Air India joined the Star Alliance in a ceremony on July 11, 2014 after its second attempt at making it to the elite airline group. 
In this Insight
In this insight, we will explore the Indian aviation market, Air India and its opportunities and challenges moving forward as it joins Star Alliance.
With a population of 1.248 billion people as at July 1, 2014 , India is a lucrative market for the airline industry.
For 2013, India’s Ministry of Tourism reported improvement across the board for both domestic and international travels. There is an appetite for airlines to expand services to cover the increase of travellers within and outside of the region.
Reference – Ministry of Tourism – India 2013 data (Retrieved on August 25, 2014)
The major hubs for the country are New Delhi (Airport Code: DEL), Mumbai (BOM) with secondary hubs in Chennai (MAA), Hyderabad (HYD) and Bangalore (BLR). In the past five years, after some industry consolidation, four main domestic players exist to serve this country – Air India (IATA Airline Code: AI), Jet Airways (9W), IndiGo (6E) and SpiceJet (SG).
New entrants from Air Asia and a joint venture between Tata and Singapore Airlines named Vistara will further make the aviation market more competitive both domestically and internationally.
Reference – Air traffic statistics for March 2014 (Retrieved on August 25, 2014)
The following chart illustrates the current revenue and net income figures for the main players. Over capacity and pricing pressure within the domestic market had caused three out of the four players to incur a net loss from the latest reporting year. This trend will likely to continue with the introduction of additional domestic players and increased pressure from foreign airlines in 2014/15.
Reference – All figures are taken from Wikipedia and airline websites and are for FY2013 (except for SpiceJet which is for FY2012) Retrieved on August 25, 2014
The following illustrates the domestic market shares for the major players from April 2012 to June 2014. One key observation here is that low cost carrier SpiceJet has made significant strides in the market up 8.7% from 2012 and eroding market shares from the other players. Jet Airways is affected the most as it moved from being the market leader to No. 2 with a drop of 8.1% share over the past 3 years.
Reference – 2012 and 2013 market share percentages are taken from dsij.in website. Retrieved on August 18, 2014 http://www.dsij.in/article-details/articleid/7478/market-share-of-scheduled-domestic-airlines-for-april-2013.aspx
– 2014 percentages are converted from the June 2014 passengers information taken from the Directorate General of Civil Aviation – India website http://dgca.nic.in/reports/Traffic-ind.htm
– Jet Airways percentages include JetLite
Focus – Air india
Air India is the flag carrier of India formed in 1932 by Tata Songs (now Tata Group). It is the fourth largest airline in India per domestic market share and operates a fleet of Airbus and Boeing aircrafts. he airline has been facing financial challenges since 2006.  With the introduction of the 777-300ER and the 787 Dreamliners, the average age of the fleet is 9.3 years. 
As of August 2014, Air India serves 60 domestic and 31 international destinations in 19 countries across Australia, Asia, Europe and North America through its hubs in New Delhi and Mumbai. 
The airline has been facing financial challenges since 2006. It’s merger with Indian Airlines in 2007 expedited the losses which required further restructuring efforts.  As of the last fiscal year, its net loss is ~$350 US million (which is an improvement of 44%). 
Current Market Conditions (August 2014)
Air India is under tremendous pressure in its home market with both low cost carriers IndiGo and SpiceJet making inroads on market shares since 2012. Although it is a full service airline, many of the core amenities like meal service have been pared down to match some of the lower cost carriers (for example, flights less than 90 minutes do not offer a hot meal). 
In October 2014, a new entrant will join this crowded marketplace. Designed as a full service airline, Vistara, a joint venture between Singapore Airlines (49% ownership) and Tata Sons Limited (51%)  will serve Northern India trunk routes (e.g. Mumbai, Goa, Bangalore) from its New Delhi hub with fuel efficient Airbus 320neos planes. An expansion to international destinations is being considered after regulation changes are being implemented in 2015/16. 
With the debut of Vistara and continued pressure from current market leaders, Air India might face some pricing and capacity pressure for its domestic operations. However, joining Star Alliance in July 2014 would no doubt counter some of these challenges with increased code-sharing arrangements with other member airlines. As of August 2014, 10 of the 26 member airlines already have agreements with Air India to cross-sell flights and share revenue.  This will help Air India fill its planes with additional passengers and cargo.
Future Success Factors:
- Closely monitor capacity and demands and make quick adjustments, as necessary
- Monitor product mix (e.g. service level) to ensure it differentiates itself from low cost airlines
- Continually increase cooperation with other Star Alliance airlines to build code sharing agreements and marketing efforts. This will ensure that there is more feeder traffic to India through this flag carrier
While domestic heavy weights SpiceJet and IndiGo have not been posing significant pressure to Air Asia’s international operations. Jet Airways with an international footprint and a similar full service product is a main challenge to Air India’s dominance in the marketplace from India. Helping Jet Airways is a new bi-literal agreement between India and UAE (Abu Dhabi) which resulted in Ethiad Airways buying a 24% stake for $330 US Million. 
A similar agreement had been finalized with Emirates last year which will increase yearly seats from 54,200 to 65,200 by Summer 2015 . Emirates (IATA Code: EK) is the dominant airline serving India currently with some routes using the Airbus A380.
Under the Air Asia – India brand and based out of Bangalore, the low cost carrier specialist Air Asia started operations in June 2014 focusing on Southern secondary Indian cities such as Chennai, Kolkata to its core operations in Bangkok, Kuala Lumpur and Singapore. 
For eastern traffic, with the bi-literal agreements signed between India and UAE/Emirates, there is a shift of using the Middle East and away from East and Southeast Asia as hubs to Asia and Australia. Air India would need to evaluate how it can closely cooperate with other Star Alliance airlines in the Asia region to ensure that passengers would take the direct flight option over making a stop in the Middle East.
For western traffic, Air India should evaluate which are the routes that can provide higher yields to Europe and North America using newer airplanes with better fuel management.
Future Success Factors:
- Closely monitor slot allocations to ensure that new entrants would have a difficult time getting slots in over capacity airports like New Delhi and Mumbai
- Work closely with other Star Alliance partners to build a network that would enhance its presence as the lead international Indian carrier
- Ensure its products are on par with other competitors
Air India faces an uphill battle in returning to profitability. In the next five years, continued focus should be placed on cost management, debt reduction and utilization of its Star Alliance membership to compete against domestic and international airlines.
 Air India joining Star Alliance http://www.staralliance.com/en/press/ai-joining-prp/ Retrieved on August 18, 2014
 India’s population – July 2014 http://www.indiastat.com/default.aspx Retrieved on August 18, 2014
 Air India Fleet information – August 2014 – http://www.airindia.in/fleet-details.htm Retrieved on August 18, 2014
 Average age of Air India’s fleet – http://www.planespotters.net/Airline/Air-India Retrieved on August 18, 2014
 Air India current flight network – http://www.airindia.in/network.htm Retrieved on August 18, 2014
 “What sent Air India crashing?”. Economictimes.indiatimes.com. 16 July 2009. Retrieved on August 18, 2014
 Air India financial results for FY 2013. Air India – http://articles.economictimes.indiatimes.com/2014-04-01/news/48767414_1_air-india-express-operating-revenue-load-factor Retrieved on August 18, 2014
Conversion to $US completed using Oanda.com http://www.oanda.com/currency/historical-rates/ Retrieved on August 25, 2014
 Air India in-flight experience – http://www.airindia.com/inflight-experience.htm Retrieved on August 18, 2014
 Eliminating the 5 year operational / 20 aircraft rule http://indianexpress.com/article/business/business-others/civil-aviation-ministry-to-propose-abolition-of-520-rule-for-domestic-airlines-to-pm/ Retrieved on August 18, 2014
 Counting the number of code share partners from Air India’s website http://www.airindia.in/code-share-partners.htm Retrieved on August 18, 2014
 Biliteral agreement between India and UAE (Abu Dhabi) http://pib.nic.in/newsite/erelease.aspx?relid=96968) Retrieved August 25, 2014
 Jet-Ethiad Strategic Alliance details including route network and key information of companies
http://www.jetairways.com/EN/CA/AboutUs/JetAirwaysEtihadStrategicAlliance.aspx Retrieved on August 18 2014.
 Jet-Ethiad Strategic Alliance financial details – http://aviationweek.com/awin-featured-story/etihad-completes-purchase-24-jet-airways
 http://www.livemint.com/Companies/LSvALwXzhIu1uVKX4y6g8O/Increase-in-seats-to-Dubai-could-hurt-Air-India-Jet-Airways.html Retrieved on August 18, 2014
 Air Asia – India Route Map – http://www.airasia.com/in/en/where-we-fly/route-map.page Retrieved on August 25, 2014