Singapore Airlines Teams Up With India’s Tata Sons

International carrier Singapore Airlines and Indian conglomerate Tata Group signed a Memorandum of Understanding (MoU) last Thursday to establish a New Delhi-based full-service carrier. The two companies will initially invest $100m in the new airline. Tata Sons will hold 51 percent equity while the residual will be owned by Singapore Airlines.

Singapore Airlines Teams Up With India’s Tata Sons

Investment Climate in India’s Aviation Industry

India’s aviation industry had been weathering turbulent times. Little or no growth in passenger traffic and extraordinary high taxes levied on jet fuel are few of the reasons to blame. In order to improve this condition, India’s aviation industry was opened to foreign investors last September allowing overseas companies to own up to 49 percent of local carriers.

Competition in India’s Aviation Space

Singapore Airlines’ interest in India’s aviation industry comes just nine months after Tata agreed to a similar venture with Malaysian budget carrier AirAsia. Moreover, UAE’s Etihad Airways started a Joint Venture with Jet Airways earlier this year. With Kingfisher Airlines’s temporary absence leaving a void in full-service space, this joint venture could not have come at a better time.

Long-Term Investment Strategy

The full-service airline to be launched will initially fly on domestic routes. Analysts believe that Tata intends to follow a hybrid business model of continued presence in both low cost and full-service model. Tata’s AirAsia joint venture will dominate ASEAN routes while the new full-service venture will be focused on west-bound travel in the long run since Indian government has restrictions in allowing airlines with less than five years of operations within India to fly abroad.

Growth Potential of India’s Aviation Industry

India’s rising middle-aged population with high disposable income makes it an attractive market for big international airlines. Indian government forecasts that domestic air travel will nearly triple this decade as airlines connect its smaller cities. Analysts believe that India’s aviation industry has sustainable growth potential.
It is expected that this joint venture will stimulate market demand and contribute to the expansion of the market.

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Thursday, September 26, 2013