Saturday, 21 September 2013

Singapore to Crack Indian Market - with a little help.

India’s aviation market has proved too hard a nut for many carriers, but Singapore Airlines and Indian conglomerate Tata Sons are taking a crack at it just the same.
Their 1990s joint-venture proposal was rejected by the government, but the partnership has since become possible: India changed its rules to allow foreign airlines to own up to 49% equity stake in Indian carriers.
Bloomberg News
Next stop, India
Reviving a partnership with the Tatas makes a lot of strategic sense for the Singapore flag carrier. It has cash to spare, India is one of its key markets and the bulk of international traffic from India goes further west, which means the joint venture’s routes won’t overlap those of Singapore Airlines.
Still, the partners will have to contend with perils have caused many airlines in the last two decades to fail: Heavy regulation, notorious red tape, a state-subsidized flag carrier, cut-throat competition and a lack of brand loyalty among passengers.
Vijay Mallya‘s Kingfisher Airlines Ltd.532747.BY -1.08% was grounded last year amid mounting debt and unpaid bills. Previously, East-West Airlines, Modiluft and NEPC Airlines tried and failed in the Indian market. Entering India now may give the new carrier a chance to help fill the void left by Kingfisher’s exit.
“India’s aviation market has been expanding and we have been eager to participate in it,” said Nicholas Ionides, the senior vice president of public affairs at Singapore Airlines.
Mr. Ionides declined to give details about business strategy or the kind planes the joint venture would use, but he said the new airline would like to operate on international routes if it gets permission. Under current rules, an Indian carrier must fly domestically for five years before it can apply for permission to fly abroad—which makes profits hard to come by, said Brendan Sobie, an analyst with aviation consulting firm CAPA-Centre for Aviation in Singapore.
“It’s a long-term investment and they can’t expect profits in the initial years,” he said of the joint venture. “It’s a market in which nobody really has made money.”
Singapore Airlines has been keen to invest in newer airlines to chase growth as it battles weak profits in its main business. Its new long-haul budget unit Scoot Pte. started flying last year and the company doubled its stake in Virgin Australia Holdings Ltd. to 19.9% earlier this year. In June it shed its 49% stake in Virgin Atlantic Ltd., selling it to Delta Air Lines Inc., writing off an investment that never made any money.
“They don’t want to sit still and watch the rest of the world change around them,” said Mr. Sobie. Singapore Airlines wants to expand in key markets—Australia, China and Indonesia in addition to India—both by increasing flights there and by growing “inorganically” where it can, he said.
Singapore Airlines might also want to find a strong partner airline in China and even take an equity stake if it could, but at the moment the regulatory environment is not too encouraging for foreign airlines and there are no obvious carriers for Singapore Airlines to partner with, said Mr. Sobie.
In 2007 the airline planned to buy a minority stake in Shanghai-based China Eastern Airlines Corp, but the high-profile deal was blocked by flag carrier Air China Ltd., which itself had been building a sizable stake in China Eastern.