Tata-SIA partnership can be a game changer in overcrowded aviation sector - Economic Times

Prices | Financials | Company Info | Reports By Jitender Bhargava Six decades after the Indian government divested the Tatas of their majority holding in Air India by nationalising the airline, the announcement by Tata Sons earlier this week for establishing a full-service carrier, in partnership with Singapore Airlines, with a combined investment of $100 million, has not only surprised the aviation industry but evoked tremendous interest. The warm response to the announcement, which has the potential to be a major game changer, was only to be expected considering that it was the Tata Airlines that had heralded the birth of civil aviation in India in 1932. That previous attempts to enter the airline business had been effectively foiled by certain vested interests, prompting Ratan Tata to emphatically state that the Tata group was no longer interested in forming an airline, also add to the surprise element. Emotional factors apart, the announcement is bound to raise numerous questions in the coming weeks, particularly with regard to its positive and negative impacts on the Indian civil aviation industry. While it is a foregone conclusion that the airline to be created by the two monolith business organisations -- one running a hugely successful international airline and the other having business interests across the industry spectrum -- will be a formidable one, a question that strikes one is whether the timing for entering the aviation sector is opportune. Open Sky Most Indian carriers are today saddled with huge debts and mounting losses, not because all of them are inefficient or the industry is vulnerable to economic ups and downs but because the Indian market is price-sensitive. An increase in fares instantly impacts growth, and that operational costs are high because of steep ATF and airport costs doesn't help. The domestic market is divided between low-cost airlines -- IndiGo, SpiceJet, Jet Konnect and GoAir - which hold over 60 per cent market share, with the legacy carriers Air India and Jet Airways accounting for the rest. The Tatas have stated in unequivocal terms that the new airline will be a full-service carrier. The reality, though, is that its operations will be restricted to the domestic market because current regulations do not permit an airline to fly internationally till it has met two primary conditions: five years of domestic operations, and a fleet of 20 aircraft. One is therefore tempted to ask whether the formidable airline that will be set up is for serving only a part of the under-40 per cent segment of the domestic market? As the new entity will have deeper pockets than the promoters of existing airlines, the new Tata airline will have to wean away passengers from Air India and Jet Airways to build market share by offering attractive low fares when it enters the fray; a quality product by itself will not fill up flights. There are lessons that can be learnt from Kingfisher: even though it was a full-service carrier, providing a top-of-the-line product, it could never find enough passengers willing to pay a premium for the value-added services it provided. Its collapse was, of course, due to various other reasons. Copyright © 2013 Times Internet Limited. All rights reserved. via Business - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNEc4ztUvkPW6Ly0j8lXsDiomjbP1w&url=http://economictimes.indiatimes.com/news/news-by-industry/transportation/airlines-/-aviation/tata-sia-partnership-can-be-a-game-changer-in-overcrowded-aviation-sector/articleshow/22864426.cms

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