The flag-carrier has recently set up a three-member committee to explore the feasibility of such an expansion plan and also review the routes of the two carriers, to leverage synergies and avoid eating into each other's market shares, they say.
"Air India has set up a committee and mandated it to explore the possibilities of Air India expanding its operations in the LCC (low-cost carrier) segment," highly placed AI sources told PTI.
Air India regained the third slot with 19.2 per cent market share beating budget carrier SpiceJet (17.5 per cent) in July. At the same time, the Delhi-based IndiGo continues to retain its leadership with 29.5 per cent market share in the month.
However, the three low cost carriers-IndiGo, SpiceJet and GoAir combined enjoy 55.5 per cent market share as against 44.5 per cent of the two full service carriers -- Jet Airways group and Air India.
Air India Express, which began operations as the international budget arm of Air India in 2005, today operates 172 flights a week across Southeast Asia and the Gulf region with a fleet of 21 Boeing 737-800s, and commands 5-6 per cent market share.
Of its planes, 17 are owned, and the remaining leased and majority of its flights originate from Kerala, which contributes over 50 per cent of its income.
However, Air India too operates on some of the routes catered to by it LCC arm, thereby affecting the revenue of both the carriers.
Besides, the committee has also been asked to review the routes catered by these two carriers and examine the feasibility of bringing synergy into their operations, sources said.
"The committee will also review the business model of AIE," they said, adding that the committee has been asked to submit its report within three weeks time.
According to a report by Centre for Asia Pacific Aviation (CAPA), the domestic traffic is expected to expand by 4-6 per cent this fiscal, with most of it occurring in the second half.
"AirAsia's likely entry towards the end of the year could also provide some further growth although the airline will still be relatively small even by the end of the forecast period. These factors could potentially push growth above 6 per cent subject to market conditions from Q3 onwards.
"We expect that by the end of FY14, domestic traffic will match or slightly exceed the previous high water mark of just over 60 million annual domestic passengers reported in FY12," the CAPA report said.