Stung by the government's decision to allow Jet Airways [Get Quote] and Air Sahara to fly overseas and scrap the mandatory commercial agreements that international airlines had with Air-India, V Thulasidas, chairman and managing director of Air-India, has said that this has made the business environment extremely tough for the 'Maharaja'.

In a recent communication to Air-India employees, Thulasidas has indicated that this can be the toughest challenge ever faced by the career.

"While there have been efforts in the past to restructure our cost platform, I must state in all sincerity that the need this time is far greater than ever before," he said in the letter.

According to Thulasidas, once Jet Airways and Air Sahara commence their overseas operations, Air-India's unique selling proposition of being the preferred choice of Indian nationals will be lost, as these airlines, too, will offer Indian hospitality on board.

"Jet Airways and Air Sahara will offer all that we give viz an Indian ambience on aircraft, Indian cabin crew, Indian food and other facilities, besides the fact that they are also airlines of India," he said in the letter.

Thulasidas has also expressed apprehensions about the two Indian carriers robbing Air-India of another advantage. For years, it has enjoyed a cost advantage over international carriers; now the two carriers will have a distinct edge as they operate on lower cost platforms.

The phasing out of the commercial agreements, according to Thulasidas, will burn a Rs 400-crore (Rs 4 billion) hole in Air-India's pocket and crimp the carrier's ability to expand and upgrade its fleet of aircraft.

"This income has been subsidising our operating losses over the years," he said in his letter, adding; "If losses mount beyond our control, we will be compelled to curtail our services as was done in 1997-98, when we withdrew from several international destinations. However, this time other Indian carriers will be waiting in the wings to fill the void."