Air India - The Virgin Airways Saga

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Case Details:

Case Code : BSTR019
Case Length : 8 Pages
Period : 1999 to 2001
Organization : Air India, Virgin Airways
Pub Date : 2002
Teaching Note : Available
Countries : India
Industry : Aviation& Aviation

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"We are grateful to A-I, but as it is a government regulated body, it fails to understand many commercial implications, namely, that to operate two flights a week, we need to create the same infrastructure we require to operate six. This has led to an increase in Virgin's overhead costs as the crew keeps waiting for a week. This way, we will scarcely be able to pass on the envisaged benefits to our customers."

- Thomas Niles, President, The United States Council for International Business (USCIB) in July 2004.

Introduction

In December 1999, India's national carrier, Air India (A-I) signed an agreement with Virgin Atlantic Airways¹ (VA) by which VA would fly three flights on the Delhi-London route on a code-sharing² basis with A-I.

This was hailed as a significant development for the ailing A-I.

The code sharing arrangement was expected to trigger off a price war in the Delhi-London route where British Airways (BA) was a dominant player. According to the agreement, VA would fly three more flights a week on this route by 2001.

In July 2000, VA started off with two flights a week on Thursdays and Saturdays from Delhi. It planned to have a third flight by October 2000. However, till late 2001, VA was still flying two flights. A-I did not seem ready to allow VA fly the third flight because A-I too 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 signed between Britain and India according to which BA and A-I were allowed to fly 16 flights a week to each other's 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 aviation industry. VA was finding it difficult to sustain its operations in India with only two flights a week.

VA had made it clear that unless it was allowed to increase the frequency to three, its exit from India would be a distinct possibility.

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1] UK's second biggest airlines after British Airways.

2] Codesharing is an arrangement between two airlines, ranging from mere allocation of space on each others' flights to a closer relationship which may even involve profit sharing. One example of a common codeshare is that between Air-India and Singapore Airlines on the Singapore-Los Angeles route. As Air-India does not fly to LA, it has a codeshare with Singapore Airlines, wherein it undertakes to fill a certain number of seats every week on Singapore Airlines.