Air India under Tatas could be ‘big game-changer’ for Indian aviation

Published on : Saturday, January 15, 2022

The dynamics of Indian aviation are set to change with Tata Sons slated to take over the running of Air India towards the end of January.

A key question that arises is what are existing airlines and soon-to-enter Akasa Air and Jet Airways 2.0 doing to meet this changed environment?

Analysts are unanimous that with the Tatas at the helm of Air India, the market is bound to increase and some existing airlines will feel the pressure of a revitalised Air India.

The $103 billion Tata Group won the bid for Air India, including the airline’s stake in Air India Express and Air India SATS Airport Services, in October last year.

SpiceJet promoter Ajay Singh, in his personal capacity, was the other bidder.

Vistara, which is jointly owned by the Tatas and Singapore Airlines, and IndiGo declined to comment on their strategies.

Others did not respond to an email seeking comment. Akasa Air, backed by Indian billionaire Rakesh Jhunjhunwala, plans to offer commercial flights starting in the summer of 2022.

According to Nripendra Singh, research director, aerospace & defense practice at Frost & Sullivan, the Tata Group’s acquisition of Air India will be a “big game-changer” for Indian aviation.

Airlines such as IndiGo and SpiceJet will need to be wary of Air India as they are the ones that have the most to lose in terms of domestic market share, Singh said.

IndiGo commanded a market share of 54.3 per cent in November while SpiceJet had 10.3 per cent, according to passenger traffic data released by the Directorate General of Civil Aviation.

Air India’s share was 9.5 percent and Go Air had 11 percent.

Liquidity is key

Other analysts maintain that a lot will depend on the strategies that the airlines adopt, how aggressively they compete and what business models they follow to meet the challenge of a revitalised Air India.

The changes are taking place as India’s airlines struggle to survive in the wake of the COVID-19 pandemic.

India’s airlines are flying towards their steepest-ever loss of more than Rs 20,000 crore ($2.7 billion) in this financial year, 44 percent more than Rs 13,853 crore bled in FY21 owing to the twin headwinds of the pandemic and high aviation turbine fuel prices.

Airlines in India are expected to notch up losses of $4.1 billion in this financial year ending March 2022, similar to the level of losses last year following the first pandemic lockdown.

Over the two years, Air India and IndiGo alone may post losses totaling $4.5 billion, CAPA – Centre for Aviation, a consultancy firm, forecast last year.

Liquidity is the key for all domestic airlines, especially in these times, according to Vinamra Longani, Head of Operations at Sarin & Co., a law firm specialising in aircraft leasing and finance.

With the Tatas taking over Air India, not only the two joint-venture airlines (AirAsia India and Vistara) but also mainline Air India and Air India Express will be well-funded by a business group which is committed to ensuring that their aviation business not only survives the current pandemic but also grows, Longani said.

He added that Air India’s competitors may need to carry out some fine-tuning of their products and services so that what they offer is well defined and customers choose an airline primarily for that.

Singh said other airlines might face pressure from Air India under the Tatas as its aircraft utilisation is likely to increase three-fold.

The Indian Hotels Co. is the Tata Group’s hospitality company that operates brands such as Taj, SeleQtions, Vivanta, The Gateway, Ginger, Expressions, and TajSATS. TCS is India’s biggest IT services, consulting and business solutions company.

Satyendra Pandey, managing partner of Aairavat Transport & Technology Ventures, agreed and said crew and asset utilisation will unlock additional returns.

Airlines are asset-heavy businesses and the highest capital cost is for aircraft. Thus, utilisation drives returns on the asset, he said, adding that there are several ways this can be achieved including how aircraft are scheduled, how crew patterns are built and how flights of various durations are mixed.

Fleet, debt

Air India has 128 aircraft in a combination of Boeing and Airbus planes, of which it owns 70 and has leased 58 planes, according to data on its website. In addition, Air India Express operates 25 B737-800 aircraft.

With the government taking on about 80 percent of Air India’s debt, running the company will likely be much more manageable. When it comes to slots at domestic and international airports, Air India has the upper hand compared to any new entrants and existing airlines that often struggle to get a foothold in the market, Singh pointed out.

Air India’s debt was Rs 61,562 crore at the end of August 2021, of which Rs 15,300 crore was taken on by the Tatas and Rs 46,262 crore was transferred to Air India Asset Holdings Ltd., a special purpose vehicle created to retain the airline’s non-core assets, land and debt.

Jagannarayan Padmanabhan, director and practice leader – transport & logistics at CRISIL Infrastructure Advisory, said with the debt overhang substantially removed, there could be induction of new aircraft in Air India’s fleet.

However, all this does not mean that the Tatas will get everything on a platter. The group will also have to put in an effort to make Air India a success.

According to Longani, there is a lot that the Tatas need to fix at Air India for it to become a threat to rivals.

Case in point – customer experience. The Tatas will have to make customer experience a priority at Air India and align the new Air India experience with that of the vision of JRD Tata, where the customer came first and was treated like a Maharaja, he said.

He added that not much will change as soon as Tata Sons takes over Air India because turning an airline around is a long-term project where the group will have to figure out the alignment of the four airlines that it will then own.

The Air India brand perhaps has one of the strongest recall values but it will be up to the management to convert the brand recall into commanding a premium.

That, in turn, will be driven by product, price and perception, Pandey pointed out.

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