Qatar Airways nets a prized catch, expanding westwards

IT may seem somewhat crazy, but it is definitely not surprising in today’s aviation landscape of fast changing and crisscrossed relationships, some of them making most unlikely bedfellows. The ends justify the means.

Courtesy British Airways

Courtesy British Airways

Qatar Airways has acquired a 10% stake in International Airlines Group (IAG), better known as the owner of British Airways (BA) and Iberia. IAG also owns Spanish budget carrier Vueling. The act of acquisition itself by the cash-rich Middle East carrier does not surprise. Qatar lags behind rival Etihad Airways in this respect; Etihad already owns Alitalia (49%), Air Serbia (49%), Air Serbia (49%), Air Seychelles (40%), Etihad Regional (formerly Darwin Airlines) (33.3%), Air Berlin (29.21%), Jet Airways (24%), Virgin Australia (10%) and Aer Lingus (2.987%).

But coming lately, Qatar has bagged a prized acquisition, considering IAG’s bases at two major European hubs, in particular London Heathrow, and the strong transatlantic networks of BA and Iberia. Qatar chief executive Akbar Al Baker said: “IAG represents an excellent opportunity to further develop our westwards strategy.” It should be a strong partnership. Together, their networks cover Europe, North and South America, Africa, the Middle East, India and Southeast Asia.

In 2013 Qatar became a member of OneWorld, becoming the only one of the big three Gulf carriers to join a global airline alliance. More than an apparent Qatari interest in things British, this was a step forward to forge a closer relationship with BA. Qatar said it may increase its stake in IAG for which it paid £1.15 billion (US$1.73 billion). However, EU regulations have placed a cap on non-EU ownership at 49%.

Courtesy Qatar Airways

Courtesy Qatar Airways

Quite unlike Etihad, which has entered the arena as a white knight in many cases, Qatar is buying into one of Europe’s more profitable outfits. Clearly it is a strategic move. While European carriers are becoming wary of Gulf carriers making inroads in the EU market, the competition is at the same time a race among the big three Middle East carriers themselves- Qatar, Etihad and Emirates Airlines. This has become all the more prominent in recent years as they out-compete each other within their region and seek aggressively to push out their geographical boundaries, leveraging on the success of home bases such as Dubai, Abu Dhabi and Doha as hubs for international traffic connecting Asia Pacific, Europe, Africa and the Americas.

The rivalry for supremacy is clear in a jibe made by Mr Al Baker on the race to top the chart for extreme luxury in the air, something that carriers outside the Gulf are less disposed to think about at the same level. He said: “We always raise the bar for our dear friends around the area to try to copy us.” (The big deal about extreme luxury, Jan 19, 2015)

Courtesy PA

Courtesy PA

The timing could not have been better for Qatar as IAG looks likely to succeed in a new takeover bid of Irish carrier Aer Lingus after two failed attempts previously. This would gain IAG more take-off and landing slots at Heathrow. What is interesting is the composition of Aer Lingus partners, which include Ryanair (29.8%) and Etihad. Any opposition to the deal is likely to come from the Irish government which owns 25% of Aer Lingus, but it may be a price well worth paying for the crucial air links between cities in Ireland and Heathrow as the world’s largest hub (until topped by Dubai recently) and beyond. Ryanair has itself attempted unsuccessfully to take over Aer Lingus and objected vehemently to IAG’s proposal in the past for reasons that are not difficult to see. IAG’s chief executive officer Willie Walsh and Ryanair’s chief Michael O’Leary are not exactly the best of friends. But if money talks, the latest offer of €1.3billion (US$1.47 billion) by IAG may well carry the day.

Airline relationships in today’s industry are more complex, if not blatantly promiscuous. While global alliances offer the broad framework for cooperation, it is not uncommon to find rival airlines connected in some way through a third party. The numerous cross-border codeshare arrangements are testimony to the multi-faceted connections. Less than half the world’s airlines belong to any of the three global alliances: Star (27 members), SkyTeam (20 members), and OneWorld (15 members). Although many major carriers are already members, there are notable exclusions such Virgin Atlantic (although CEO Richard Branson who made an about turn in 2012 announcing Virgin might join one of the alliances soon) and the other two of the big three Gulf carriers Emirates and Etihad. While Aer Lingus itself is unaffiliated, and so are part owners Ryanair and Etihad, IAG’s influence cannot be precluded although it has said Aer Lingus would continue to operate independently.

It is best to adopt a detached view of the business. Alliance membership may but not necessarily suggest a like-mindedness that brings friends to the same table. There is no reason why friends and foes alike may not put their money in a common proposition that will help further their respective positions. OneWorld membership may have eased Qatar’s way into the IAG stable, making it easier for Mr Walsh to be “delighted to have Qatar Airways as a long term supportive shareholder.” Not sure if he would be any less delighted if it had been Emirates or Etihad. But for Qatar, as part owner of IAG which is set to take over Aer Lingus, it is stealing a march on rival Etihad.

This article was first published in Aspire Aviation.

Gulf carriers compete for world dominance

WHILE Gulf carriers Emirates Airlines, Etihad Airways and Qatar Airways have become daunting competitors to other airlines across the globe, they are themselves competing with each other for world dominance.

All three airlines have been up there in the charts as world’s best in one category or another, garnering awards mainly for premium travel. A recent announcement by Etihad of its decision to no longer participate in Skytrax surveys – allegedly over disagreement on the rating system – has come as a surprise. Yet it may be a sign of there being one too many that points to a meaningless pursuit in a class deemed to be without real competition, and which can only lead to embittered rivalry. In the last Skytrax survey (2013), Etihad was the world’s “best first class”, “best first class seats” and “best first class catering”. But in the “best airline” category, it was placed seventh, far behind Emirates and Qatar which were ranked first and second respectively.

Is there even competition for Etihad’s new Residence suites? (see Extreme luxury: What price prestige? Jun 25, 2014) The race is on: Emirates has said it would introduce a similar product, and it is unlikely that Qatar will want to be left behind.

Interestingly, apart from spending big to acquire the best of equipment and pushing the limits on creature comforts, all three airlines seem to be pursuing different strategies for market dominance.

Courtesy Airbus

Courtesy Airbus

Emirates Airlines

Emirates is replicating the Singapore Airlines (SIA) story of the ‘70s and ‘80s, growing organically with giant strides as it expands its network. Last year it carried 44.5 million passengers to more than 133 cities in six continents. The number far exceeded Etihad’s 12 million passengers to more than 90 destinations and Qatar’s 18 million passengers to over 125 destinations. There are no indications of a likely change in course as Emirates continues to add new destinations in its expansion. Unlike Qatar, which has since joined OneWorld, and unlike Etihad, which has been on a binge to acquire equity in foreign carriers, Emirates remains very much a loner in the game, relying on its own strength and reputation for growth – again, quite reminiscent of the younger SIA.

But unlike SIA, which is a leading member of Star Alliance, Emirates does not believe in alliances. Echoing the sentiments of Virgin Atlantic chief Richard Branson, Emirates senior vice-president of commercial operations worldwide Richard Vaughan said in 2010: “We don’t believe in alliances. We intend to stay as an independent airline.” He believed that alliances reduce the airline’s ability to react swiftly changes in the market place and that they actually reduce competition and lead to higher fares. So true it is that when a passenger books a ticket with an alliance member airline, there is no guarantee that the passenger will be flying with the airline of choice. Under the circumstances, Emirates would have felt its product compromised.

Emirates’ stance has not changed. It has held out impressively during the economic crisis that saw many airlines scrambling to cut back services and subsequently entering into extensive commercial agreements with partner airlines. While Emirates maintains its independence, it has entered into code share agreements – a common industry practice – with a small number of airlines that include All Nippon Airways, Cathay Pacific and Air New Zealand. Its extensive non-equity partnership with Qantas made headline news in 2012, but it was a deal seen as impacting the Australian carrier more than Emirates. The Gulf carrier continues to steer clear of mergers and acquisitions although there was speculation of its interest in acquiring an ailing Indian carrier as India relaxes its rules on foreign ownership. The question remains as to whether Emirates can continue to buck the trend.

Courtesy Etihad Airways

Courtesy Etihad Airways

Etihad Airways

Etihad on the other hand has been acquiring stakes in foreign carriers besides a list of code-share partnerships that include Air France, American Airlines, All Nippon Airways and Cyprus Airways. The cash rich Gulf carrier partially owns Air Berlin (29.21%), Air Seychelles (40%), Aer Lingus (2.987%), Virgin Australia (10%), Jet Airways (24% – to be formalized), Jat Airways which has been renamed Air Serbia (49%), Darwin Airline which has been renamed Etihad Regional (33.3%) and Alitalia (49%). Some of those airlines have been shrouded in financial problems, such as Jet Airways of India and Italy’s flag carrier Alitalia which is already partially owned by Air France-KLM. In the case of Virgin Australia, Etihad also shared ownership with two other foreign carriers – SIA and Air New Zealand.

While code-share partners do little more than allowing airlines to sell seats on each other flights, equity alliances play a more forceful role for partner airlines to feed traffic into each other and provide seamless transfers in an extended network. For the ailing airline, Etihad is the white knight. For Etihad, it proffers the opportunity for growth via a third party. Alitalia, which is reeling in debts of about 800m euros (US$1.1bn), is looking to further injection of capital by Etihad to not only save it from the brinks of bankruptcy but also growth from then on. Italy’s transport minister Maurizio Lupi was elated by the deal. He said: “It’s increasingly clear that this marriage should happen because it’s obvious to all that we are dealing with a strong industrial investment that will offer our airline concrete growth prospects.” Someday Air France-KLM might wish it had enough gumption and money to raise its stake of 25% which has as a consequence dwindled to 7%. But Air France-KLM chief executive Alexandre de Juniac said Alitalia was not a priority at the moment. Still, Mr de Juniac viewed Etihad’s investment “with favor”, adding that the doors to KLM-Air France raising its stake were not closed.

Courtesy Qatar Airways

Courtesy Qatar Airways

Qatar Airways

Qatar is the only airline among the three Gulf carriers that has joined a global alliance, in its case OneWorld, whose members include Qantas, British Airways, American Airlines, Cathay Pacific and Japan Airlines. At its induction in 2013, Qatar chief executive Akbar Al Bakar said: “Alliances are playing an increasingly important role in the airline industry today – and that will continue long into the future. Becoming a member of OneWorld… will strengthen our competitive offering and give our customers what they fully deserve – more choice across a truly global network served together with airline partners.”

That is the ideal scenario, but in reality airline relationships are more complex than that. Without downplaying the benefits of global alliances such as wider network connections, shared facilities (Qantas/British Airways/Cathay Pacific premium lounge at Los Angeles Airport) and a dedicated terminal to enhance coordination (London Heathrow’s terminal 2 for Star Alliance members), member airlines have also entered into bilateral agreements across alliances. It is not uncommon to find rival airline connected in some way through a third party. Perhaps, in this context, lies the reason why Emirates and Etihad have so far not been convinced of the need to join any of the global alliances.

Whatever the strategy adopted by the Gulf carriers as they compete for world dominance, they have become daunting forces in the global market. Lufthansa’s new man at the helm Carsten Spohr has identified the competition posed by Gulf carriers as a major concern in Europe. In Asia, SIA is facing increased pressure from Gulf carriers tapping into its traditional market for traffic between Europe and Asia-Pacific and on the kangaroo route. While they have the means and resources to cut a product above the competition, it is their increased popularity that worry more their rivals, which will be relieved to see the Gulf carriers shifting their energies to outdoing each other instead, for the time being, in pushing the limits for the best Residential suites in the sky.

This article was first published in Aspire Aviation.

TATA SIA Airlines: Silver lining in a dark cloud?

sia logoTWO big names joining hands – Indian conglomerate TATA and internationally renowned Singapore Airlines (SIA) – can’t go wrong. So it must seem.

Besides, both organizations are not new to the aviation business. The Air India that we know today started as Tata Airlines in 1932. It was renamed in 1946 and nationalized by the government in 1953. As for SIA, one of the world’s most successful airlines, it would be superfluous to say more. What is more interesting is how together, they have been trying to join force in the past 15 years but in vain for an Indian partnership, thwarted by political opposition – first, to start an Indian airline and then, in 2000, to buy a 40-per-cent stake in Air India.

tataNow that the political hurdle has been cleared, the new joint venture marks Tata’s re-entry in the Indian aviation scene and SIA’s increased presence for a bigger slice of the potentially large and growing Indian market. TATA SIA Airlines (TSA), 51-per-cent owned by the Tata Group and the remaining 49 per cent by SIA, plans to commence operations in September this year with 87 weekly domestic flights. Based in Delhi, the carrier’s ambition is to extend its operations beyond India.

Against the background of a typically perplexing and oscillating Indian aviation landscape, it is tempting to try and envision where TSA is heading for all the promise that the magic of their names brings. Experts will not deny the huge potential of the Indian market, the attraction largely based on a fast growing middle-class population which is expected to reach 550 million people by 2025. So, willy-nilly any airline – whatever the heritage or pedigree – should do reasonably well if it is able to keep its books in balance since the pie is large enough. Yet the history of Indian carriers entering and exiting the arena is far from indicative of the cornucopia waiting to be tapped.

The most noted failed promise is probably that of Kingfisher Airlines, which has shut down its operations since October 2012 when its flight certificate was suspended and its allocated flight entitlements for both domestic and international operations were withdrawn by the Indian authorities. Other airlines such as Jet Airways continue to the subject of possible takeovers by foreign carriers following the government’s relaxation on foreign ownership, but much as the potential of the growing market lures, prospective foreign investors are treading cautiously. Anything can change – without much of a warning – in the world’s largest democracy. Jet Airways which announced in April last year that it was ready to sell a 24-per-cent stake to Etihad Airways is still waiting for the deal to be signed.

But that’s the challenge of the Indian market as new entrants (and to no small degree veterans alike) grapple with pinning down the “right” formula for success. For SIA, the joint venture with Tata will open new windows of opportunities. SIA CEO Goh Choon Phong said: “It allows us to participate directly in this huge growth market. India is obviously one of the two huge engines of growth in Asia. It allows us, therefore, also to diversify our traffic base and not just be only dependent solely on Singapore base. And also because of the locations of both SIA in Singapore and this new venture in India, we see good commercial synergies in the future when this airline is set up.”

Clearly, SIA needs new channels and bases for growth considering the limitations of its home port’s hinterland, particularly as the competition shifts geographically with airlines carrying traffic through alternative ports and with more direct flights being mounted between destination ports. The strategy is not an SIA prerogative. Qantas, for one, is making Asia – more specifically China, the other engine of growth identified by SIA’s Goh – a priority in its transformation as a way to returning its international operations to profitability through partnerships with Chinese carriers and through establishing Jetstar bases in Singapore, Vietnam, Japan and Hong Kong. But the reputation that SIA has earned across the globe should stand it in good stead, and one would have expected anywhere.

Yet it is not a given, if the investment history of SIA is anything to go by. Its erstwhile undertakings in Virgin Atlantic and Air New Zealand were let go at losses. The performance of Tiger Airways of which SIA owns 40 per cent is far from being sterling as the Tigerair brand suffers from poor service and the competition, its Australian operations from a breach of safety that led to its suspension at one time, and the Group’s investments in loss-making carriers – namely Tigerair Philippines which has since been sold at a loss to Cebu Pacific Airways, and Tigerair Mandala Airlines (Indonesia) which it has said it is ready to let go. Will TSA go the way of SIA’s past and associated investments? Is this finally the silver lining in a historically investment dark cloud?

Courtesy Bloomberg

Courtesy Bloomberg

A regrettable observation of the latter years SIA is how the Singapore carrier seems to have taken steps back from making things happen. TSA is the chance for that spark. By all accounts, it should succeed over time. If there is one thing that will stand Tata and SIA above some of the other investors, it is their deep pockets. Tata could not have picked a better partner, which is popular among Indian travellers who continue to favour an airline such as SIA over the local counterparts, even if it means making a long transit stop at Singapore especially on routes to Australia, the United States and other parts of Asia. With SIA’s wholly-owned SilkAir and Tigerair (which has signed an interline agreement with SpiceJet) also operating to various Indian ports, it looks like an extensive complementary network that TSA is fitting into, although its focus is domestic.

SIA’s Goh did warn that “by no means do we think that this is going to be a walk in the park.” He was being realistic, if not cautious. The domestic competition is highly intense marked by cut-throat pricing. TSA will face that challenge, and both Tata and SIA would recall how resistance by rivals had in part scuttled their previous attempts to jointly enter the Indian market. Clearing the hurdle at the entry level will decide whether TSA will move on to the next level to achieve its long term ambition of operating internationally. The current regulation requires a carrier to operate for five years and only with a fleet of 20 aircraft before it is permitted to mount services beyond India. TSA is hopeful that the rule will be scrapped soon, as it plans to make the application before its fifth year.

Analysts are generally upbeat about the future of the Tata-SIA joint venture, with some believing it would outgrow SIA. So has SIA unwittingly found itself a competitor that will grow at its expense? This was quite unlike SIA’s first foray into the equity arena when it bought a 49-per-cent stake in Virgin Atlantic in 2000, following unsuccessful petitions to gain access across the Atlantic from London Heathrow; the Virgin stake could provide an indirect access to the US east coast but it turned out to be very much a passive undertaking which was lacklustre in almost every aspect operationally and financially. TSA is something closer to home. Yet it is an opportunity that SIA cannot afford to lose to some other party stepping in as Tata’s partner, in which case the opportunity cost may far outweigh the uncertain prospect of a future competitive concern. Unlike its participation in the Virgin stake, SIA’s familiarity with the Asian outlook may land it a more active board role. The question hangs on how much SIA is able to influence the destiny of TSA.

airasiaThere are no reasons why two giants cannot co-exist so long as they continue to find space for each other in the same room. As an aside, we note how AirAsia, an arch-rival of SIA although a budget carrier, has also entered into a joint venture with Tata and a third partner to establish domestic carrier AirAsia India, which has been granted an Air Operator Permit recently. AirAsia holds 49 per cent with the remaining 51 per cent split between Tata (30 per cent) and third partner Telstar Tradeplace (21 per cent). There was talk of a conflict of interest when the joint venture between Tata and SIA was announced. However, such arrangements are becoming increasingly commonplace in global aviation as we note how promiscuous and transitory airline relationships have become. Interestingly, AirAsia had earlier terminated a short-lived partnership with All Nippon Airways in a domestic budget carrier in Japan following differences in management, and AirAsia chief Tony Fernandes had said he would never again go into bed with another airline, hence his choice of partners for the Indian joint venture even though Tata was the founding father of Air India. It might have been more, perhaps, an issue of who’s the boss?

Tata’s bigamy only testifies to its ardour to fly again. The bedroom battles will provide fodder for drama in the continuing Indian saga. For now, given the frequent shifts in the Indian aviation landscape, TSA looks like a good bet for SIA.

This article was first published in Aspire Aviation.

Etihad on a roll picking up stakes in other airlines

Courtesy Etihad Airways

Courtesy Etihad Airways

IN October last year, ailing Alitalia sent out signals of an impending bankruptcy and needed help. Then rumours were rife that Air France-KLM – already the biggest shareholder of the beleaguered airline – might double its 25-per-cent stake, to gain greater access to the Italian market. But Air France-KLM was concerned about Alitalia’s debt. (See It’s the age of mega carriers: Will Air France-KLM raise its stake in ailing Alitalia? Oct 14, 2013)

Waiting at the sideline was cash-rich Middle East carrier Etihad Airways, which did not have to wait long to make the kill. Jointly with Alitalia, it announced they were close to an agreement for the Middle East carrier to own up to 40 per cent of the Italian airline. This would make Etihad a leading player among its rivals in the European market.

Alitalia chief executive Gabriele Del Torchio referred to the agreement as “an important step in creating a solid and competitive Alitalia.”

In fact, the focus is not Alitalia but Etihad. That probably explains how Air France-KLM baulked at pumping more money into the ailing airline, focusing on its debt, and paved the way for Etihad to add yet another acquisition to boost its global network. It already has stakes in Virgin Australia, Air Berlin, Air Seychelles, Aer Lingus and Air Serbia. Only recently did it take up a 24-per-cent stake in India’s Jet Airways, giving it inroads to the growing Indian domestic market.

Whose next, one might ask.

It’s the age of mega carriers: Will Air France-KLM raise its stake in ailing Alitalia?

Courtesy Wikipedia Commons

Courtesy Wikipedia Commons

Alitalia is fighting bankruptcy as its shareholders initiate efforts to raise funds in light of its main fuel supplier threatening to cut off supply. The Italian postal service will contribute 75m euros (US$101.6m) to the rescue package of 500m euros.

Meantime, Air France-KLM – already the biggest shareholder of the beleaguered airline – waits to see if it should increase, possibly double, its stake of 25 per cent. Air France-KLM chief executive Alexandre de Juniac is in favour of the takeover to gain greater access to the Italian market, but the Franco-Dutch board is cautious about the debt incurred by Alitalia. The Italian flag carrier last made a profit in 2002 and has so far lost 294m euros in the first half of this year. Air France once made a bid in 2008 to take over the airline but was thwarted by a consortium led by then Prime Minister Silvio Berlusconi. The timing today may not be right as the new Air France-KLM is itself struggling with restructuring and cost issues.

The age of the mega carriers has long arrived and it appears the trend, predicted in as early as the ‘80s, looks set to continue. In Europe, besides the Air France-KLM merger, there is the International Airline Group comprising British Airways and Iberia. Lufthansa wholly owns Austrian Airlines and Swiss, and owns 45 per cent of Brussels Airlines, 14.44 per cent of Luxair, and varying interests in a string of other airlines. The competitive field – not only in Europe but also in the United States and to a lesser extent elsewhere – has narrowed to a few mega groups of airlines with fiscal partner interests beyond mere marketing alliances.

In the United States, United Airlines is merged with Continental Airlines under United Continental Holdings; Northwest Airlines is merged with Delta Air Lines; and American Airlines is merged with US Airways. Delta made news when it acquired a 49-per-cent stake in Virgin Atlantic, the stake bought from Singapore Airlines (SIA) which until then had maintained a passive interest in its holding. For Delta, more than for SIA, it would materially increase its presence across the Atlantic.

In South America, LAN Airlines of Chile absorbed TAM Airlines of Brazil to form LATAM.

Somehow the trend is less prominent in Asia and the extended region where flag competing flag carriers generally prefer marketing alliances such as the partnership between Qantas and Emirates, and that between Singapore Airlines (SIA) and Virgin Australia. But it is changing as the competition intensifies in a tight market and as blocs begin to form to make bigger bites, and as countries relax their rules on foreign ownership. SIA now owns 19.9 per cent of Virgin, which is also 19.9 per cent owned by Etihad Airways and 23 per cent owned by Air New Zealand (ANZ). ANZ has announced it will increase its stake to 25.9 per cent, and thus continues to be Virgin’s largest shareholder outside the Virgin Group.

Cash-rich Middle-East carrier Etihad seems to be particularly active on this front, picking up stakes in Air Berlin, Air Seychelles and Aer Lingus, and targeting to complete a 49-per-cent acquisition of Air Serbia in January next year.

Yet the interest seems more as a matter of pure investment or hedging against a shifting competitive landscape. There is no white knight appearing in the horizon to rescue ailing Kingfisher Airlines while many foreign carriers have expressed interest to enter the large and growing Indian market now that India has relaxed its policy on foreign ownership. Etihad is more interested in the less vulnerable Jet Airways. Malaysian budget operator AirAsia and SIA have initiated separate deals with local investors to start new airlines. There is really no valid reason to buy into debts unless the potential for recoup plus growth is visible, almost tangible. But the Indian market has been somewhat of a come-and-go melee, susceptible to changing regulations.

Yet what should make the Alitalia case different for Air France-KLM? It is probably one of market proximity, where the impact may be more immediately felt by the suitors. It goes beyond passive investment – a case in point as mentioned earlier is the SIA/Virgin deal compared with Delta/Virgin deal – to more strategic considerations of how the acquisition would advance the Air France-KLM cause vis-à-vis its competitors within the same region. It becomes an issue of survival in itself.

Interestingly, Etihad was asked if it would be interested to buy into Alitalia, and chief executive James Hogan sidestepped the issue, telling AFP: “At the moment I’m focussed on India, transactions in India. We look at many businesses but we are primarily focused on Jet Airways.” Yet it is rumoured that Hogan has been meeting up with Air France-KLM to discuss the matter, purportedly to persuade Air France-KLM to raise its stake or let someone take its place. Does it appear obvious enough who that “someone” may be? You make a guess.

Third time lucky for Singapore Airlines’ pursuit of Indian dream

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.

Curtains for Kingfisher Airlines

Courtesy AFP

Courtesy AFP

IT  looks like the fat lady has sung for Kingfisher Airlines. Or has she really?

India’s Ministry of Civil Aviation has withdrawn international flying rights and domestic slots from the debt-ridden airline whose licence expired at the end of 2012 and which has been grounded since October last year. The company has up to two years to apply for a reinstatement.

The reason cited by the authorities was one of non-operations, and a long awaited decision since so many other airlines are said to be waiting to take up Kingfisher’s slots. One senior official reportedly said the wait for Kingfisher to restart operations “cannot be an endless one.” The airline’s international operations cover Bangladesh, Hong Kong, Nepal, Singapore, Sri Lanka, Thailand and the UK.

But a statement issued by Kingfisher said it is still “confident of securing approval” from the authorities for a plan that it submitted, even as hope of rescue from foreign interests has all but waned. AirAsia has snubbed that possibility when it announced recently it would set up a joint venture with non-aviation partners Tata and Bhatia. (see AirAsia boosts Indian confidence in new joint venture, Feb 21, 2013). And Etihad Airways in evaluating Kingfisher against Jet Airways seems to favour the latter.

If the fat lady is still singing, its voice may peter out quietly. Broken and unwanted, Kingfisher, which has not made a profit since inception in May 2005 with accumulated losses of US$1.9 billion, has waited too long.