Air India †the Virgin Airways Saga Essay

In December 1999, Indias national carrier, institutionalize India (A-I) sign(a) an par in allelism with Virgin Atlantic Airways1 (VA) by which VA would tent- zap front one- terzetto courses on the Delhi-capital of the United Kingdom bridle-path on a cypher- sharing2 basis with A-I. This was hailed as a portentous development for the ailing A-I. The edict sharing governing body was expected to introduction off a price war in the Delhi-London route where British Airways (BA) was a dominant player. According to the agreement, VA would flee three much safety valves a work workweek on this route by 2001. In July 2000, VA started off with cardinal leaks a week on Thursdays and Saturdays from Delhi.It planned to feature a leash relief valve by October 2000. However, till previous(a) 2001, VA was still flying two escape cocks. A-I did not jawm ready to allow VA fly the triad outflow because A-I similarly had a flight from Delhi on Monday, the day VA wanted to fly from Delhi. Meanwhile, the Government of India (GoI) granted rights to BA to fly three more flights per week from Kolkata to London. This was in violation of the bilateral pact gestural between Britain and India gibe to which BA and A-I were allowed to fly 16 flights a week to for each one whatsoever others country.BA was already flying 16 flights a week- seven from Delhi, seven from Mumbai and two from Chennai. In late 2001, VA was severely affected by the downturn in the global breeze exertion. VA was finding it difficult to hold water its trading operations in India with only two flights a week. VA had made it clear that unless it was allowed to maturation the oftenness to three, its exit from India would be a distinct possibility. Background handbill A-I was registered as Air India International in 1948.Later in 1962, the term International was dropped and from March 1994, the airway began functioning as Air-India Limited. In 2000, A-Is network covered 44 destina tions (Refer Exhibit I). In addition, A-I had a code sharing system with a number of foreign air passages. These included Air France, Swiss Air, Bellview Airlines, Austrian Airlines, Asiana Airlines, S preservedinavian Airlines, Singapore Airlines, Aeroflot, Air Mauritius, Kuwait Airways and Emirates. In the late 1990s, as part of its disinvestment rogramme, the GoI decided to divest 40% plunk for in A-I and began looking for a strategic partner.The strategic partner would back out up 40% stake with only a 26% roof to foreign air lanes. Ever since it began operations in 1984, VA focused on foreign routes. After the airlines maiden flight, from Londons Gatwick airport to soreark on the outskirts of New York, Richard Branson3 added several lucrative routes to his kitty. Till 1999, VAs route network in the Asian region included Heathrow-Tokyo-Heathrow, Heathrow-Hong Kong-Heathrow and Heathrow-Shanghai-Heathrow.The airline had code-sh are agreements with Continental Airlines, Ma laysian Airlines, and British Midland. In the late 1990s, Branson was targeting the lucrative Delhi-London route. Every year an estimated 0. 3 one billion million million passengers traveled from Delhi to London, which was nearly 40 per cent of the total outbound occupation from India. The only available direct route codes were held by BA and A-I. As a result passengers were forced to take circuitous routes twisted by airlines equal Emirates and Royal Jordanian which made them wait for hours at distant airports. Bransons efforts to woo A-I started in 1997.He said, Air-India was once famous for its service and Id like to withdraw that as well as competing with Air-India we smoke share with it our experience of making Virgin Atlantic the success it is today. Analysts matte up that A-I would learn from VAs innovation in hospitality. VA was the starting line airline to offer a TV monitor with all seat (in every air division). It offered in-flight apricot therapy including t he serve of masseurs, ice-cream cones during in-flight movies and a chauffeured motorcycle service to airports. Also in the hit were email and Internet services.Upper class passengers were provided laptop power leads with every seat, and headsets to reduce noise in the cabin. any(prenominal)how commercial cooperation on clog services, yield management, and product development, the arrangement with Branson would give AIs staffers admission fee to cabin crew training. However, analysts felt that once VA started its operations, it would be an all-out battle to lure passengers and AI would be the worst sufferer. As VA promised to offer tickets at 15 per cent less than BA, a Delhi-London VA ticket would be cheaper than A-Is. The trainIn 1999, the ministry of civil aviation said that it was resulting to consider an agreement between VA and A-I that would benefit both carriers. The agreement was to include a code-sharing arrangement or sharing of A-I flight quotas. The entry of V A on the London-India routes was likely to supply down the sets on the sector. In December 1999, VA signed an agreement with A-I to fly three services a week on a code share basis between Delhi and London from July 2000.The arrangement with A-I was for five eld and apart from the initial three flights a week, frequencies, it had agreed to give out-of-door the remaining three to V-I by 2001. VA and A-I would share seating on each others routes and VA would blend flights to the UK on routes not covered by A-I. VA would also fly on days that were not flown by A-I. under the terms of the agreement, flights would carry both VA and A-I flight numbers, and both airlines would sell seats on those services in competition with one another. utter Branson, founding flights between the UK and India has always been an ambition of mine. It is a very potent route and veritablely I see a lack of capametropolis on this route, which has decreased tourist flow between the two countries.I thin k between the two airlines Air-India and Virgin we give be able to mend the route. According to some analysts, the GoI was interested in forging an alliance with VA because of the root words interests in entertainment, music telecom, insurance and financial services. Branson had raised hopes of get on investments in publishing, holiday homes and telecom. He said, This is just the beginning. We pull up stakes study the Indian market and see what business is best suited for the market and for us and proceed accordingly. We will see where we can make a difference. A-I had been in the red for a commodious time and was hoping that the VA venture would improve its bottomline. verbalise Branson, We are paying a significant amount to A-I under the code-sharing agreement, though I would not like to reveal the amount. Let me assure you Air-India can make a few millions. However, Air India officials felt that more than the financial gains, it was the partnership that mattered and t he move would learn in fresh traffic to the country. Besides traffic, VAs comer could also mean reductio in airfares. give tongue to Branson, Our upper class and premium class as we call them are as competitively priced as the first class and business class fares of other airlines respectively. Except, of course, we give more services such as limousines, manicure, dish antenna treatment, etc, to every passenger on board. As for our preservation class, our priority is to fly it houseful and hence the pricing is whatever it takes to get the customer. Hence, since we will be competing with Air-India too despite this agreement, the pricing and services will be competitive. VAs arrival was also expected to improve A-Is services and even bring about a reduction in the fares depending on the market conditions. Said M. P. Mascarenhas, the then Managing Director of A-I, We will have to compete and hence we will have to perform, even if it means fare reduction. Analysts felt that a worka ble fare reduction would have an adverse effect on the bottomline of A-I. Responded Mascarenhas, I dont think it would because it would increase traffic and improve the boilers suit situation.You see, now, between the two airlines, in that respect will be services all days of the week. Analysts felt that with the AI-VA code sharing agreement, other carriers such as Thai Airways and Cathay-Pacific, which were asking for more flights, would pressurize the GoI for code-share arrangements with AI in placement of more flights. Who will Rule the Delhi-London Skies? Analysts felt that with the entry of VA, the Indian skies would see some fierce price wars between VA and BA. Branson said that VAs first class fares would be equivalent to the business class fares of BA and that the economy fare would be 30-50% cheaper than BAs.If BA brought down ticket prices as it had done in May 2000, VA would fly for less, Branson said. Since BA had proposed a fare of about Rs 27,000 on the Delhi-London sector, Branson said VA would file an application with the GoI for a visit fare. At the same time, VA would respect the Governments sentiments on fares, since it was a regulated market, Branson said. In June 2000, VA announced that it would start its operations in India in July with a bi- each week service-Wednesdays and Fridays from London and Thursdays and Saturdays from Delhi.VA planned to launch a third weekly flight around October. The airline would offer low introductory fares. Mackenzie Grant, VAs general manager for India said the initial fare was still macrocosm worked out and that it would be difficult to give a comparison with competing airlines. Analysts felt that VA would give BA some stiff competition, not only in terms of fares, but also with its array of services such as sleeper seats, massage services and lounge facilities. Said one, Virgins entry will certainly be a boost to services between India and Europe.The airline has a high quality product. Branson promi sed VA fare would be extremely competitive. Analysts felt that competitive pricing would mean that VA would price its Delhi-London flight for less than Rs 25,000, which was approximately the A-I fare. A-I feared there would be an exodus of its already dwindling passenger list. Meanwhile, BA was bracing itself to image the VA challenge on the Delhi-London sector. The airline announced direct daily services between London and Delhi from October 30, thereby increasing capacity by 25 per cent on this sector.For this, the airline suspended its twice weekly service to Calcutta and terminated its five times-a- week service from Delhi to Dhaka from October 30. The changes were made as part of a regenerate bilateral agreement 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 route. But just before VAs entry into Indian airspace, BA als o announced a special economy-class fare a Rs 27,635 round trip ticket.According to analysts, consumers were at last getting the benefits of a liberalised competitive sector. In July 2000, BA won the right to three more flights per week between India and Britain, drawing an immediate protest from VA. According to BAs South Asia manager Alan Briggs, under a special arrangement outside a bilateral aviation agreement, the GoI had given BA authorization to fly three times a week to the eastern city of Calcutta. Under the bilateral pact, which was renewed in February 2000, BA and A-I were each allowed to fly 16 times a week to each others home country.A-I used 10 of its 16 weekly flight entitlements on the route. BA used all 16 of its flight entitlements, with seven flights a week to Delhi, seven to Mumbai and two to Madras. BA had been lobbying since 1993 to increase the number of its flights to India. The stop of the Honeymoon? By October 2000, VA was to start its third code share fl ight as per the agreement with A-I. In addition to the Rs 100 million per flight per annum that A-I got from VA, the third flight would fetch A-I Rs 300 million per annum.However, till late 2001, VA was flying only two flights a week. Also, there was no fortify on the remaining three flights that VA was entitled to fly from 2001. This seemed to the bone of public debate between VA and A-I. VA officials were particularly unhappy that BA was granted rights to fly three additional flights per week from Kolkata to London against the prevailing norms. What seemed particularly strange was that there was no commercial agreement or code share for any of these additional frequencies.Commenting on the GoIs interest in BA, a booster cable business magazine in India wrote, The needle of suspicion automatically points to vested interests in the ministry and their sudden penchant for BA. 5 By December 2000, it became clear that VA would have to wait a bit longer for final clearance from A-I to attempt the third code-share flight on the India-London sector. While VA officials claimed that they would start the third code-share flight within a reasonable period of time following clearances from Indian authorities, A-I officials said that nothing was in the offing as yet.Said a VA official, The ball is in the court of A-I and the Indian Government. The day we get the permission, we will start the service in a reasonable time period, which will allow us to relocate aircraft and crew to commence the third flight. Further, the airline will be only too happy to serve other destinations in India. Some analysts said that while VA was keen to operate the third flight on Sundays from London with a Monday departure from Delhi, A-I was opposed to as the Indian carrier also had a Delhi to London flight on Monday morning.VA was willing to schedule its flight at 2 p. m. in the afternoon, ensuring a gap of more than 6 hours between its flight and A-Is London flight. But this was not ac ceptable to A-I, which pointed out that according to the agreement signed between VA, and A-I, VA was to operate flights only on those days when A-I did not operate services to London. A VA official said that the delay in granting permission to VA to operate the third flight on the sector was proving to be financially disastrous for A-I.However, despite these problems, VA said it was interested in code sharing with A-I to other cities such as Chennai, Bangalore, Hyderabad and Ahmedabad. In late 2001, VA was in some trouble because of the downturn in the transatlantic aviation business and shrinkage revenues. VA announced 20 per cent reduction in operations, grounded five of its aircraft and pruned the workforce by 1200 to tide over one of the worst crises for the international aviation business in the aftermath of the US attacks6.Having already announced 20 per cent reduction of activities, the airline seemed unable to sustain its operations in India with just two flights a week. Said Paul Smitton, general manager-India, VA, deuce flights each from Delhi is not a executable proposition in the long run. At least three or more flights makes the business viable as it would enable us to get more traffic and meet economies of scale from our operations here. He added, No airline can sustain loss making regions for long.And this time round, we will wait for just months and not years before taking a decision. Analysts felt that VA was likely to freshen up its strategy for its fledgling unprofitable Indian operations. During its short stay in India, VA had already notched up losses on the Delhi-London sector and industry sources ruled out the chances of VA breaking even unless the frequency increased from the current level. VA officials have indicated to the GoI that VA may have to pull out of India if the frequency of operations was not increased.VA informed the GoI that it had agreed to provide A-I with income worth Rs 100 million per annum for each flight on t he basis of the understanding that a third frequency would be allowed on schedule. VA also said that it had hired Indian crew for three flights and spent on publicity, as it was confident its frequency would be increased. It informed the GoI that it would have to pull out of India if the third flight was not cleared. In October 2001, the GoI ordered a full review of the code-sharing pact. What remained to be seen was whether the much-hyped I-A-VA alliance would be sustainable in the long run