Saturday, November 17, 2018

Tatas gamble in a bloodied aviation market

In December 2012, as the outgoing chairman of Tata Sons, industrialist Ratan Tata, who nursed dreams of operating an airline and even an airport in Bengaluru, seemed to have given up on his plans. “It [the aviation sector] is somewhat like telecom. It is proliferated by many operators, some of them in financial trouble,” the Press Trust of India quoted Tata as saying. “I would hesitate to go into the sector today in the sense that the chances are that you would have a great deal of competition which would be unhealthy competition.”
Tata’s uncle, JRD Tata, had founded Tata Airlines in 1932; it is now Air India, an entity owned by the government of India.
Six months after that statement, Tata Sons, the holding company of the over-$100 billion Tata group, entered the Indian skies with two joint venture partnerships in AirAsia India, with Malaysian budget airline AirAsia, and Vistara, a tie-up with Singapore’s flag carrier Singapore Airlines.
Ironically, in the last six years, nothing has changed with regard to the state of the Indian aviation sector, especially the way Ratan Tata perceived it to be, as well as Tata Sons’ unabated interest in the space.
According to media reports, Tata Sons is in talks to acquire the financially distressed full-service airline Jet Airways. “We do not comment on market speculation,” a Tata Sons spokesperson told Forbes India. Jet Airways has informed the Indian bourses that the news items are “speculative in nature”. And if at all a deal does conclude, it may be some time away; it could even fall through at any stage of the negotiations.
Presently, competition is fierce and the aviation industry is bleeding red—the combined losses of IndiGo, Jet Airways, and SpiceJet, which together control 70 percent of the market, in the July to September quarter of FY19 total ₹2,300 crore. Unlike the other two airlines, Jet Airways reported a loss for the third consecutive quarter; its cumulative losses since March 2018 are more than ₹3,650 crore.
An over-50 percent surge in fuel costs combined with the rupee depreciation and low air fares are hurting the fortunes of Indian airlines. Air travellers though aren’t complaining, as there has been a 20 percent growth in domestic traffic.
Jet Airways is the second largest airline with a 15.3 percent market share and, more importantly, over 50 percent of its revenue comes from international flights. “Jet Airways, with all its international flying rights, is an established airline. It will complete the portfolio for the Tatas who have been interested in aviation [since the 1930s],” says independent research analyst Sanjay Jain.
Jet Airways is the second largest airline with a 15.3 percent market share and, more importantly, over 50 percent of its revenue comes from international flights. “Jet Airways, with all its international flying rights, is an established airline. It will complete the portfolio for the Tatas who have been interested in aviation [since the 1930s],” says independent research analyst Sanjay Jain.
Given the Tata group’s vast consumer connect, the Tata brand, says Jain, “enjoys a lot of public trust”. “Aviation is a B2C (business-to-consumer) business and the Tatas really understand that,” he points out.
17/11/18 Anshul Dhamija/Forbes India

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