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Air India sees 4-5% rise in revenue post entry in Star Alliance

Wednesday, 25 June 2014 - 6:45am IST | Agency: dna

Reeling under financial stress and increasing competition from Gulf carriers, industry experts said that the inclusion of Air India into Star Alliance will do little for the airline to revive from the current position.

National carrier – Air India on Tuesday announced its much-awaited entry into Star Alliance – the biggest grouping of global airlines. After being rejected by the alliance 3 years ago, the airline is now officially set to join the grouping of 26 other airlines by July 11 this year. The move is expected to increase revenues of the airline by 4-5%, according to the airline.

"Today about 13 Star member airlines operate to 10 destinations in India and account for a total share of 13% of India's to and fro market. The inclusion of Air India in Star would take Star Alliance to a stronger position with a share of about 30%," said a note issued by the ministry of civil aviation (MoCA).

Minister for civil aviation, Ashok Gajapathi Raju Pusapati while announcing the inclusion of Air India into Star Alliance said that Air India will get benefit out of this association as a wider reach and access to existing facilities for the members of the world's biggest grouping of airlines would now be available to the passengers of Air India also.

The decision comes after 7 long years, when the airline was first invited to join the Star Alliance in 2007. In 2011, the decision on Air India was kept on hold as the airline repeatedly missed the deadlines of fulfilling the requirements for being a member.

Despite the benefits, industry experts feel that there is a lot to be done within the airline to help it revive from its current state.

"The number of flights originating from India offered by the Gulf carriers compared to the number of flights by all alliance members put together is much higher. Hence, competing the dominance of Gulf carriers will be a challenge," said an independent aviation consultant who did not wish to be named.

"The government of India should now ensure that Air India gets a fair deal as the national carrier," he added.

As per the estimates by global consultancy firm - Center of Asia Pacific of Aviation (CAPA) - Air India lost $720?750 million in FY2014, which is down almost 40% from two years ago. "But this may be as good as it gets as competition in both the domestic and international arenas is set to intensify," said a recent CAPA report.

"It is difficult to say the extent of gain for Air India after today's announcement, as the financial condition is too serious. No one major can take Air India out of its current state," said an industry expert and ex-airline official.

"The airline should take realistic approach in terms on taking decisions on network and routes," he added. As per the estimates, Air India is incurring losses of around Rs 55 lakh per flight on its Delhi-Sydey-Melbourne flight.

Industry experts said that Air India's entry will help in improving the overall performance of the airline, as they seek expertise from other member airlines on areas like technology, network etc. "The membership will also bring in closer scrutiny of Air India's service quality, safety record, on-time-performance and seamless IT integration with other members.

The Star membership also enhances Air India's valuation in case the government decides to go in for partial or complete privatisation of the loss making airline," said Amber Dubey, partner and India head of aerospace and defense at global consultancy KPMG.

"The biggest party-pooper is India's humiliating downgrade to Category II by FAA. Air India cannot add flights to the US or enter into code-share with US airlines. It therefore would need to terminate flights in EU or Far East and transfer its US-bound passengers to Star members there. MoCA and DGCA should ensure India gets it category rating back at the earliest," he added.

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