Third time lucky for Singapore Airlines’ pursuit of Indian dream

sia
At last, some excitement from Singapore Airlines (SIA) which appears to have been for too long biding its time on the sideline. The airline announced its joint venture with Tata Sons to set up a new airline to be based in New Delhi, India. SIA will own 49 per cent and Tata the rest of the proposed full-service airline. The two partners have committed to an initial investment of US$100 million.

It is a dream that SIA has been pursuing for some years, having failed twice in the past with the same partner. SIA chief executive officer Goh Choon Phong said: “We have always been a strong believer in the growth potential of India’s aviation sector and are excited about the opportunity to partner Tata Sons in contributing to the future expansion of the market.”

It was back in 1995 when SIA and Tata made its first application to start a full service airline in India, but a change in the country’s civil aviation policy in 1997 that prevents foreign carriers from holding any stake in domestic airlines stopped the proposal in its track. Another change of the policy last year to permit foreign investment up to 49 per cent now clears the way for SIA and Tata to renew its partnership.

Before this third attempt, SIA and Tata made a joint bid in 2000 for a 40-per-cent stake in Air India but met with political opposition which again rocked the application. A year later, SIA decided to withdraw its participation.

So it is third time lucky for SIA, which cannot be said to be proud of past equity acquisitions in Air New Zealand and Virgin Atlantic. The airline has also recently raised its stake from 10 to 20 per cent in Virgin Australia.

The question for SIA is whether the Indian venture coming 18 years late would be any different from its previous acquisitions.

The announcement has on the whole sent out positive vibes. There is no need to over-emphasize the huge potential of the Indian market premised upon not just a growing population but also growing wealth and mobility of its people. This has been eyed by more airlines than just SIA. In April, Etihad Airways announced it was buying a 24-per-cent stake in Jet Airways, and in February, AirAsia announced that it had formed a joint venture with Tata to set up a budget airline. Emirates Airlines was also said to be interested in picking up stakes.

This can only mean increased competition. But that is not something to fear considering the huge market potential. Mr Prasad Menon, who was named chairman of the new airline, said: “It is Tata Sons’ evaluation that civil aviation in India offers sustainable growth potential.” And all the more so, when you are flying the colours associated with one of the world’s most popular and successful airlines, i.e. SIA. So said Mr Menon: “We now have the opportunity to launch a world-class full-service airline in India.”

Trust that SIA and Tata will get the formula right. SIA needs more room to grow beyond Singapore, and Tata is not exactly new to aviation. Former Tata Group chairman J R D Tata was the founder of India’s flag carrier Air India before it was nationalized in 1953, and the company has for many years been trying to re-enter the aviation business.

The new airline already enjoys the advantages of experience, reputation and motivation (do not underestimate the passion that turns the wheel of success). There is something else that will help the proposed joint venture in its initial years, and that is the deep pocket of the partners. SIA/Tata can expect hitches in the current climate of high fuel costs and low fares as the competition intensifies. All major airlines except low-cost operator IndiGo have reported losses. Kingfisher Airlines, bankrupt and waiting to be rescued by foreign investment, has not made a profit since its inauguration in 2005. The price war may become more aggressive with SIA/Tata’s entry.

The new airline will commence operations as a domestic carrier. Indian regulations require an airline to fly domestic services for five years before it is allowed to operate internationally. If the current not so buoyant market conditions persist, the long 5-year gestation may weaken rather than strengthen the carrier’s position. Deep pockets therefore help. But indications are that the Indian government may relax its rules and allow the new airline to mount international services earlier than expected. When that happens, SIA/Tata can expect to be challenged by Etihad through Jet Airways as a dominant carrier of westbound traffic to Europe, the Middle East, Africa and beyond. Air India is more likely to feel the pinch with SIA/Tata’s entry rather than the other way round.

A burning question that many industry watchers would ask of SIA is whether Tata as a partner also of AirAsia would lead to any conflict, if not operationally but perhaps as a matter of corporate policy. AirAsia chief Tony Fernandes has never disguised an apparent disdain of SIA (his dream was to finally own the Singapore carrier). Of course, it is to be pointed out that Tata’s partnership with AirAsia is for a low-cost airline whereas that with SIA is for a full-service airline. Theoretically, there should be no conflict of interest as far as the competition goes. Besides, Air/Asia/Tata will be based in Chennai while SIA/Tata will be headquartered in New Delhi. However, realistically, it may be the same wider domestic market that both joint-ventures may be serving. Yet one can never quite know how Mr Fernandes would react; he may well relish the connection to SIA through Tata.

For now, the excitement is all about SIA finally returning to shake up the skies.

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About David Leo
David Leo has more than 30 years of aviation experience, having served in senior management in one of the world's best airlines and airports. He continues to maintain a keen interest in the business, writes freelance and provides consultancy services in the field.

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