The announcement by Tata Sons and Singapore Airlines on launching an airline in India has come as a surprise to many, as only seven months ago the Tata Group had signed an agreement with Malaysian budget carrier AirAsia to launch an Indian low-cost carrier (LCC).
Singapore Airlines (SIA) had first approached Tatas in mid-2012 with the proposal to start a full-service carrier (FSC) and it was much later in September 2012 the government changed rules permitting foreign airlines to pick up to 49% stake in domestic carriers, Tata Group sources said on Thursday. It was only later that AirAsia approached the Tata Group with the proposal to start an LCC, they added.
“AirAsia has known from the very beginning that we have been in talks with SIA and our plans to launch a FSC,” a spokesperson for the Tata Group said.
Will the Tata Group holding a stake in another domestic carrier, directly competing with it, not be an issue with AirAsia India? “The two airlines will not be competing against each other. They will be complimentary to each other. They will operate in different segments — LCC and FSC,” Tata spokesperson said.
But with there being hardly any difference in fares of LCCs and FSCs in India, industry experts said there could be problems when both airlines operate on the same routes.
“This announcement could play out negatively on AirAsia’s regulatory approval as Tata have 30% stake in the JV with chairman from Tata Sons. More clarity is required from Tatas on their proposed airline investments,” said Kapil Kaul, CEO, South Asia, aviation consultancy firm Centre for Asia Pacific Aviation.
Aviation minister Ajit Singh said it was for the corporate affairs ministry and Securities and Exchange Board of India (SEBI) to decide if one group could hold stakes in two airlines as “aviation rules don’t mention anything on this”.
With Ratan Tata being the chief adviser to the AirAsia India board, what kind of participation can be expected from the Tatas in the new venture? “The Tata Group would fully participate in the management and operations of the airline just like AirAsia India,” the spokesperson said.
“Neither the first JV required any approval of the Competition Commission of India (CCI) nor the second one needs to go through CCI since there is no merger and acquisition involved at this point,” said CCI chairman Ashok Chawla. “However, if the situation arises later based on the behaviour of the company and market trends, CCI has the mandate to look into it.”
The Tata Group is confident on the viability of an FSC in the Indian market when airlines in the same segment such as Kingfisher have folded up and Jet Airways and Air India are making huge losses.
“The trend of increasing urbanisation and growth in travel across India has opened up more opportunities for a differentiated full service offering,” said Mukund Rajan, member, Group Executive Council, Tata Sons, and one of the two Tata nominees on the board of the new airline.
“Based on CAPA data for 2012, the number of domestic airline seats per capita is very low in India, at just 0.07. This compares with 3.35 for Australia, 2.49 for the USA, 1.38 for Canada and 1.05 for Japan. We would like to ensure that we are able to realise the original vision of launching a full-service, world-class airline that India can be proud of,” said Rajan.