Domestic air fares likely to come down with capacity addition by Tata-Singapore Airlines

Domestic air fares shot up by 20-25% after exit of Kingfisher Airlines in October last year

In what would come as respite to consumers, air fares in the domestic aviation industry may come down with the launch of the new airline venture of Tata Sons and Singapore Airlines.
 

Air fares in the domestic industry shot up by 20-25% after the exit of Vijay Mallya promoted Kingfisher Airlines in October last year. At its peak, Kingfisher Airlines had accounted for nearly 30% of the overall capacity in the market.

With the launch of Tata AirAsia and Tata-SIA ventures, the added capacity will bring down air fares considerably, say industry observers.

Sharat Dhall, President, Yatra.com, said, “The aviation market in India is under-penetrated and has tremendous potential for growth. Additional capacity will help linking more cities as well as in adding more seats on existing routes. With capacity addition, there would be some rationalization of air fares, which would make air travel more affordable for the common man.”

 

India is currently the one of the most under-penetrated aviation markets in the world. According to data shared by AirAsia Group while releasing financials in Dec, 2012, India has a fleet of around 422 aircraft for a population of 1.2 billion. In comparison, China has a fleet of 1,981 aircraft for 1.3 billion citizens.

 

“Based on CAPA (Centre for Asia Pacific Aviation) data for 2012, the number of domestic airline seats per capita is very low in India, at just 0.07. This compares with 3.35 for Australia, 2.49 for the US, 1.38 for Canada and 1.05 for Japan. We would like to ensure that we are able to realise the original vision of launching a full-service, world-class airline that India can be proud of,” said Mukund Rajan, member (group executive council), Tata Sons. On Tuesday, Tata Sons tied the knot with Singapore Airlines (51:49 joint venture) to set up at an investment of $ 100 million a full-service airline based out of Delhi. Rajan is one of the Tata Sons’ nominees on board of the proposed airline.

 

“Indian passengers and inbound foreign tourists will get one more airline to choose from. The resulting competition will improve services and lower prices. Overall, a great deal for India”, said Amber Dubey, partner and head (aerospace and defense) at global consultancy KPMG.

 

While the potential for growth in traffic is huge with the number of domestic air passengers in the country projected to triple to around 175 million per annum by 2021 from 58 million in 2012, industry experts said that Tata-SIA would eventually look at commencing international operations as well.

 

Dubey added, "SIA is not coming only for the domestic routes. SIA's biggest strength lies on trans-continental long haul flights. Nearly 70% of India's international traffic goes westward (TO West Asia, the Americas and Europe), most of which is cornered by the west Asian carriers. Once SIA comes in, they can compete on those routes on the Indian quota.” With both the Jet-Etihad and Tata-SIA expected to compete on long-haul routes out of India, sector experts say ticket pricing for outbound travel too is likely to get aggressive.

At present, Indian government rules do not allow airlines with less than five years of operations and a fleet of 20 aircraft to fly abroad. There is a move to amend the rule but no decision has been taken yet. Tata-SIA has evinced interest in commencing international operations out of India, if rules permit.