BackAir India won’t oppose Tata-SIA entry into Indian aviation sector
Air India chairman Rohit Nandan says the entry of the Tata-SIA airline and AirAsia will impact all existing entities
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New Delhi: Air India Ltd will not oppose the entry of the new joint venture airline of Tata Sons Ltd and Singapore Airlines Ltd (SIA) although it’s likely to affect all airlines, said Rohit Nandan, chairman and managing director of India’s national carrier.
Air India has in the past opposed a proposal by Tata group to buy a 40% stake in it with SIA. More recently, it opposed the government’s decision to expand flying rights to the United Arab Emirates that was seen as a sweetener for Abu Dhabi-based Etihad Airways PJSC to buy a 24% stake in Jet Airways (India) Ltd in a deal valued at $900 million.
“Why should we (oppose)? There is no point in having artificial entry barriers. Airlines will have to survive on their own merit and the quality of product," Nandan said in an interview on Tuesday.
Air India is surviving on a ₹ 30,000 crore bailout package from the government till 2021 and may have to seek more bailouts as its 2011 funding turnaround plan did not factor in the entry of foreign airlines, said another Air India official who declined to be identified.
The government approved foreign investments in Indian airlines in September 2012.
While Air India is barred from this policy and cannot access foreign funds or expertise, the Tata group has since announced plans to launch two domestic airlines with foreign investments.
Last week, Tata Sons submitted a proposal to the Foreign Investment Promotion Board seeking approval for the venture with SIA to launch a full-service airline at an investment of $100 million. It will hold a 51% stake in the venture, to be registered as Tata SIA Airlines Ltd, and SIA the rest.
Before this, Tata Sons entered into a joint venture with Malaysia’s AirAsia Bhd and New-Delhi based Telestra Tradeplace Pvt. Ltd to start a low-fare airline in India. Tata Sons has a 30% stake in AirAsia India. Civil aviation minister Ajit Singh on 20 September cleared the proposal for AirAsia India, which is expected to begin flying this fiscal year with an investment of $30 million.
Tata’s two airlines will compete with home-grown Air India, Jet Airways, IndiGo, SpiceJet and GoAir. It’s not clear if these airlines plan to oppose the entry of Tata-SIA Airlines. Jet Airways, SpiceJet and IndiGo declined comments.
IndiGo, GoAir and Kingfisher Airlines had considered such a move, under the aegis of lobby group Federation of Indian Airlines, to write to the government opposing its decision to allow foreign investment in the sector, but gave up the idea because of differences among Indian airlines, Mint reported on 7 August.
Nandan said there is little difference between full-service and low-fare airlines in India. “Today, given the fact our fares are the same as LCCs (low-cost carriers) and we have 70-80% occupancy, there is no low-cost customer or full-service customer. It shows passengers are interchangeable," he said.
The entry of the Tata-SIA airline and AirAsia will impact all existing airlines, Nandan said. “Everyone will be affected and I am sure the market will expand over time to accommodate everyone," he said.
Air India had a 45% share of the local market in 2000 when the only private airlines were Jet Airways and Air Sahara (now Jet Konnect). Its share has shrunk to 19.9% in August this year. IndiGo had a 29.1% share, Jet Airways 18.8%, SpiceJet 17.2%, GoAir 8.7% and Jet Konnect 6.9%.
In the US, the airline deregulation Act of 1978 that removed barriers to the entry of new airlines has had a lasting impact. Following this, about 200 airlines were launched, many of which eventually went out of business or were taken over by other entities, which is what could happen in India now, said an analyst.
“With the rush of new strong players, the market would be even more competitive. In such an environment, there is no place for a government carrier," said Debayan Sen, India practice head for US-based consulting firm Landrum and Brown Worldwide Services. “However, Air India would survive since the government probably won’t cut their lifeline. Every other carrier would need to take a market share cut."
A price war, good for passengers but a drain on promoter equity, will be the next big phase, he said. “It’s hard for airlines such as Jet to compete with smaller competing LCC such as AirAsia. What will ensue is a price war, which would significantly favour AirAsia given their lower operating cost structure," Sen said.
“Jet Airways has a strong ally with deep pockets. In order to survive, Jet Airways may end up being a feeder airline for Etihad. IndiGo and SpiceJet are yet to decide on their survival strategy and need to make a move to avoid being checkmated in the next few years," he added.
Another analyst said the civil aviation ministry has no vision for Air India.
“The government has to intervene to make the new airline set up a hub at a place other than Delhi because that is the hub Air India was forced to make," said Jitender Bhargava, former executive director of Air India, referring to Tata-SIA’s announcement to make the Delhi airport its hub. “Unless, of course, the government wants to offer Air India passengers to the new entity on a platter, quite like it offered Mumbai-originating passengers of Air India to other airlines when it forced it to shift operations to Delhi in 2010."
He said the new launches will lead to some existing airlines exiting. Vijay Mallya’s Kingfisher Airlines stopped operations in 2012 due to financial constraints.
“Lack of policy will strangle the industry. Entry of one airline shouldn’t lead to the exit of another or financially crippling it. This is what we are heading for," Bhargava said.
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