing. This reportedly primarily revolves around deferring new aircraft deliveries, with around 500 more planes on order, and scaling back both domestic and international expansion plans. It also involves focusing on stabilizing operations, and even cutting costs.

Let me of course emphasize that this is according to people familiar with the matter, but no official announcement has been made yet.

Was this inevitable, or did Air India management screw up?

I think this situation raises the question of whether Air India’s revitalization was bound to play out this way, or if management made serious strategic blunders. Keep in mind that Air India CEO Campbell Wilson is stepping down this year, though the claim is that this has been planned since 2024.

Personally, I’m of the mind that of course Air India was going to suffer massive losses for years, given that you can’t reinvent an airline overnight. You first need to greatly expand operations, and massively reinvent the passenger experience, before you get a return on your investment, especially for an airline that has historically had such a bad reputation.

Customers start considering an airline more regularly when they actually consistently offer a certain type of experience, rather than just being promised something on one flight, or years down the road. Like, I had a lovely flight in Air India’s A350 business class, but I also recognize that if I flew most Air India routes to or from the United States, it would be a different story. So I can’t say I’m surprised by this outcome, though admittedly Air India has also had bad luck, with everything from the Dreamliner crash, to the regional airspace situation.

Structurally, there are reasons that Air India failed when it was owned by the government. At the same time, those structural issues weren’t going to be solved overnight with privatization, and it seems like Tata Group almost regained control of Air India out of pride rather than because it was actually a great investment with a ton of upside. I mean, even under the best of circumstances, airlines aren’t exactly high margin businesses.

I’m curious to see how this all plays out. I don’t think there’s necessarily anything wrong with cutting back on growth, but I hope the airline prioritizes offering a consistently high quality passenger experience, and that cost cutting doesn’t come in the form of cutting back on soft product, cabin retrofits, etc.

Bottom line

Tata Group, Air India’s owners as of several years ago, aren’t happy with the carrier’s losses. Air India reported a record loss of around $2.8 billion the last financial year, which is much bigger than the company’s owners were expecting.

They now reportedly want Air India to focus on controlling losses, which could come in the form of curbing growth and cutting costs.

While I give management credit for the direction the company has been headed, it’s not surprising to me that the airline hasn’t been fully transformed overnight, given what a monumental task that is. When you undertake a project of this size, you’re going to incur some massive losses upfront, with the hope of long term success. It’ll be interesting to see how this all plays out.

What’s your take on Tata Group getting tired of Air India’s losses?