New sarkari low-cost airline coming

Move to utilize excess capacity created out of Indian-Air India merger

BY A CORRESPONDENT
May 8, 2006

The government plans to launch a new low-cost airline once the merger between Air India and Air India Express is complete. The new airline will be operated as a subsidiary of the merged airline, and will ply mainly feeder routes. This may lead to the creation of a hub-and-spoke model where the full service airline will fly the major routes, supported by a low-cost airline connecting small towns to metros.

The Times of India reported that the government is thinking in this direction. Recently, boards of both airlines met in Mumbai, where this idea was floated. The merger of Air India and Indian Airlines will create a lot of excess capacity, which can be diverted to a low-cost airline, Times reported. The low-cost airline will not be allowed to cannibalize the operations of the parent airline.

Both Indian Airlines and Air India have placed massive orders for aircraft from Airbus and Boeing, which will significantly increase their fleet sizes. Even after opening new routes and replacing old planes, there will be still more planes left, it is expected. Air India Express may also to fly long-haul routes to US and UK, in an effort to make use of the extra planes.

Meanwhile, the fate of Alliance Air hangs in the balance. The subsidiary of Indian Airlines, it has been decided not merger Alliance Air with the merged Indian-Air India. It is possible that the loss-making airline may be would up post restructuring.

Interestingly, the low-cost airline plan also raises questions over the order size of both airlines. It is well-known that airline mergers release excess capacity. Was the volume of the mega-orders justified, given that the merger would anyway create excess capacity? The sequence of events - first the mega orders, then the merger plan, and now a plan to fit in the extra planes created out of the merger- indicates haphazard decision-making.