Eighteen years on and after being three times unlucky, the diversified, $100-billion Tata Group on Thursday announced a 51:49 joint venture with Singapore Airlines (SIA) for a full-service carrier under the governments new aviation policy, which allows foreign carriers to take up to 49% stake in Indian airline firms.
The new JV firm comes six months after Tata Sons, the holding company of the group, floated another airline under the governments new policy with Malaysian budget carrier AirAsia to set up a low-cost airline. The group believes there could be synergies between its two airline ventures and exuded confidence about growth in the full-services stream on the back of low penetration levels in the Indian market.
However, analysts said that much has changed in the Indian aviation sector since the Tatas first tried to enter the segment, and that the ride could be tough. Back then it was a nascent market with little competition, with a handful of players like Jet Airways, Air India and ModiLuft. There were no low-cost carriers, which today command 61.3% of the market, have completely changed the travel style of Indians and indulge in regular price wars. This led to bleeding margins in the industry, and saw the exit of Sahara Airlines, which was bought up by jet, and the grounding of Kingfisher Airlines recently.
Further, with its recent JV with the UAEs Etihad, the loss-making Jet has emerged as a formidable rival Etihad will infuse cash, give it low-cost loans and the ability to buy lower-cost jet fuel. Though fresh bilaterals have been put on hold for a few months, more deals like Jet-Etihad are possible for airlines like SpiceJet and GoAir with carriers such as Qatar Airways, in which case the competition is set to grow exponentially.
Indian airlines have posted collective losses in the last two fiscal years of R12,809 crore and R9,270 crore, respectively, underlying the tough nature of the business.
Unlike its JV with AirAsia, where the Tatas dont have the majority stake nor an operational role, the venture with SIA would have them in the drivers seat. However, the group has yet not disclosed details about branding and the management team.
Tata Sons and Singapore Airlines have signed a memorandum of understanding and applied for Foreign Investment Promotion Board (FIPB) approval to establish a new airline that will help further stimulate demand for air travel, Tata Sons said in a statement. Subject