Air India – the Virgin Airways Saga Essay

In December 1999. India’s national bearer. Air India ( A-I ) signed an understanding with Virgin Atlantic Airways1 ( VA ) by which VA would wing three flights on the Delhi-London path on a code-sharing2 footing with A-I. This was hailed as a important development for the ailing A-I. The codification sharing agreement was expected to trip off a monetary value war in the Delhi-London path where British Airways ( BA ) was a dominant participant. Harmonizing to the understanding. VA would wing three more flights a hebdomad on this path by 2001. In July 2000. VA started off with two flights a hebdomad on Thursdays and Sabbatums from Delhi.

It planned to hold a 3rd flight by October 2000. However. till late 2001. VA was still winging two flights. A-I did non look ready to let VA wing the 3rd flight because A-I excessively had a flight from Delhi on Monday. the twenty-four hours VA wanted to wing from Delhi. Meanwhile. the Government of India ( GoI ) granted rights to BA to wing three more flights per hebdomad from Kolkata to London. This was in misdemeanor of the bilateral treaty signed between Britain and India harmonizing to which BA and A-I were allowed to wing 16 flights a hebdomad to each other’s state.

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BA was already winging 16 flights a week-seven from Delhi. seven from Mumbai and two from Chennai. In late 2001. VA was badly affected by the downswing in the planetary air power industry. VA was happening it hard to prolong its operations in India with merely two flights a hebdomad. VA had made it clear that unless it was allowed to increase the frequence to three. its issue from India would be a distinguishable possibility. Background Note A-I was registered as Air India International in 1948.

Subsequently in 1962. the word ‘International’ was dropped and from March 1994. the air hose began working as Air-India Limited. In 2000. A-I’s web covered 44 finishs ( Refer Exhibit I ) . In add-on. A-I had a codification sharing agreement with a figure of foreign air hoses. These included Air France. Swiss Air. Bellview Airlines. Austrian Airlines. Asiana Airlines. Norse Airlines. Singapore Airlines. Aeroflot. Air Mauritius. Kuwait Airways and Emirates. In the late ninetiess. as portion of its disinvestment rogramme. the GoI decided to deprive 40 % interest in A-I and began looking for a strategic spouse.

The strategic spouse would take up 40 % interest with merely a 26 % cap to foreign air hoses. Ever since it began operations in 1984. VA focused on international paths. After the air hoses inaugural flight. from London’s Gatwick airdrome to Newark on the outskirts of New York. Richard Branson3 added several moneymaking paths to his pool. Till 1999. VA’s path web in the Asiatic part included Heathrow-Tokyo-Heathrow. Heathrow-Hong Kong-Heathrow and Heathrow-Shanghai-Heathrow.

The air hose had code-share understandings with Continental Airlines. Malaysian Airlines. and British Midland. In |the tardily 1990s. Branson was aiming the moneymaking Delhi-London path. Every twelvemonth an estimated 0. 3 million riders traveled from Delhi to London. which was about 40 per cent of the entire outbound traffic from India. The lone available direct path codifications were held by BA and A-I. As a consequence riders were forced to take roundabout paths |offered by air hoses like Emirates and Royal Jordanian which made them wait for hours at distant airdromes. Branson’s attempts to court A-I started in 1997.

He said. “Air-India was one time celebrated for its service and I’d like to believe that every bit good as viing with Air-India we can portion with it our experience of doing Virgin Atlantic the success it is today. ” Analysts felt that A-I would larn from VA’s invention in cordial reception. VA was the first air hose to offer a Television proctor with every place ( in every category ) . It offered in-flight beauty therapy including the services of masseurs. ice-cream cones during in-flight films and a chauffeured bike service to airdromes. Besides in the offing were email and Internet services.

Upper category riders were provided laptop power leads with every place. and headsets to cut down noise in the cabin. Besides commercial cooperation on lading services. output direction. and merchandise development. the agreement with Branson would give AI’s staff members entree to cabin crew preparation. However. analysts felt that one time VA started its operations. it would be an full-scale battle to entice riders and AI would be the worst sick person. As VA promised to offer tickets at 15 per cent less than BA. a Delhi-London VA ticket would be cheaper than A-I’s. The Deal

In 1999. the ministry of civil air power said that it was willing to see an understanding between VA and A-I that would profit both bearers. The understanding was to include a code-sharing agreement or sharing of A-I flight quotas. The entry of VA on the London-India paths was likely to convey down the menus on the sector. In December 1999. VA signed an understanding with A-I to wing three services a hebdomad on a codification portion footing between Delhi and London from July 2000.

The agreement with A-I was for five old ages and apart from the initial three flights a hebdomad. frequences. it had agreed to give away the staying three to V-I by 2001. VA and A-I would portion seats on each other’s paths and VA would run flights to the UK on paths non covered by A-I. VA would besides wing on yearss that were non flown by A-I. Under the footings of the understanding. flights would transport both VA and A-I flight Numberss. and both air hoses would sell seats on those services in competition with one another. Said Branson. “Launching flights between the UK and India has ever been an aspiration of mine. It is a really powerful path and presently I see a deficiency of capacity on this path. which has decreased tourer flow between the two states.

I think between the two air hoses – Air-India and Virgin – we will be able to better the path. ” Harmonizing to some analysts. the GoI was interested in hammering an confederation with VA because of the group’s involvements in amusement. music telecom. insurance and fiscal services. Branson had raised hopes of farther investings in publication. vacation places and telecom. He said. “This is merely the beginning. We will analyze the Indian market and see what concern is best suited for the market and for us and continue consequently. We will see where we can do a difference. A-I had been in the ruddy for a long clip and was trusting that the VA venture would better its bottomline. Said Branson. “We are paying a important sum to A-I under the code-sharing understanding. though I would non wish to uncover the sum. Let me guarantee you: Air-India can do a few 1000000s. ” However. Air India functionaries felt that more than the fiscal additions. it was the partnership that mattered and the move would convey in fresh traffic to the state. Besides traffic. VA’s reaching could besides intend reductio in airfares.

Said Branson. “Our upper category and premium category as we call them are as competitively priced as the first category and concern category menus of other air hoses severally. Except. of class. we give more services such as limousines. manicure. beauty intervention. etc. to every rider on board. As for our economic system category. our precedence is to wing it houseful and therefore the pricing is whatever it takes to acquire the client. Hence. since we will be viing with Air-India excessively despite this understanding. the pricing and services will be competitory. ”

VA’s reaching was besides expected to better A-I’s services and even convey about a decrease in the menus depending on the market conditions. Said M. P. Mascarenhas. the so Managing Director of A-I. “We will hold to vie and hence we will hold to execute. even if it means fare decrease. ” Analysts felt that a possible menu decrease would hold an inauspicious consequence on the bottomline of A-I. Responded Mascarenhas. “I don’t think it would because it would increase traffic and better the overall state of affairs.

You see. now. between the two air hoses. there will be services all yearss of the hebdomad. Analysts felt that with the AI-VA codification sharing understanding. other bearers such as Thai Airways and Cathay-Pacific. which were inquiring for more flights. would supercharge the GoI for code-share agreements with AI in stead of more flights. Who will Govern the Delhi-London Skies? Analysts felt that with the entry of VA. the Indian skies would see some ferocious monetary value wars between VA and BA. Branson said that VA’s foremost category menus would be tantamount to the concern category menus of BA and that the economic system menu would be 30-50 % cheaper than BA’s.

If BA brought down ticket monetary values as it had done in May 2000. VA would wing for less. Branson said. Since BA had proposed a menu of about Rs 27. 000 on the Delhi-London sector. Branson said VA would register an application with the GoI for a lower menu. At the same clip. VA would esteem the Government’s sentiments on menus. since it was a regulated market. Branson said. In June 2000. VA announced that it would get down its operations in India in July with a bi-weekly service-Wednesdays and Fridays from London and Thursdays and Saturdays from Delhi.

VA planned to establish a 3rd hebdomadal flight around October. The air hose would offer low introductory menus. Mackenzie Grant. VA’s general director for India said the initial menu was still being worked out and that it would be hard to give a comparing with viing air hoses. Analysts felt that VA would give BA some stiff competition. non merely in footings of menus. but besides with its array of services such as sleeper seats. massage services and sofa installations. Said 1. “Virgin’s entry will surely be a encouragement to services between India and Europe.

The air hose has a high quality merchandise. ” Branson promised VA menu would be highly competitory. Analysts felt that competitory pricing would intend that VA would monetary value its Delhi-London flight for less than Rs 25. 000. which was about the A-I menu. A-I feared there would be an hegira of its already dwindling rider list. Meanwhile. BA was poising itself to run into the VA challenge on the Delhi-London sector. The air hose announced direct day-to-day services between London and Delhi from October 30. thereby increasing capacity by 25 per cent on this sector.

For this. the air hose suspended its twice hebdomadal service to Calcutta and terminated its five times-a- hebdomad service from Delhi to Dhaka from October 30. The alterations were made as portion of a renewed bilateral understanding between UK and India signed in February 2000. On July 5. 2000. VA dropped a bombshell. It slashed its introductory airfare from the normal Rs 42. 598 to Rs 31. 000 for a return ticket on the busy London-Delhi path. But merely before VA’s entry into Indian air space. BA besides announced a particular economy-class menu: a Rs 27. 635 unit of ammunition trip ticket.

Harmonizing to analysts. consumers were at last acquiring the benefits of a liberalised competitory sector. In July 2000. BA won the right to three more flights per hebdomad between India and Britain. pulling an immediate protest from VA. Harmonizing to BA’s South Asia director Alan Briggs. under a particular agreement outside a bilateral air power understanding. the GoI had given BA permission to wing three times a hebdomad to the eastern metropolis of Calcutta. Under the bilateral treaty. which was renewed in February 2000. BA and A-I were each allowed to wing 16 times a hebdomad to each other’s place state.

A-I used 10 of its 16 hebdomadal flight entitlements on the path. BA used all 16 of its flight entitlements. with seven flights a hebdomad to Delhi. seven to Mumbai and two to Madras. BA had been buttonholing since 1993 to increase the figure of its flights to India. The End of the Honeymoon? By October 2000. VA was to get down its 3rd codification portion flight as per the understanding with A-I. In add-on to the Rs 100 million per flight per annum that A-I got from VA. the 3rd flight would bring A-I Rs 300 million per annum.

However. till late 2001. VA was winging merely two flights a hebdomad. Besides. there was no advancement on the staying three flights that VA was entitled to wing from 2001. This seemed to the bone of contention between VA and A-I. VA functionaries were peculiarly unhappy that BA was granted rights to wing three extra flights per hebdomad from Kolkata to London against the prevailing norms. What seemed peculiarly unusual was that there was no commercial understanding or codification portion for any of these extra frequences.

Commenting on the GoI’s involvement in BA. a taking concern magazine in India wrote. “The acerate leaf of intuition automatically points to vested involvements in the ministry and their sudden preference for BA. “5 By December 2000. it became clear that VA would hold to wait a spot longer for concluding clearance from A-I to get down the 3rd code-share |flight on the India-London sector. While VA functionaries claimed that they would get down the 3rd code-share flight within a sensible period of clip following clearances from Indian governments. A-I functionaries said that nil was in the offing as yet.

Said a VA functionary. “The ball is in the tribunal of A-I and the Indian Government. The twenty-four hours we get the permission. we will get down the service in a sensible clip period. which will let us to relocate aircraft and crew to get down the 3rd flight. Further. the air hose will be merely excessively happy to function other finishs in India. ” Some analysts said that while VA was acute to run the 3rd flight on Lord’s daies from London with a Monday going from Delhi. A-I was opposed to as the Indian bearer besides had a Delhi to London flight on Monday forenoon.

VA was willing to schedule its flight at 2 p. m. in the afternoon. guaranting a spread of more than 6 hours between its flight and A-I’s London flight. But this was non acceptable to A-I. which pointed out that harmonizing to the understanding signed between VA. and A-I. VA was to run flights merely on those yearss when A-I did non run services to London. A VA functionary said that the hold in allowing permission to VA to run the 3rd flight on the sector was turn outing to be financially black for A-I.

However. despite these jobs. VA said it was interested in codification sharing with A-I to other metropoliss such as Chennai. Bangalore. Hyderabad and Ahmedabad. In late 2001. VA was in some problem because of the downswing in the transatlantic air power concern and shriveling grosss. VA announced 20 per cent decrease in operations. grounded five of its aircraft and pruned the work force by 1200 to surge over one of the worst crises for the international air power concern in the wake of the US attacks6.

Having already announced 20 per cent decrease of activities. the air hose seemed unable to prolong its operations in India with merely two |flights a hebdomad. Said Paul Smitton. general manager-India. VA. “Two flights each from Delhi is non a feasible proposition in the long tally. At least three or more flights makes the concern feasible as it would enable us to acquire more traffic and meet economic systems of graduated table from our operations here. ” He added. “No air hose can prolong loss devising parts for long.

And this clip unit of ammunition. we will wait for merely months and non |years before taking a determination. ” Analysts felt that VA was likely to reexamine its scheme for its newcomer unprofitable Indian operations. |During its short stay in India. VA had already notched up losingss on the Delhi-London sector and industry beginnings ruled out the opportunities of VA interrupting even unless the frequence increased from the current degree. VA functionaries have indicated to the GoI that VA may hold to draw out of India if the frequence of operations was non increased.

VA informed the GoI that it had agreed to supply A-I with income worth Rs 100 million per annum for each flight on the footing of the apprehension that a 3rd frequence would be allowed on agenda. VA besides said that it had hired Indian crew for three flights and spent on promotion. as it was confident its frequence would be increased. It informed the GoI that it would hold to draw out of India if the 3rd flight was non cleared. In October 2001. the GoI ordered a full reappraisal of the code-sharing treaty. What remained to be seen was whether the much-hyped I-A-VA confederation would be sustainable in the long tally

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