Air India - The Virgin Airways Saga

In 2000, A-I's network covered 44 destinations (Refer Exhibit I). In addition, A-I had a code sharing arrangement with a number of foreign airlines. These included Air France, Swiss Air, Bellview Airlines, Austrian Airlines, Asiana Airlines, Scandinavian Airlines, Singapore Airlines, Aeroflot, Air Mauritius, Kuwait Airways and Emirates. In the late 1990s, as part of its disinvestment programme, the GoI decided to divest 40% stake in A-I and began looking for a strategic partner. The strategic partner would take up 40% stake with only a 26% cap to foreign airlines. Ever since it began operations in 1984, VA focused on international routes. After the airlines maiden flight, from London's Gatwick airport to Newark on the outskirts of New York, Richard Branson³ added several lucrative routes to his kitty.

In the late 1990s, Branson was targeting the lucrative Delhi-London route. Every year an estimated 0.3 million passengers traveled from Delhi to London, which was nearly 40 per cent of the total outbound traffic from India. The only available direct route codes were held by BA and A-I. As a result passengers were forced to take circuitous routes offered by airlines like Emirates and Royal Jordanian which made them wait for hours at distant airports. Branson's efforts to woo A-I started in 1997. He said, "Air-India was once famous for its service and I'd like to think that as well as competing with Air-India we can share with it our experience of making Virgin Atlantic the success it is today." Analysts felt that A-I would learn from VA's innovation in hospitality...