Air India Jilted at the Altar in Arranged Star Marriage

The member airlines of the Star Alliance network and Air India jointly concluded on July 31 that the integration of Air India into the global airline alliance would be suspended. This is due, it claims, to the fact that the Indian carrier has not met the minimum joining conditions that were contractually agreed in December 2007. Air India was expected to take up its position as a full member of the airline grouping on August 1, but the future relationship between the alliance and airline is now in doubt.

Star Alliance’s Chief Executive Officer Jaan Albrecht says that Air India’s membership has just been placed on hold to provide the carrier with the flexibility to concentrate on its ongoing reorientation, a process its member carriers “will continue to assist” if required, and that existing bilateral relationships “will remain in place”. However, the final sentence in a press release from the grouping leaves the future wide open by stating rather vaguely that there is “room to discuss a potential Alliance membership at a future stage” but only if “deemed appropriate by both parties”.

With the Indian market set to continue its rapid growth in the coming years it is an important future playground for the global alliances. Oneworld currently has a competitive advantage over its rivals having already signed an agreement with Kingfisher Airlines to become a full member of the grouping in early 2012, but what options are there for SkyTeam and now for Star? And, could oneworld potentially add a second partner in the country, a market that analysts believe could be large enough for two airlines to join a single alliance as we have seen in China.

With most international operators only having limited connections to India’s largest cities, domestic links to provincial and regional cities will help alliances to develop connectivity across global markets. There are currently more than 1.58 million seats available in the domestic market every week and as the table below shows, IndiGo Airlines is now the largest carrier in this market. Air India is ranked second, while Kingfisher Airlines and Jet Airways come a close third and fourth when ranked by weekly seat capacity.

But, international connectivity is still important and this is where Air India leads the way. As the national carrier of the country it has enjoyed access to all the main markets from the country and currently offers more than 72,000 seats per week on its 330-plus weekly flights. The transfer of traffic rights on many of its flights into ethnic markets to Air India Express has also boosted its market position. However, Jet Airways, the first of the new breed of independent operators now offers as many flights, although the use of smaller capacity aircraft means and more of a focus on regional markets means that its weekly seat count is much lower than its rival.

Kingfisher Airlines and Spicejet now also serve the international market but their expansion has been much slower. IndiGo Airlines has recently launched its first international flights and has ambitious plans to expand into regional markets but currently has only limited traffic rights, an issue that could impact its future growth and entry into some key markets.

Emirates Airline, which is not aligned to any alliance and has no plans to join in the future, is the largest foreign carrier to serve India, with a 10.8 per cent share of the international capacity, while Qatar Airways has a 3.8 per cent share of the traffic, followed by oneworld’s British Airways (3.2 per cent), Star’s Thai Airways International (3.1 per cent) and then Middle Eastern budget operator Air Arabia (also 3.1 per cent).

For any airline to be successful in an alliance it is important to have a main hub that partner carriers can link into. The table below shows the ten largest airports in India by international O&D passenger traffic and the airlines that dominate traffic at each facility (using both domestic and international traffic to illustrate true hub potential).

These tables clearly show that Jet Airways would also be a viable alliance member and perhaps a stronger partner than Air India, especially when you consider that is the largest operator at three of India’s four largest airports, providing what would certainly be strong connectivity for any grouping. IndiGo Airlines could also be a good prospect in the future. It is new to the international market, but its rapid domestic growth means its holds strong positions in Delhi, Hyderabad and Bangalore, the latter a bit of a one world stronghold due to Kingfisher Airlines’ membership.

It is difficult to predict what will happen in the Indian market, especially with the high political influence on aviation development in the country. Air India must first get its own house in order before it can again be looked at as a serious alliance partner and reports this week that it incurred a loss of over Rs 5,500 crore during the 2009/2010 fiscal year will not endear it well to potential suitors. One thing is certain though, oneworld, SkyTeam and Star will all be watching developments closely as they look to build their positions in one of the world’s fastest growing markets.