In December 1999, India’s national carrier, Air India (A-I) signed an agreement with Virgin Atlantic Airways (VA) by which VA would fly three flights on the Delhi- London route on a code-sharing basis with A-I. A-I already had a code sharing arrangement with a number of foreign airlines. These included Air France, Swiss Air, Bellview Airlines, Austrian Airlines, Asiana Airlines, Scandinavian Airlines, Singapore Airlines, Aeroflot, Air Mauritius, Kuwait Airways and Emirates. Even VA had code-share agreements with Continental Airlines, Malaysian Airlines, and British Midland. In the late 1990s, Richard Branson, the chairman of VA, was targeting the lucrative Delhi-London route. Every year an estimated 0.3 million passengers traveled from Delhi to London, which was nearly 40 per cent of the total outbound traffic 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 offered by airlines like Emirates and Royal Jordanian which made them wait for hours at distant airports. Besides commercial cooperation on cargo services, yield management, and product development, the arrangement with Branson would give AI’s staffers access to cabin crew training. However, analysts felt that once VA started its operations, it would be an all-out fight 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-I’s. As a result of the December 1999 agreement, A-I would 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 years and apart from the initial three flights a week, frequencies, it had agreed to give away the remaining three to V-A by 2001. VA and A-I would share seats on each other’s routes and VA would operate 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. Air India officials felt that more than the financial gains, it was the partnership that mattered and the move would bring in fresh traffic to the country. Besides traffic, VA’s arrival could also mean reduction in airfares. VA’s arrival was also expected to improve A-I’s services and even bring about a reduction in the fares depending on the market conditions. 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 lieu of more flights. Analysts felt that with the entry of VA, the Indian skies would see some fierce price wars between VA and BA. Branson said that VA’s first class fares would be equivalent to the business class fares of BA and that the economy fare would be 30- 50% cheaper than BA’s. 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 lower fare. In June 2000, VA announced that it would start 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 launch a third weekly flight around October. 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. Meanwhile, BA was bracing itself to meet 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. 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 VA’s entry into Indian airspace, BA also announced a special economy-class fare: a Rs. 27,635 round trip ticket. 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 BA’s South Asia manager Alan Briggs, under a special arrangement outside a bilateral aviation agreement, the GoI had given BA permission 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 other’s 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. By October 2000, VA was to start its third code share flight 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 progress on the remaining three flights that VA was entitled to fly from 2001. This seemed to the bone of contention between VA and A-I. 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 it 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-I’s London flight. But this was not acceptable 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. In late 2001, VA was in some trouble because of the downturn in the transatlantic aviation business and shrinking revenues. 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. 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 the 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.

1. Air India’s code sharing arrangement with Virgin Atlantic was expected to benefit the ailing Air India. However, by the end of 2001, relation between Air India and Virgin Atlantic deteriorated and Virgin Atlantic threatened to pull out of India. Explain why the Air India-Virgin Atlantic code sharing arrangement failed to have the desired effect. 2. “Tie-ups between major airlines have become a key part of the global aviation strategy in the late 1990s. They range from mere code sharing arrangements and joint frequent flyer programmes to alliances.” Discuss.