You are on page 1of 2

Tata-Singapore Airlines: Why new players see opportunity

Tata Sons announced a deal with Singapore Airlines to set up a new domestic airline in the country with
an initial investment of $100 million.
This is the third such announcement involving a foreign carrier.
It is not the time to give up on Indias aviation sector. Growth is expected to come from smaller cities in
the country, HSBC, a global bank, said in a report titled Trip notes: Opportunity amidst challenges.This
marks a reversal of investor sentiments about Indias aviation sector hit by a fall in demand along with a
rise in operational costs. Aviation stocks have been battered this year, falling between 30% and 50%.
However, they rose around 3-4% on Friday, while the Sensex and Nifty indices traded in the red.
Here are reasons why investors have turned bullish about the sector:
1) TATA-SINGAPORE AIRLINES JV: The joint venture between Tata Sons and Singapore Airlines has
reaffirmed Indias reputation as a lucrative aviation market in the long run, despite the short-term man-
made problems such as excessive taxation, consultancy firm KPMG said last week. This will open up
competition in the west-bound routes from India which accounts for nearly 70% of international traffic,
Amber Dubey, partner and head of aerospace and defence at KPMG in India said in a release.
2) FOREIGN INVESTMENT: This is the third foreign investment in the Indian aviation sector after
Malaysian carrier AirAsia announced its foray into the Indian market, while Abu Dhabhi-based Etihad
Airways agreed to buy a stake in Jet Airways. Successful completion of these deals would open up the
way for more FDI to flow into the country, HSBC Global Research said in its report.
3) AIRLINES: Carriers are betting on smaller cities in the country to fuel demand. The India growth story
is far from over there is a significant untapped demand potential in Tier II and Tier III cities, which is
where the future of Indian aviation lies, HSBC said. For example, no-frills carrier SpiceJet recently
started routes from Rajahmundry in Andhra Pradesh.
Slideshow - World's most punctual airlines
Japan AirlinesJapan Airlines is considered to be the major international airlines
for its significant operations to other continents. The airlines is said to be 90.35
percent On-time.(Photo: Reuters ... more
4) AIRPORTS: Indian aviation sector is still in its nascent stages. There are 352 number of airports in the
country, according to the CIA factbook. Compare this to 15,079 airports in the US and 4,105 in Brazil.
Creation of more airports will help tap demand in smaller cities, which are otherwise infrastructure-
challenged. The regulatory body Airports Authority of India (AAI) has planned to issue Rs 1,000 crore-
worth tax-free bonds for financing such projects.
5) DEMAND: Price hikes discouraged a lot of Indians to fly domestically. This fall in demand hampered
airlines profitability. However, demand has picked up marginally in FY14. Airlines suggested that
passengers are getting used to flying at higher prices. But, the pace of growth is expected to be slow on
account of a lacklustre economy and high costs.
6) AIRCRAFT: Airline companies are now building fleet of regional jets like turboprops ATRs and
Bombardiers that could cater to tier II and tier III cities. This will help cut down expenses and optimise
capacity.
7) INFRASTRUCTURE: Indias metropolitan cities have seen improvement in airport infrastructure in the
last few years. This had led to a shoot-up in managing costs for airport operators. But now, the
regulatory body has increased aeronautical charges. This means airport operators can charge more. It
has thus eased pressures off balance sheets. The HSBC report also suggest that rise in passenger
expenditure at airports can also offer a good stream of revenue.