Is AI a failure of business model?

Read a very interesting article on Air India written by G. R. Gopinath, founder of Air Deccan, that explains the misfortunes of AI. If you have read the blog on 'what is a business model' you will appreciate this article better. We had also discussed Airlines as a case scenario in this blog. Please read this before you explore the understanding of business model here.

Here are some of the significant highlights:

1. AI is overstaffed. It has high employee to Aircraft ratio as compared to other airlines. For instance, AI has 475 employees per aircraft as compared to the only profitable airline  Indigo which has 70 employees per aircraft.

2. You will assume that high employees may be utilised to increase the aircraft utilisation. Unfortunately AI has the lowest figure of utilisation which is 30%.

3. AI's total cost per available seat km ( CASK) - which is an industry benchmark to measure airline inefficiency - is the highest in the world. It is four times Indigo and five times Air Asia's.

Is this enough to indicate that it is a failure of business model? Yes and No.

No, because technically speaking, any company should manage its business model smartly, be it Government owned or privately owned.

Yes, because when competition comes in, the management has to become very 'flexible' in responding to the market conditions. It is this flexibility that cannot be imparted to Government company. Be it in Telecom, Banking or Airlines, once the industry is privatised, Government-managed organisations always seem to suffer because they cannot take business decisions, that in retrospect may look 'biased and mistaken'. The right decisions are therefore postponed, and unlike in a monopoly environment, the company has to pay the price for its delayed decision making.

For instance, as G.R. Gopinath has suggested, that AI has some good business options even at this time. For instance,

- AI has a massive investment in Maintenance, repair and overhaul ( MRO) of Aircraft. It has also high employees because it has one of the best maintenance facilities. AI can bifurcate this operation from the rest of AI, like what Lufthansa Airlines did, and earn very good income from its operations. Will AI be able to do this because of its nature - Government managed entity?

- AI has got huge investments in real estate. It can be sold to pay off the employees who can be given a golden handshake thus reducing the cost of the airline per aircraft to a manageable proportion. Will AI do it?

British Airways and Lufthansa Airlines, the two Government airlines, who went bankrupt managed to take the above decisions. Will AI manage to do it?

Instead we hear that Indian Government is pouring even more money ( about Rs 30,000 crores) in AI. This is like putting more and more money, to recover the already-lost money. This is a psyche of a gambler because of which he loses everything. Not a psyche of a shrewd businessman who may feel emotionally, but still has to take a rational decision at the end?

What do you think? Is AI a case of failed business model or a 'poorly executed' business model?