Air India selling a London-Heathrow slot is a smart move.

Yesterday, Air India chief executive Rohit Nandan announced that Air India would be withdrawing one of its two daily Delhi-London-Heathrow flights from February 2012 and auctioning off the slots. Currently, Air India competes on the sector with Kingfisher, British Airways, Virgin Atlantic, and Jet Airways; all of whom offer more consistent products and command higher fares than Air India.

The Delhi-London market is over-supplied and hyper-competitive; so this capacity cut actually is a very sensible move. In fact, Bangalore Aviation has learned that revenues generated on the Amritsar-Delhi-London segment (AI 115) do not even cover the cost of fuel for the flight (performed on Boeing 777s). While most of Air India’s flights are unprofitable, AI 115 reaches a special level of incompetence because the revenue it receives cannot cover 60% of the cost of the flight!

Furthermore, Air India’s well timed Heathrow slot is a highly coveted asset amongst world carriers. Numerous airlines such as Air China, Vietnam Airlines, and Korean Air have been forced to shift their London expansions to the less convenient Gatwick Airport. These companies would likely pay princely sums for Air India’s peak-hour slot; similar slots have sold for as much as US $58 million (Rs. 303.5 crore). Thus Air India’s slot auction would serve two purposes; raise at least Rs. 100 crore for a cash-strapped airline, and terminate a highly unprofitable route; one of the few solid business moves Air India has performed in the last year.

About Vinay Bhaskara

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