December 23, 2013
The scene was almost surreal. To the great surprise of many observers, Star Alliance CEO Mark Schwab announced to his audience in a Vienna hotel that Air India had been accepted as a future member of the group. He pointed to the ballroom door to announce Chairman and Managing Director Rohit Nandan. Air India's chief should have walked into the room at that moment, according to the event's planners, but could not be found until some seemingly endless instants later.
To appreciate the irony of the situation, one has to revisit the history of Air India and the Star Alliance. The airline was first announced as a future member of the group in 2007. Back then, the state-owned carrier was in the midst of completing the merger with domestic carrier Indian Airlines and, combined with its famous inefficiencies as a government-owned entity rife with bureaucracy and political interference, simply proved unable to come close to meeting the many minimum requirements that Star wants future members to fulfill. In 2011, Star took the unusual step of shelving Air India's application which had missed many deadlines and did not look like it was going to meet the operational standards required.
The decision caused a huge political uproar in India and led to the Indian government questioning the legitimacy of some Star carriers' traffic rights into the country, as a means of retaliation and putting pressure on decision- makers within the alliance.
It is all the more ironic that the renewed Air India attempt to join Star was announced in Vienna—Austrian Airlines was among the targets of the Indian government and was at real risk of losing traffic rights to either New Delhi or Mumbai.
But it is not so much politics that has led Star's chief executive board to change its mind on Air India. Two factors influenced the decision, although it is also clear that another disappointment cannot be ruled out.
First, Star has observed performance criteria at Air India over several months and has noted improvements. On-time performance is up, and Star believes the international operation in particular is closer to the standards the alliance requires than in the past. Air India still has a lot of work to do to meet the minimum joining requirements, but senior alliance officials think it can get there within a reasonable time frame. It is doubtful that only a few months will be sufficient, as Nandan announced. Star should be happy if the airline is ready by 2015.
However, there is another, more strategic aspect: European airlines in particular have recognized that they need to act against the large carriers based in the Middle East. They have come to the conclusion that if they don't take action now, India, as one of the most promising emerging markets, will be lost. Etihad has bought a minority stake in Jet Airways, India's second big international airline. Emirates also puts a lot of its capacity into the Indian market. Both carriers and Qatar Airways are pulling a huge amount of long-haul traffic (including on routes to India) and channeling it through their hubs. Star carriers felt they needed a local presence to counter the threat.
Doubts are clearly justified that Air India is the right choice, but so far there are few alternatives. The question is whether Star could have waited longer. After all, its member Singapore Airlines is one of the shareholders of a new Indian legacy carrier that is to be launched next year—Tata SIA Airlines. But that carrier will need years to build up a presence large enough to be able to provide significant local feed. Star executives obviously believed they did not have the time to wait.