Vande Bharat's cross-subsidy: US fares paid for cheap Gulf repatriation flights

With India's international flights grounded from March 22, 2020, the Vande Bharat Mission became the only way home. Air India's pricing across corridors was starkly different: fares to and from the Gulf ran 'about 40-45% cheaper than other charter flights,' an airline official told The Economic Times, 'and earnings from the US and Canada flights were being used to cross-subsidise those flights.' The captive, higher-income North America corridor effectively paid for the corridor where most stranded workers needed to travel cheaply.

The arrangement also flexed with costs. Phase 3 (June 10-July 1) saw more than 90 India-US flights; phase 4 (July 3-15) had just 30, yet Air India cut North America fares 25-45% — New York-Delhi economy fell to ₹75,461 from over ₹107,000, Toronto-Delhi to ₹75,321 from ₹1.37 lakh in June. The official credited operational streamlining: early flights sat parked at US airports for up to 40 hours, and the savings 'passed on to consumers.'

The math showed why the corridor could carry a subsidy: a senior executive put the one-way 777-300ER cost at ₹1 crore fixed plus ₹50 lakh variable, plus 20% for cleaning, parking, crew and PPE — 'even under the impossibly conservative assumption that every seat paid ₹1 lakh,' that left roughly ₹70 lakh profit per flight, a figure several airline CFOs and analysts called realistic. Delhi-US departures were nearly all sold out.

Stranded passengers' willingness to pay differed sharply by corridor, and Air India priced to that curve rather than to distance.

The Gulf routes served the largest, most price-sensitive stranded population — the cross-subsidy kept their fares below charter levels without a government payout.

Efficiency gains were recycled into fares: as 40-hour groundings were eliminated, North America prices fell even with fewer flights and high demand.

Where willingness to pay is captive, price high and route the surplus to where price is the barrier — a subsidy without a subsidy budget.

The pricing drew complaints of gouging from stranded Indians in the US and technical failures on the booking site; the official warned North America fares could rise again as more Gulf flights started. Industry experts called the US repatriation flights some of Air India's most profitable ever.