Skies will belong to new combine if Tata's plan to acquire Jet takes off

With a Tata Sons board meeting slated on Friday, the acquisition of Jet Airways by the Tatas through their joint venture (JV) Vistara (with Singapore Airlines) would substantially alter the Indian aviation landscape, especially in the international arena. 

From nowhere, the merged entity of the Tatas-Singapore International Airlines (SIA) and Jet Airways would catapult themselves as the second-largest international carrier from India, with 12.5 per cent market, leaving behind big boys like Emirates, IndiGo, and Etihad.

Only Air India (including Air India Express), which is in financial dire straits, will still be ahead in the pecking order. But without AI Express (which mostly flies to the Gulf), the combine would still have overtaken Air India.

Aviation experts point out that the entire game plan of Tata-SIA was to be the king of the international skies and to synergise their domestic operations to meet that need. The Tatas, with its partners, had made an abortive attempt to pick up stake in Air India many years ago but they were stymied due to opposition from rival carriers. But when the government auctioned Air India last year, they did not take part because of two key reasons - huge liabilities of the airline and its bulging employee-to-aircraft ratio, which would be difficult to shed without government support.

But Jet is different. Its debt liabilities (Rs 94.3 billion) are nearly a fifth of Air India’s (Rs 480 billion), say analysts. It does not have a babu culture, has a strong management and operational team with international expertise, a trim working force (the airlines has around 120 employees per aircraft, compared to 210 of Air India as of January 2018), and equally attractive landing slots in airports where there is a huge shortage of slots like London and Paris, though state-owned airlines fly to many more destinations across the world.

For its partner SIA, there are clear business reasons why Jet is attractive. For one, SIA is locked in a bitter battle with West Asian carriers like Emirates to grow its market share in the world. But the India to Singapore route constitutes for only under 8 per cent of total international traffic. Even though SIA has over 60 per cent of the market share, it is not growing because of bilateral seat restrictions.

By having a beachhead in India, SIA can get a share of the larger and lucrative India to West Asia and African market, which together constitutes for 52 per cent of the international traffic from India, currently dominated by rivals like Emirates, Etihad, Oman Air, and Qatar. Also, SIA can grab business away from West Asian as well as European carriers on the India-Europe route, where British Airways is one of the big boys.

Photo: Vistara

Analysts say a merger could ensure the domination of foreign carriers in international skies (they control 60 per cent share of the international traffic) goes down to 50 per cent within a few years once the new combine takes off.

Two, with the government refusing to accede to requests from SIA as well as Indian carriers to increase seat entitlements on the India-Singapore route, the growth of the market is stalled; both sides have exhausted their entitlements. Buying Jet Airways would only help in giving them more capacity share on these routes till the market is opened up.

But will the domestic aviation scenario change with the proposed Jet acquisition? Even after the acquisition, the Vistara-Jet combine will have a 27.6 per cent market share, far behind that of IndiGo, with 42.4 per cent. Vistara has moved very cautiously in the domestic market and has been able to wrest only 3.8 per cent share of the market. And what is good is that even Jet has reduced its domestic exposure in the last few years to cut costs.

Most aviation analysts Business Standard spoke to say their domestic play will be synergised with their international ambitions and also to cater to corporate travel. “It will be simple, if they think international travellers want to go to Goa or Varanasi, they will put in more flights on these routes. The concentration of flights would be on routes where there is a market for business travel. We don’t think they will go for huge expansions across the country like the low-cost carriers (LCCs) have done,” says a senior analyst in a global aviation consultancy firm.

Experts point out that the Indian aviation market will clearly have three segments - the upper end of the market will be the focus of Tata–SIA; the lower end, both in the international and domestic skies, will be catered by LCCs like IndiGo and SpiceJet, especially as they go to mid-haul international destinations. But there will also be a mid-end market in which both the players will clash with each other.

The only part of the puzzle to be resolved is AirAsia India - the airline with a turbulent past in which the Tatas have now picked up majority stake. Analysts says the LCC carrier could well be merged with the bigger entity later on and take on rivals IndiGo and SpiceJet in the lower end of the market.