Air India - The Virgin Airways Saga



Themes: Joint ventures strategic alliances
Period : 1999-2001
Organization : Air India, Virgin Airways
Pub Date : 2002
Countries : India
Industry : Airlines & Aviation

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Case Code : BSTR019
Case Length : 8 Pages
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Air India - The Virgin Airways Saga| Case Study

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The Deal Contd...

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. Said Branson, "Launching flights between the UK and India has always been an ambition of mine. It is a very potent route and currently I see a lack of capacity on this route, which has decreased tourist flow between the two countries. I think between the two airlines - Air-India and Virgin - we will be able to improve the route."

According to some analysts, the GoI was interested in forging an alliance with VA because of the group's interests in entertainment, music, telecom, insurance and financial services. Branson had raised hopes of further investments in publishing, holiday homes and telecom. He said, "This is just the beginning. We will 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 long time and was hoping that the VA venture would improve its bottomline.

Said 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 the move would bring in fresh traffic to the country. Besides traffic, VA's arrival could also mean reduction in airfares. Said 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, beauty treatment, etc, to every passenger on board. As for our economy 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."

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. 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 possible fare reduction would have an adverse effect on the bottomline of A-I. Responded Mascarenhas, "I don't think it would because it would increase traffic and improve the overall situation. You see, now, between the two airlines, there 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 lieu 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 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.

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