While entry of Tata-SIA would have the potential of creating a major upheaval in the Indian airline industry, this development which has undoubtedly come as a pleasant surprise, will only be to the benefit of the travelling public in India

The announcement on September 19, 2013, that Tata Sons, a renowned business house in India, has signed a memorandum of understanding (MoU) with Singapore Airlines (SIA) to set up a full-service carrier in India as a joint venture, surprised the nation in different ways. As for the air traveller who has been somewhat dismayed by the painful demise of Kingfisher Airlines, it is certainly something to cheer about. However, this move would have driven a chill down the collective spine of not only the Indian legacy and low-cost carriers but even of the foreign carriers who virtually dominate the Indian skies and command a sizeable market here. Perhaps the only airline in India that will remain complacent and indifferent to this development is the national flag carrier Air India that remains fully secured through a government-sponsored lifesupport system. While Tata’s joint venture with AirAsia to set up a low-cost carrier has been in the public domain since February this year and its formal launch is awaited eagerly at least by the travelling public, plans of the Tata Group for a full-service carrier was such a closely guarded secret that even the Minster of Civil Aviation Ajit Singh, as admitted by him publicly, learnt about it through a courtesy call from Ratan Tata on the day the announcement was made. Nothing unusual, as the top echelons in any organisation are generally the last to know!

Planned to be New Delhi based and with an investment of $100 million, Tata Sons would hold controlling stake of 51 per cent in the new joint venture. It is evident that Ratan Tata has got over his apprehension about the Indian civil aviation market being vitiated by “unhealthy competition”.

The House of the Tatas is not new to civil aviation. The first attempt in 1995 by the Tata Group to enter the Indian airline industry jointly with SIA, was stubbornly opposed by the newly established domestic private carriers in India that were struggling to survive in a hostile and crippling business environment. The second similar attempt in 2001 was once again successfully thwarted by vested interests that apparently prevailed upon the government to change the policy prohibiting foreign airlines from investing in Indian carriers. Ironically, the spearhead of opposition at that time was an Indian carrier that had itself been established through funding by airlines based in the Middle East!

Exactly a year ago, the Government of India permitted foreign direct investment (FDI) up to 49 per cent by airlines abroad into Indian carriers, opening the way for the former to penetrate into the Indian market. It has indeed been a game-changing decision as it will inspire foreign carriers to explore opportunities in India which is perceived to be strategically positioned in a region that has the potential for healthy growth in the civil aviation industry. Operating both a low-cost and a full service carrier together, both with formidable partnership arrangements and with international reach, the two airlines set up as joint ventures by the Tata Group, should be at an advantage and ought to be able to capture a respectable market share in a short span of time. However, it is not yet the time to open the champagne bottle as the MoU is only the first baby step. One ought not to be surprised if the stakeholders in AirAsia are not comfortable with their major partner Tata Sons joining hands with another high profile international carrier such as SIA and emerging on the scene as their strongest competitor. Tata Sons would have to take into consideration such apprehensions and sentiments of all the stakeholders and evolve a business model wherein the two joint ventures synergise their strategies and complement rather than compete with each other.

The Tata-SIA joint venture which is yet to be ascribed a formal identity, will have to negotiate a labyrinthine maze of procedural and bureaucratic impediments before the first commercial flight takes to the sky. AirAsia India has been in the news for nearly eight months now and yet there is lack of certainty about the time frame for the commencement of operations. As per reports in the media, AirAsia is unlikely to meet the December 2013 target for launch. While Tata Sons would be quite familiar with the insensitive and unresponsive government machinery in India and may take the agonising delay in their stride, SIA may find the experience unbearably frustrating. Hopefully, SIA will not disappoint the travelling public in India.

While entry of Tata-SIA would have the potential of creating a major upheaval in the Indian airline industry, this development which has undoubtedly come as a pleasant surprise, will only be to the benefit of the travelling public in India.