Air India - The Virgin Airways Saga

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The End of the Honeymoon? Contd...

In late 2001, VA was in some trouble because of the downturn in the transatlantic aviation business and shrinking 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, "Two flights each from Delhi is not a viable 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 review 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 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. What remained to be seen was whether the much-hyped I-A-VA alliance would be sustainable in the long run.

Exhibits

Exhibit I: A-I's Network

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6] On September 11 2001, terrorists attacked the World Trade Center in USA.