Tata Group returns to aviation with Malaysian budget carrier AirAsia

Tata Group, which had launched Air India before its nationalisation, is making a comeback to the domestic aviation

sector by forming a joint venture with Tony Fernandes-led AirAsia Bhd, Asia’s biggest budget carrier, and a local investor.

The move comes after the Indian government eased Foreign Direct Investment in airlines in September last year, allowing foreign airlines to pick up to 49 per cent stake.

The Tatas will team up with Arun Bhatia of Telestra Tradeplace Pvt. Ltd, while AirAsia will pick up the stake via its investment arm, AirAsia Investment Ltd, which has already applied to India’s Foreign Investment Promotion Board.

Tatas had reportedly made an attempt to form a joint venture with Singapore Airlines some years back, though the effort did not bear fruit.

Tatas also reportedly own nearly six per cent stake in Spice Jet, though it claims that is merely a financial investment.

After India relaxed FDI norms in aviation, UAE’s Etihad Airways said it is also in advanced stage of negotiations to buy stake in Jet Airways. But last week it said it needs to the terms before a final agreement can be struck.

A deal with Etihad will put a post money valuation of around $1.6 billion for Jet.

Mint had first reported that AirAsia group is exploring opportunities in India after it eased norms to pick up stake.

AirAsia’s international flights already connect Indian cities of Chennai, Bangalore, Tiruchirappalli, Kochi and Kolkata with overseas destinations.

Hitting the air pockets

High operating costs and regulatory woes had crippled India’s aviation industry last year with Vijay Mallya-led Kingfisher virtually shutting most of its operations.

It was in this backdrop that the federal government stepped in to allow foreign airlines to pick up to 49 per cent stake in local carriers, giving a fresh lease of life to domestic airlines.

Another domestic carrier is likely to boost the choice of passengers and bring in innovation in pricing. AirAsia is known to offer dropdown prices like many European budget carriers, a trend which was started in India by Air Deccan. Air Deccan was later bought over by Kingfisher.

Following Kingfisher’s troubles, budget carriers were offering a steady pricing, but after a lull, Spice Jet in January came up with a Rs 2013 offer for a one-way trip, offering a million seats if booked before a certain date.

Jet Airways on Tuesday came up with another offer to woo flyers, offering 2 million seats for prices as low as Rs 2,250.

So the entry of Asia’s biggest low cost carrier by no of planes into India’s bumpy airline sector is certain to spur intense competition, but it remains to be seen how long fare wars can go on without bleeding profitability of airline companies.

Low cost carriers are now actually showing signs of a turnaround in fortunes.

In the third quarter of the current fiscal year, Chennai-based SpiceJet swung to profit of Rs 102 crore vs a loss of Rs 39 crore in the same period the previous year, despite challenging domestic environment.

Launched just six years ago, IndiGo Airlines has notched up about a fifth of the market share and also claims profitability. It is also reportedly aiming to tap the regional airline market by setting up a subsidiary.

(Edited by Prem Udayabhanu)

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