4 min read.Updated: 15 Dec 2013, 11:51 PM ISTP.R. Sanjai
Low-fare airlines set to sign inter-line agreement to connect to Singapore, other international destinations from Hyderabad
Mumbai:SpiceJet Ltd, India’s second largest low-fare airline controlled by media baron Kalanithi Maran of Sun TV Network Ltd, is set to sign an inter-line agreement with Singapore-based low-fare airline Tiger Airways Singapore Pte Ltd to connect to Singapore and other international destinations from Hyderabad airport, according two people close to the development.
According to the current structure, Tiger Airways, which operates as Tigerair, will not be making any equity investment in SpiceJet at this point of time, these people said, without disclosing further details.
A formal announcement is expected on Monday in Hyderabad, which is one of SpiceJet’s airport hubs.
“This is strictly an inter-line agreement between SpiceJet and Tiger Airways. This is no code-share agreement planned at this stage. And there is no equity infusion in any form at this point of time. It’s a simple agreement to connect more cities from Hyderabad airport," said one of the persons quoted above, requesting anonymity citing the sensitivity of the issue.
An inter-line agreement refers to a pact to issue and accept tickets for flights that are operated by the partner airlines. When selling an inter-line ticket, the operating airline’s own flight numbers are used. A code-share agreement refers to a pact of marketing and selling the flights of another airline as it they were the airline’s own flights. A code-share agreement always consist of two partner airlines—the operating airline and one marketing airline that places its own flight number on the partner’s operated flights.
Established in 2004, Tigerair comprises four airlines—Tigerair Singapore, Tigerair Australia, Tigerair Philippines and Tigerair Mandala. Collectively, the group’s network extends to over 50 destinations across 13 countries in the Asia-Pacific region. As at 30 November, Tigerair operates a fleet of 49 Airbus A320-family aircraft, averaging less than three years of age, according to its website. SpiceJet currently operates more than 350 daily flights to over 45 Indian cities and nine international destinations.
Mint could not immediately contact spokesmen of SpiceJet and Tigerair for comment.
The Tigerair-SpiceJet alliance assumes significance as the Indian aviation sector is set to witness increased competition as more airlines are readying to fly. Tata Sons Ltd has floated two joint ventures to run airlines, one with Singapore Airlines Ltd for a full-service airline and another with Malaysia’s AirAsia Bhd for a low-fare carrier, after the government relaxed foreign direct investment rules for the sector in September 2012. Both ventures are awaiting final regulatory clearances. Rival airline Jet Airways (India) Ltd recently sold a 24% stake to Etihad Airways PJSC of Abu Dhabi in a $900 million deal, and Air India Ltd has the backing of the government.
Privately held IndiGo, SpiceJet’s key rival in the low-fare space, is profitable and ended 2012-13 with ₹ 787 crore in profit. Another competing airline, GoAir, a part of the Wadia Group, and also privately held, is a much smaller airline and also claims to be profitable. It made a profit of ₹ 104.34 crore in the same period, Mint reported in November.
For the quarter ended 30 September, SpiceJet reported a record loss of ₹ 559 crore, dragged down by a steep fall in the value of the rupee against the dollar, high aircraft maintenance costs and poor demand.
Singapore Airlines holds a stake of nearly 33% in Tigerair. Besides running Singapore Airlines as a full-service airline, it has investments in regional airlines SilkAir (Singapore) Pvt. Ltd and ultra-low fare airline Scoot Pte Ltd. Singapore Airlines calls this approach as “portfolio approach". To be sure, Tiger Airways competes with AirAsia in various markets.
In July 2011, Mint had reported that SpiceJet is exploring tie-ups with global low-fare airlines as a part of second phase of its international expansion quoting its then chief executive officer (CEO) Neil Mills. “We will not be just a point-to-point carrier. We will create partnerships with other international low-fare carriers. They will sell our products and we will sell their products," he had said. Mills quit SpiceJet in July 2013.
SpiceJet was in talks with private equity (PE) funds, an Oman-based sovereign wealth fund and foreign airlines as well as an Indian conglomerate for selling a minority stake to fund its expansion plans. In August, SpiceJet has started fresh rounds of talks, but is yet to finalize any deals in terms of equity infusion.
It is not certain when the airline will conclude a deal with fund houses as SpiceJet has been in talks with several airlines, including Tigerair, and PE firms since September 2012. For instance, Japan’s All Nippon Airways Co. Ltd had been in talks with SpiceJet, but these have been shelved.
Chennai-headquartered SpiceJet has recently appointed consulting firm Bain and Co. to restructure the airline’s network and return it to profitability after losses at the budget airline mounted over the past few quarters. SpiceJet, which has seen a flight of executives, including CEO Mills, announced on 31 October the appointment of Sanjiv Kapoor, a former chief executive of Bangladesh’s erstwhile GMG Airlines Ltd, as its new chief operating officer.
In an October report, consultancy firm Capa Centre for Aviation said SpiceJet is seeking to recruit a CEO, a chief financial officer and a chief commercial officer. “Any compromise on installing a complete set of high-quality executives will jeopardize the prospects of securing a serious investor," it said.