Logistics

IndiGo’s interest in Air India may simply be a proxy for its long-haul flight plans

ASHWINI PHADNIS New Delhi | Updated on January 11, 2018

IndiGo promoters Rahul Bhatia and Rakesh Gangwal’s conference call with investors on Thursday was, according to them, meant to “spell out potential plans regarding long-haul international flying.”

The promoters also spoke at length about Air India’s disinvestment and how IndiGo was interested in Air India’s international operations and in Air India Express.

Is IndiGo depending on Air India’s disinvestment to pan out its expansion? That does not seem to make much sense, given that while the government may have decided to go in for in-principle divestment of its stake in Air India, it is still unclear on what the contours of the disinvestment will be. IndiGo’s promoters are suggesting that Air India’s domestic and international operations be segregated when bids are invited from interested parties.

Even if the government segregates AI’s domestic and international operations, as was the case before 2007 when Indian Airlines primarily operated domestic flights while Air India concentrated on long-haul flights, there is no certainty that IndiGo will be the preferred bidder.

Just as important is the fact that Air India’s and IndiGo’s business models are poles apart. IndiGo is a low-cost airline, and its promoters have made clear it will continue to be a low-cost airline flying on international long-haul routes. Air India, on the other hand, is a full-service airline; its long-haul flights offer a choice of first, business or economy class.

Besides, in IndiGo’s promoters’ view, a joint venture or joint ownership with the government was a “very, very difficult proposition, and we would not go down that path.” For now, it is unclear if the government will fully exit Air India or retain a share in it. Given this, what does IndiGo have in mind?

Air India’s strengths

Like other entities that may bid for Air India, IndiGo is perhaps considering Air India’s strengths, including landing and parking slots at airports around the world, including London Heathrow, John F Kennedy airport in New York, Narita airport in Tokyo and at Sydney and Melbourne in Australia.

Add to this its talented workforce, including a pool of over 1,600 pilots, and some brand-new planes, and it makes business sense for anyone looking to enter the long-haul air travel market to put in a bid for Air India.

Perhaps IndiGo is eyeing these assets to start its international low-cost long-haul operations and is optimistic that the government will favourably consider its interest in Air India. If IndiGo decides to go ahead with its plans of going low-cost long-haul on international routes without the Air India bid in its favour, it will have to deal with a whole new set of challenges and problems. But that, as they say, is a story for another day.

Published on July 07, 2017

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