Intensive competition among truly qualified airlines with good track-record will benefit the air travellers

The recent developments in the civil aviation sector have been interesting, in as much as the joint venture between Tata Sons and Singapore Airlines, got off to a good start, by obtaining the clearance from Foreign Investment Promotion Board (FIPB). Tatas are expected to invest $51 million (51% stake) with $49 million (balance 49%) coming in from Singapore Airlines.

Recently, Prasad Menon, chairman of Tata-SIA airline, accompanied by Ratan Tata and Goh Choon Phong, CEO of Singapore Airlines, met Anand Sharma, the commerce minister, and Ajit Singh, the civil aviation minister, in order to thank them and advice them about their plans to start a full service  carrier in India. The proposal was cleared by Arvind Mayaram, the economic affairs secretary. This new airline has received no objection certificate (NOC) from Civil Aviation Ministry and are now approaching director general of civil aviation to obtain the air operating permit (AoP).  Once this is obtained, they would be able to start the actual operation. This is expected by around June 2014. To make this possible, there is every likelihood of the new airline obtaining some aircrafts on lease from Singapore Airlines itself, to avoid loss of time.

The Indian aviation market is highly competitive. IndiGo is the country's largest airline, and it is the only airline in the country that has been consistently making profits, even though some of the aircrafts are leased by them.

Tata-SIA, as a new entrant, will also face very severe competition from the much touted Air Asia of Malaysia, whose founder, Tony Fernandez, has got into a joint venture with Tata Sons (30%) and Arun Bhatia of Telestra Tradeplace (21%).  Air Asia controls 49% in this venture, with Ratan Tata as chief adviser to the Board. 

S Ramadorai (ex-TCS) is non-executive chairman of this venture. According to Tony Fernandez, its flamboyant founder, Air Asia may start its operations with 2-3 aircrafts, but will eventually have 10-12 to take care of the routes, most of which will emanate from south India.

Air Asia will focus on economies of airport operation, and will avoid expensive sites like Mumbai, New Delhi and Hyderabad airports; their breakeven point is mentioned as 57%-58% occupancy, and will only permit 15kg baggage allowance for domestic routes. Their plans are to obtain 80% booking through travel agents and expect to use free ticket promotion to stimulate the market! They have not yet obtained DGCA clearance and have to still comply with a number of formalities, though, they plan to launch their flights in January 2014. NOC from Civil Aviation Ministry has been received but AoP is still awaited. 

For the air travellers, who have been looking forward to better and economic service, Air Asia may do wonders. From a fleet of two aircrafts, in 11 years, they have grown to be a well established airline, which offers no frills. It focuses on cost control and service to its passengers. Its success has been due to a high level of aircraft utilisation (12-13 hours a day), and it is offering no food (or even beverages). It charges high rates, if any change is made in bookings!  At the moment, sales are made through e-commerce. Air Asia has been named as the world's best low-cost airline, for five years in a row, by Skytrax World Alliance, a UK based consultancy. Passengers pay for the services, if needed.

With the planned arrival of Tata-SIA into the field, it is not yet clear how the proposed joint venture with Air Asia is going to work. Will they be operating side-by-side, with some sort of sharing of routes? Or, will they be coming to terms on inter-changeability of ticketing? Or, will there be a total break-up of relations? Neither side has made its views known to public, whom they ultimately intend to serve! This is a very interesting and intriguing situation.

It may be recalled that, way back in 2001, Tatas with Singapore Airlines had opted out of the race for a stake in Air India, which has been in trouble for a couple of years now.

Should the government now decide to privatise Air India, chances are that this Tata-SIA combine may take a shot at that proposal too!

While all these matters are in a state of limbo, Arvind Mayaram, economic affairs secretary has suggested, on the basis of a committee's recommendation that 100% Foreign Director Investment (FDI) in existing airports should be permitted, without any need for approval. If this should happen, and India actually attracts some investors, then airports like Delhi, Mumbai, Bangalore and Hyderabad may be affected. But, again, such a move may bring down the costs for travellers.

In fact, this committee has even suggested that foreigners may be allowed to run a non-scheduled airline, if it has just one aircraft operating on domestic routes. This idea is far-fetched, and unlikely to be taken up by anybody.

In the weeks ahead, the aviation situation will be clearer, and one would expect the parties concerned to clearly spell out their plans. In the end, however, this sort of serious competition by truly qualified airlines with track-record will benefit the air travellers!

(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)