Airlines India, Indian Airlines

India’s airlines are growing fast. They are facing large-scale people problems – a critical shortage of skilled people to run highly complex businesses. The public sector is of little help in improving matters.

The Indian airline sector is experiencing a shortage of flying talent. Most of Indian airlines are hiring pilots from abroad. Cabin crew finishing schools are mushrooming, but training quality remains a concern because demand is rushing training. New airline entrants are poaching talent from existing airlines, and retention is becoming a problem. It is not just pilots or cabin crew, even ex-pat management attrition is an issue.

India is a study in contrasts. Our concerns with Indian aviation to date has focused on the lack of infrastructure. In addition, there is the matter of India’s growth potential and the government’s apparent inability to manage this. India has a population of 260m living on less than a dollar per day – which is nearly the size of the US population! There are tremendous challenges. While the private sector booms, the public sector cannot cope with the demands placed on it. Corruption is still a big problem, making change more complicated.

It is crucial to understand that a failing public sector risks everything good and great created by the private sector. Like China, India faces different growth rates in different regions. This leads to social unrest as the more entrepreneurial move to the opportunities. Since the public sector in India has massively failed in basic functions like provision of public schools, health care and water supplies, something as exotic as the aviation system cannot expect to get much attention. Hence the strong interest in privatizing India’ airports.

Investing in aviation infrastructure is one thing the Indian government cannot short change. A growing aviation sector means more tourism, which translates into lots of service jobs. Change management is a top priority throughout India. However, India’s bureaucracy is legendary in its ability to stymie change. Therefore, the government would be wise to co-opt the private sector in any way it can to overcome the various hurdles, from resource allocation to overcoming bureaucrats’ love of status quo. It takes only one success story to encourage change. If one state starts down the road of faster infrastructure development and reaps the rewards of faster growth, powered by, for instance, increased aviation use, others will follow.

The biggest problem in India is its people. There are many of them, but too few with the skills to exploit the myriad opportunities. For example, Indian airlines have ordered aircraft way in excess of their ability to crew them with Indians. This makes for trying times in airline HR departments. India is a very proud country with a long history. Despite old attitudes, the facts on the ground dictate the need for ex-pats in the aviation sector.

In the airline industry it is a good thing that India’s low cost carrier growth is are being encouraged. India has too few roads and its rail network is old. Aviation growth is a quick way forward to faster economic development. India, like China, is growing its aviation sector at breakneck speed. We expect more deals like the yet to be consummated Sahara/Jet merger. The main reason for this will be crew shortages. Cockpit crews are like gold, for now. India cannot produce enough crews to cope with aircraft orders placed. In the US, airlines typically have 14 pilots per plane. India needs thousands of pilots for the hundreds of planes on order.

In the short term, airlines are likely to treat crews well by paying them a lot. This will embolden the pilot unions. During the go-go years of rapid growth, airlines can manage this because revenues grow faster than costs. When grow slows, the problems kick in. By then pilots will have developed expectations of fat salary increases. However, revenue growth will not support that the fight starts. Look to the US as a model.

Currently the Indian market is hiring pilots from all over to overcome demand. In the next decade, the supply of Indian pilots will grow and make the nation less dependent on foreign talent. South Korea has found that foreign talent is no bad thing. The culture in the cockpit is not national, it is universal. Pilots around the world are typically trained to a common standard - but cultures are pervasive. Korean Airlines experienced a crash when an Aussie first officer and a Korean Captain were arguing over a landing. India has to watch for this.

Given this situation, our recommendations for the Indian aviation sector are as follows:

Pay the highest you can to acquire talent from anywhere now. The airline with the most crews wins because they can offer the most flights.

Fly at every hour of the day. Night flights are great and India is big. GOL in Brazil (an especially good example for India) does very well with its night owl flights and is making lots of money. This also ensures very high use of the plane (14 of more hours/day)

Pilots are like anyone else; they plan based on whatever information that have. Theirs is a global talent that goes where the money is. Like at the Gulf airlines - most pilots are ex-pats. Pilots love new planes and India will have lots of these. If they see a growing airline and they are busy, they will get on with the job.

One thing Indian airlines must watch carefully is their HR departments. With staff poaching, it is very important to have a consistent policy on hiring and retaining staff. Airlines may have to offer their pilots a stake to keep them loyal and this is becoming more common. On the other hand, once mistrust exists between management and crews, the company runs into difficulties. The airline industry is replete with examples of disconnects between management and crews. The customer loses every time and equity values plunge. It is critically important that there be no mixed messages. We do not advocate split HR departments (hiring and retaining), as this sets companies up for different messages and conflict. Only one message needs goes out - we are growing and we want loyal people.

In terms of best practices and learning from other industries, Indian airlines again can look at examples around the world. The best airlines are where pilots are treated well, but are also updated on finances. This way nobody kills the goose laying the golden eggs. Poorly run airlines are those where the information flow is restricted - once distrust seeps in, you have big trouble. It is awful when senior managers are making out like bandits and pilots have to “give back”. Look at the US for examples of this and, these days, look to European airlines for some of the best practices. Pilots are a professional group that can take their talent elsewhere. China is an attarctive market for their services.

Companies develop cultures. It is important that managers honor the culture and provide staff as much respect as they do passengers. Airlines are service businesses. The people who wear uniforms are customer facing and probably deserve the most respect internally. Company mistakes (as well as every external event) are handled by uniformed staff. Theirs is often the toughest job in an airline. Given a paucity of skilled airline people, India’s airlines have to be especially vigilant in respecting their staff.

Other non-airline industries do not offer India’s airlines much guidance. No other industry has such high capital costs, with vast complexity (airline network planning is an awesome thing to watch) with such low profits. It may be one of the highest risk industries in the world. The breakdown to failure typically occurs when labor costs get out of sync with revenues. Today a typical airline has 30% of its costs tied up in fuel. Airlines are a business where up to 70% of costs are fixed. The slightest mistake in pricing, leads to massive losses. But, even a slight profit - say 1% - on a billion dollars monthly revenue (found at many airlines) generates big profits.