Abu Dhabi-based Etihad Airways’ purchase of nearly a quarter of Jet Airways marks the first equity injection into India’s financially strained airlines after the government eased norms last September, allowing overseas carriers to part-own Indian carriers. Etihad’s offer, concluded after months of hectic negotiations, came with a 32% premium over Jet Airway’s share price on Wednesday, mirroring the importance that the Gulf-based carrier places on the Indian market.
The logic of this faith in the Indian economy is pretty straightforward. The Indian growth story has been propelled by domestic consumption and it augurs well for the growth of aviation in the country. Estimates suggest that if India grows at its median trend rate, it would be the fifth largest consumer market by 2025. The consumption spree of the Indian middle-class, which is projected to swell to 600 million in the next 10 years, could reshape global markets. As a corollary, discretionary spend on travel will jump manifold making aviation a booming sector for corporations seeking to maximise profits and bolster their balance sheet with high returns on investment.
If the reasoning for investing in India is sound, equally rob-ust and pervasive are the likely benefits that will accrue to the traveller from such cross-border deals in India’s aviation firmament. To begin with, it would not be illogical to expect fares to come down as the airline will likely offer attractive introductory schemes to lure passengers. Fare rationalisation is expected to be the highest on planes that cart passengers to cities in the Gulf, North America and Europe. Jet Airways plans to connect 23 Indian cities with hundreds of international destinations within Etihad’s global network and the greater seats on offer and resultant competition will help keep fares down.
Much of the future growth in India’s economy, indeed for the aviation sector, lies not in the big metropolitan centres, but in smaller towns. Putting these towns on the map would save thousands of passengers the hassle of travelling to a metropolis before flying out overseas. There will also be other attendant spin-offs that may come from co-opting of frequent-flyer and other programmes of both the airlines, although no details have yet been spelt out yet.
The Jet-Etihad deal follows Malaysia-based budget carrier AirAsia’s announcement that it will start operations in India and more such deals could well be in the works. The total losses of India’s local carriers topped Rs. 10,000 crore last year — reason enough to explain why most of them, hobbled by lack of capital, are clamouring to sell stake to foreign airlines. At present, only 3% of India’s population use airlines as mode of transport. In a population of 1.2 billion, that’s just a speck and reason enough for foreign carriers to clamour for a pie of India’s aviation space, despite mounting losses.