Performance Management Report: An Analysis of Air India's Operations

This report provides a comprehensive analysis of Air India's performance management, examining its operations through the lens of the balanced scorecard, including financial, customer, internal process, and learning & growth perspectives. It delves into the critical points highlighted by auditors, such as employee benefit expenses, investments in subsidiaries, and asset verification issues, and how Air India addressed them. The report also discusses the impact of capital infusion by the Government of India on Air India and its influence on domestic airlines, including the competitive landscape and financial challenges faced. Furthermore, it addresses allegations of unfair subsidies against Gulf airlines and their impact on the industry. The report concludes with recommendations for improving Air India's performance management system, aiming to enhance its operational efficiency and market position in the competitive aviation sector.

RUNNING HEAD: PERFORMANCE MANAGEMENT
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Performance Management
Report
Student Name
4/23/2019

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Table of Contents
Introduction.................................................................................................................................................2
1: Four Perspective of Balance Scorecard....................................................................................................2
2: Critical points to be addressed by Air India as highlighted by auditor.....................................................4
3: Capital Infusion by Government of India in Air India and its impact on domestic airlines.....................5
4. Allegations...............................................................................................................................................6
5: Performance Management System of Air India.......................................................................................7
Conclusion...................................................................................................................................................8
References...................................................................................................................................................9

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Introduction
Performance Management is a process that is related with aligning the performance of
employees with the organization strategic goals and improving the performance of teams and
individuals in order to make the process effective (Cardy & Leonard, 2015). The concept of
performance management is understood with the analysis of Air India case. Air India is an
airline based in India and founded on 1932, and owned by the government of India. Air India is
the oldest airline of India and operates globally with its subsidiaries that are Air India Cargo, Air
India Express, Indian and Air India Regional form the National Aviation Company of India
Limited. Air India currently operates in 11 countries in rest of the world and in other domestic
destinations (AirIndia, About Us , 2019). Currently company performance in the financial
perspective is improving as its total revenue increased from Rs 17,033.8 million in FY18 and
focused on other perspectives too by reducing the cost of capital and maintenance cost and
changing its strategies to operate effectively in order to improve performance of the company
(AirIndia, 2019).
The report includes analysis of Air India performance and its growth in the market,
through understanding the four perspectives of balance scorecard, the performance of Air India
and role of government in the success of the company. Some of the issues related to its
performance are highlighted in the report and the challenges faced by Air India in order to
sustain in market by continuously improving its overall performance in the market. The
company is facing stiff competition that affected the growth and performance of the company
and to sustain they have to modify its performance management system for that some
recommendations is given followed by a brief conclusion.
1: Four Perspective of Balance Scorecard
Air India showed an improvement in is performance in comparison to past years as the
company focuses on different perspectives that help in gaining the large market share and
strong customer base and directly improve the profitability and efficiency of operation in the
organization. This can be analyzed by applying the concept of balance scorecard in evaluating

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the performance of the company from all four perspectives and it is to be identified from this
approach whether company is using all perspective in sufficient manner or not.
The balance scorecard is an approach to measure the performance of an organization in
alignment to its goal and mission. The four perspectives under this approach are financial
perspective, customer perspective, internal business perspective and learning and growth
perspective (Pramudita, 2016). Analyzing the Air India on these perspectives; firstly looking into
the financial perspective, the company revenue has increased but its operating expenses also
increased. On other side company has received greater support from the Government of India
which helped them to improve its financial condition and operating efficiency. Whereas in
customer perspective Air India is the lowest cost airline that provides low price flights to
customers, on time boarding and friendly and professional environment during the journey that
helps in attaining the customer satisfaction through its product development like launch of
Maharajah direct, Premier clubs and by introducing Flying return programme. Internal process
perspective includes the turnaround of flights, number of domestic and international fleets and
its operating efficiency in the airline industry (Saranga & Nagpal, 2016). As on 2018 the
company has 120 aircrafts in its fleet out of that 73 are owned and remaining on lease basis.
The Air India international operation reduced as compare to 2017, from India to UK 32 flights
was operated it remained to 28 at present and its operation decline internationally that is not
the good indicator for the company. Furthermore Air India lacking the learning and
development part of employees and staff as people perceive that company is slow to change
and inactive in decision making (AirIndia, 2019).
From all the perspectives it is found that company in some aspect is lacking behind the
competitors in the industry and has chances of improving its performance by efficiently
managing its operational activities and not adequately the perspectives of balance scorecard.
Air India can manage its performance by focusing on the internal processes and through
development of employees and staff and implementing few new strategies according to
learning from the industry.

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2: Critical points to be addressed by Air India as highlighted by auditor
The statutory audit done by the Comptroller and Auditor General according to section
143(10) and some issues or points of concern were highlighted and addressed by Air India
during the audit of their annual performance for the year 2017-2018 (AirIndia, 2018).
1.) First issue was related to comment on expenses of company that focused on employee
benefit expenses as charging of previous period expenses is not right according to AS 8
and impacted the position of statement; understatement of current year loss and
expenses and overstatement of previous year expenses by Rs .7924 million. This issue is
addressed by Air India as response of change in accounting estimates and previous
period error provision under section IND AS-8 and company clarified that employee
medical expenses was taken on Ad hoc basis in year 2017 and rectified in current year
under the provision of prior period error (AirIndia, 2018).
2.) Another issue was related to the investments showcased by the Air India in balance
sheet, this includes Rs .15979.4 million investment in subsidiaries of Air India limited and
auditors found that there is no impairment took place in its subsidiaries that are Hotel
Corporation of India limited, Air India engineering services limited and Airlines Allied
Services Limited. To address the issue of investment the company clarified that Hotel
Corporation of India Limited invested large amount to improve their operational
efficiency and financial performance, the Airline allied services limited was also invested
in addition of two aircrafts for UDAN, and AIESL has taken various initiatives in order to
improve their overall revenues so all that reasons lead to no impairment in the
subsidiaries performance even after huge investment by the Air India as addressed by
the company (AirIndia, 2018).
3.) Physical verification of assets done in audit also faced an issue as the assets amounting
to Rs .16,438 million is showed in RAMCO, it is a system used for inventory management
but it was found that aircraft repairable which was considered as asset was shown as
expense for the company and Air India addressed this issue that they had properly

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mentioned in the books about the aircraft repairable as assets and proper records are
maintained in company’s fixed asset register and it was carried same in the RAMCO. This
issue was related to misleading in the disclosure of assets in the balance sheet that
affected the performance and position according to financial perspective (AirIndia,
2018).
3: Capital Infusion by Government of India in Air India and its impact on
domestic airlines
Air India was showing the worst performance and losses from past few years but
government fund infusion helps the company to meet its expenses and to increase its
operational efficiency. Air India got Rs 2,345 crore of equity infusion in 2018 that help the
company to manage its operation expenses and can reduce the burden of interest so that Air
India will be able to control the expenses and focus on improving performance or gaining
efficiency in the management (Livemint, 2019). The stiff competition between low cost airlines
in domestic market is the reason behind infusion of funds. Because of that other airline of India
such as Indigo, Jet Airways, Spice Jet and GoAir are suffering. The airlines in India have to face
up hard competition in the aviation sector mainly the low cost airlines are suffering in the
domestic market.
The infusion by government affected the performance and market share of other
domestic airlines and they are facing challenges in order to survive and maintain its position. Air
India has option to survive as it has more subsidiaries but other competitor such as Indigo are
facing challenges because of high cost of operation and declining profits that directly impacted
on performance management of the companies. Except the competition among the airlines in
domestic market other factors are also affecting the operational efficiencies of airlines that are
fluctuating exchange rate and volatile fuel prices that factors are affecting the performance of
Air India and its rivals in the industry. Since 2012, the Air India is operating in losses and has
been working on a rescue plan and under that the company received Rs 27,000 crore from the
Government of India in infusion (Economictimes, 2019). Through capital infusion air India is

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getting enough capital to invest in its operating activities and investing activities for maintain
cash flow of the company and for improving performance in all the perspectives by starting new
flights and to increase the plane load in order to make the existing operations profitable all
these strategies of the company is changing the competitive scenario in the market between
the rivals leading to that Air India is getting benefit to the greater extent as it will improve its
market position as well as performance in the financial perspective and in customer perspective
and that adversely impact the performance of other player in the aviation sector in India.
4. Allegations
The accusation raised by United Airlines, Delta Airlines and American Airlines are denied
by the Etihad and Emirates airlines. The allegation on the Gulf airlines was that they get
subsidized from the government of UAE. Whereas there is an open skies agreement between
the United States and Gulf states which mentioned that there is no role of government in
airline decision making about capacity, routes and destinations in the international market
(Shepardson & Bayoumy, 2019).
In 2018, the United States and United Arab Emirates signed an agreement to solve the
issue of U.S claims that Gulf carriers received unfair government subsidies and both the parties
agreed to share the financial information of airlines in the transparent manner. The United
Airlines and Delta airlines contended that the Etihad and Emirates are being unfairly subsidized
by the governments with more than $50 billion over the past years (lee, 2018). This is declining
the performance of these airlines on international routes between America and Europe.
However it was noticed that top three airlines in the America have accused about the subsidies
Middle Eastern airlines have received even American airlines get the tax breaks and laws that
are protecting the bankruptcy of the airlines and to solve that allegation and issue all have
signed the agreement to openly disclose the detailed accounts of the airlines that is already
done by the Etihad and Emirates (Zhang, 2019). This allegation was done due to the fact that
performance of Middle Eastern Airlines is improving in international routes so the US claimed
about subsidies. To solve this dispute agreement was a win situation for American job seekers.

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As the three airlines believe that the Etihad and Emirates are reducing their prices and
able to compete in the market by improving their performance because of the government
support and that is the reason the claimed that Gulf carriers are violating the agreement of
trade between the countries. On other side Etihad and emirates denied the allegations. The
impact on performance on the American airlines was due to the change in immigration policies
of the U.S not because of Gulf carriers getting subsidies. Over the past few years the airline has
reduced the number of flights to major cities in US like Boston and Los Angeles all that factors
affected the performance of the airlines in the country and this benefitted the Middle Eastern
airlines (Morrison, 2019).
5: Performance Management System of Air India
Air India decided to take some initiatives to in the motive of change in its performance
in the market. The plans made by the company include (AirIndia, 2019).
 Restructuring of human resources in the company
 Refurbishment of offices in abroad
 Monitoring and controlling on overtime payment
 Focus on selling business class seats in flights
 Lowering cost of capital that will reduce the burden of interest on debt
 Analyzing loss making routes and making changes
 Rationalizing commission to agents
 Introducing more fleets for domestic and international route in a reason to attract
number of passengers
 Reducing maintenance cost
 Managing contractual employment
All that plans are made for turnaround of Air India overall performance through all these
initiatives company’s performance will increase in financial perspective as well as in customer
and internal process perspective because these steps improve operational efficiency of the
company and ensure smooth functioning of other activities in Air India. Performance

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management system of Air India should be modified or need to be upgraded in accordance that
will support this turnaround strategy. Change in its performance management system is done
by focusing on Key Performance Areas and aligning all human resources in a manner that give
proper and effective use of the resources (Buckingham & Goodall, 2015). Integrating Air India
goals with its employee goals is essential that means there is a need to change compensation
structure of the employees, focusing on their training and development and mapping their skills
and values with accordance to their job and the primarily change in performance management
system include quarterly appraisal of employees so that any inefficiency and loop hole can be
identified as soon as possible.
The core of good performance management system is the feedback that helps in getting
the updated information on the employee working and on Air India overall performance
(Samanta, 2017). Air India should modify its organization structure in order to get on time
feedback on short term goals and then aligning their employee activities with strategies made
so that proper implementation or execution of strategies is done that will give the end result
that is improvement in the overall performance of Air India.
Conclusion
Performance Management is an approach that is considered as integrated and strategic
that helps in attaining successful results by aligning activities with organization goal. The above
study was based on the Air India performance analysis in all the four perspectives that are
financial, customer, internal process and learning & development. It is found that company is
improving its performance in financial perspective because of most of the infusion of equity by
Government of India that is affecting the level of competition in the aviation sector between
domestic airlines. Furthermore, Air India is focusing on improving their financial and
operational efficiency in order to survive in the market and to gain more customer base and
that is helpful to make the company come back and to operate in competitive market in low
cost carrier segment. The turnaround strategy of air India was analyzed that included
restructuring of human resources, introducing new fleets and lowering cost of capital so that
more changes leads to positive outcome and it is concluded that company needs to modify its

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performance management system by making the feedback system strong and effective and by
changing its organization structure in response to get the overall performance improvement.
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