After a two-year pause in negotiations, the has re-invited to become a member.
The Star Chief Executive Board (CEB) voted unanimously in favor of the decision in an effort to improve the group’s presence in one of the largest and fastest-growing emerging markets.
The surprise move is another twist in a long history of an on-and off-relationship between Star and Air India. In late 2007, Star had invited Air India—back then in the process of merging with Indian Airlines—for the first time. Four years and many delays later, a very frustrated CEB decided to put the application on hold, infuriating India’s government and Air India management.
Star at the time argued that Air India clearly was preoccupied with internal issues that it needed to resolve first before being able to devote the necessary attention to the joining process.
Air India claims it is ready this time.“We are a much better airline than in the past,” Rohit Nandan, Air India’s Chairman and Managing Director, told his colleagues at the Vienna/Austria CEB meeting.
Integration into Star is seen as “a major step forward” for the airline. Nandan told Aviation Week that the airline hopes to join as soon as possible, within a matter of months but clearly before the end of 2014.
“It was clear that we needed to do something about India,” one CEO of a Star member airline tells Aviation Week. The group worried that without its own member in the country with better access to traffic flows in the region, it would lose out against Gulf carriers who have become an increasingly dominant force in India by connecting long-haul traffic through their hubs. Also,has agreed to acquire a minority stake in in one of Air India’s most important rivals, .
It is one of the ironies in the process that the invitation to Air India was decided in Vienna. This summer, India’s Aviation Ministry said it was investigating Austrian Airlines andbecause, as Group units, they might not comply with the “substantial ownership and effective control” clause underpinning bilateral air service agreements. That threat was widely interpreted in the industry as putting pressure on Star to re-evaluate its position vis-à-vis Air India.
Star Alliance officials say it has been made clear in the negotiations that government issues should not be a factor in the process. The alliance has monitored Air India performance indicators for some time now and noted significant improvements. Still, one CEO says the alliance is prepared to invest more into helping Air India than in other carriers and assumes that the integration process may not be smooth. But concern about permanently losing access to India ended up being greater than the worries about Air India’s service quality and operational reliability that ended talks in 2011.
If Air India succeeds this time, the consequences could be far reaching beyond the industry. The Indian government has been protectionist in many policies, one of them not allowing theinto the country, and some of these limitations might ease.
However, there still is a lot more uncertainty beyond the airline’s ability to meet the minimum joining requirements: there is a general election in India next spring and a new government may decide to name new management. There is also uncertainty surrounding the possible privatization and further government funding for the money-losing airline.
Nandan points to improved performance in recent months. On-time performance, for example, has risen from 67% to 83%. Air India is growing by about 7% annually. When it becomes a Star member it plans to look at expanding long- and medium-haul services into Europe and Asia, but has no expansion plasn for North or Latin America.