One Hop To Heathrow

"Nothing can be said right now but the pointers are that it is a distinct possibility," says a senior AI manager. Well-placed commercial aviation officials say privately that there could be a substantial ‘drop’ in fares, both in the business as well as economy classes for passengers travelling on this lucrative route.

Predictably, the most affected is expected to be British Airways (BA), a direct competitor of both the Virgin Airlines and AI, with a long-standing history of commercial feuds with Virgin. BA officials say they are prepared for anything. "We welcome competition. We compete with Virgin on other sectors in the world. Ultimately, we believe that market forces determine fares and it cannot be different in this case," says BA spokesperson Rayana Sequeira. Would they reduce prices if the new alliance of AI and Virgin do so? "We will do whatever the market dictates," says Sequeira, obviously well prepared to take on contingencies in an industry where price-cutting is a common ploy to attract customers, who for obvious reasons do not complain.

In a high-octane publicity blitz that included an elephant-back ride to a press conference and back-slapping bonhomie with journalists at Delhi’s Press Club of India, Branson, whose company is worth over £2 billion, described the pact as a big opportunity. "Launching flights between the UK and India has been an ambition of mine for long and I am delighted to have signed an agreement to make this dream come true. There is a huge and growing demand for services between our two countries which the current service frequency simply cannot fulfill. We will start three services a week between London and Delhi next summer and we would ultimately love to operate daily services to both Delhi and Mumbai," he said, adding: "Passengers between Delhi and London can now look forward to an improvement in quality of service and more competitive fares."

The pact lets Virgin operate three of AI’s currently unused frequencies between the UK and India. The flights will be operated by a Virgin Atlantic Boeing 747 and will depart from London on Wednesdays, Fridays and Sundays, days AI does not fly on this sector. Under the terms of agreement, these London-Delhi flights will carry both Virgin and AI flight numbers and both airlines will sell seats on those services in competition with one another. The deal doesn’t apply to current AI-operated services. Aviation authorities say the agreement will also involve commercial cooperation between the two airlines on cargo services, yield management, special corporate agreements, product development and cabin crew training.

AI chairman Michael Mascarenhas too was exuberant. "I’m as delighted as Branson about our codeshare and marketing partnership arrangements. I look forward to an approval of these arrangements by our respective governments. I believe early approval can only lead to an improved product offering in terms of seats, in-flight services and overall standards," he said, just after the deal was struck.

Currently over 3,00,000 passengers per year - or 40 per cent of the total market - fly from London to India via third countries, extending their trip by hours. This agreement is aimed at attracting the passenger who’d like to fly direct to Delhi and in both Virgin and AI’s reckoning, there are many such. The Virgin strategy, say insiders, is to charge business class fares for the first class and provide fares 30 to 50 per cent less than what BA charges in the economy class. Would the proposed fare war hit AI as well? According to the Virgin projections, there were "five more jumbo loads" of passengers who wanted a direct Delhi-London connection.

The issue of bilaterals with the UK government assume significance after this tie-up. Of the 17 flights a week allocated to AI, the Indian carrier has been using 14. BA, on the other hand, uses all its 17 flights and at the bilaterals scheduled to be held in January next year, the British are expected to ask for an increase in their flights to India - probably to as much as 20, an increase of three flights per week. "The agreement has strengthened our position," says an Indian civil aviation ministry official.

Not that everyone buys that line. Some, for instance, see long-term problems for AI in this deal and feel that the terms of agreement are basically flawed. Says aviation analyst Brij Bhardwaj: "As far as AI is concerned, this deal has been negotiated from a position of weakness. The main question here is, why is not AI using up its frequencies? Because they neither have the capacity nor the aircraft for it. The way I see it, you may make some quick money but there is going to be a permanent loss of market, which had been assiduously cultivated over the years. If I were AI, I would demand additional slots at Heathrow, instead of capitulating in this fashion."

According to some others, the other cause of worry has been AI’s sliding marketshare. "I wonder if this is the way to regain the lost market value," says an aviation watcher.Branson’s gameplan, on the other hand, seems to be more broadbased. On being asked why he had picked up a stake in AI, the British businessman, regarded sometimes as a Peter Pan type of character, said India was the place to invest as it had managed to "get through the eastern recession" and that "the rest could follow" - a reference to potential investment in telecom, financial services, the music world, holiday homes and tourism. Clearly, a man who during a two-day trip to India meets up with foreign minister Jaswant Singh, tourism minister Uma Bharati and civil aviation minister Sharad Yadav and all top officials in various ministries, cannot be taken lightly.