TATA's TAKING TO THE SKY, VIA SINGAPORE AND MALAYSIA
By Ruma Dubey
It seems only fitting – Tata’s the company which in the real sense pioneered aviation in India is today riding high, aiming to change the very price structure and the way we travel in India. JRD Tata was India’s first licensed pilot and Ratan Tata used to jet around by himself for all his business deals. Tata Aviation Services was formed in 1932 and it was incorporated as Air India in 1948, nationalised in 1953, when JRD became chairman. Thus it seems only right today that the Tata’s have a fair share in India’s aviation pie.
The news of Tata’s once again, for the third time around, tying up with Singapore Airlines and starting a new airlines in India took everyone by surprise. This, at a time when Tata’s are already getting ready with their low cost venture with Malaysian airlines- AirAsia. Thus as of now, Tata’s have their feet on two boats, err, two airlines and this is causing a lot of flutter in the industry.
The existing companies – Spicejet, Indigo and Jet are spooked as it is being perceived as increased competition. Air Asia has promised that it will bring down air fares like never before, in fact wants its air fares to be the biggest differentiator. There is even talk of the company offering vacant seats for free.
And this competition from Air Asia is not be taken lightly as within a short span of time, less than 10 years, it has emerged as the largest low-cost player in the world. This entry into the Indian aviation sector, will probably be the best thing that happened to the Indian fliers in a long while and probably the worst thing for existing airlines. Air Asia is not a fly on the wall which can be ignored; it is an elephant which can come trampling down on all. Ditto for the venture with Singapore Airlines Ltd (SIA) –it will set new standards in flying, given the reputation of both – the Tata’s as well as SIA.
Though getting clearances and red tape, and not to mention politicians with different view points, will all take a while; once the airlines take off, it is expected to bring down prices. The vacuum left by Kingfisher Airlines, which used to handle 30% of the total capacity is currently milked to the hilt by existing airlines. Hopefully, with AirAsia and Tata-SIA coming more capacity addition will help bring down the fares. There are many who question the very need for a new airline – but instead the question should be – why not a new airline? Its been a while since additional capacity has been created and more competition coming in will mean better prices and more connectivity.
And regarding the need for more airlines? Well, the potential is immense. India has 422 aircraft for a population of 1.2 billion while China has 1,981 aircraft for 1.3 bn citizens. And the data from Centre for Asia Pacific Aviation data for 2012, showed that the number of domestic airline seats per capita is just 0.07 while it is 3.35 in Australia, 2.49 in US, 1.38 in Canada and 1.05 in Japan. Also more and more Indians are expected to travel in India – it is estimated that domestic air passengers in the country will triple to around 175 million annually by 2021 v/s 58 million in 2012.
There is also talk of the Govt planning to improve air connectivity with a network of more than 100 airports planned to meet the expected passenger load capacity by 2020. The first such airport is to come up in Kishangarh town in Rajasthan's Ajmer district, scheduled to get operational by 2016. This if these plans to take off, passenger traffic will indeed grow by leaps and bounds and it would mean the need for passenger seats will only grow further.
The only profit making airline in India, Indigo is a budget carrier and it has managed to make profits by keeping costs low, charging for every morsel of food, reduced turnaround time, low ticket prices to bring in more volume, sticking to schedules but all this has been done on well etched and most flown routes. Air Asia, on the other hand, plans to bring in new passengers through new routes. It will be an online bookings only service with no frills at all. Air Asia will keep its costs low by having a very thin organisation – only 20 employees per aircraft. Like all budget airlines, there will be no assigned seats for passengers, no frequent fliers mile, no airport lounges, charge for every check-in baggage. Air Asia will have no agents and as stated earlier, its own website will be its sole booking agent for sales. This obviously works as 65% of its sales in 2012 came in from its website. While other airlines have been cribbing that it is uneconomical to run an airline in India, Air Asia feels that our 1 billion population is a monster of an opportunity and feels that fares not yet low enough!
The JV between Tata and SIA will be a full-service carrier, with a combined investment of $100 million. Its operations would have been restricted to the domestic market as regulations did not permit international circuits till it completes 5 years of domestic operations and gets a fleet of 20 aircrafts. But this “20/5” rule, as it is known in the aviation circles, is to be done away with. Many call this as an amendment to accommodate Tata-SIA; if yes, why not when the rule is progressive?
One cannot help but wonder whether Tata’s situation will be like the conflict between Air India and Indian Airlines, with stake in two competing airlines. Yet, what is undeniable is that for us Indians, the skies will open up further and hopefully, rates too will come down. Now that is one reason enough for all us to welcome increasing competition.