Dr S Raghunath sees flight of skill from existing airlines, that are not receiving salaries regularly, to greener pastures
The announcement by the TATA Group, a partner in Air Asia's Indian venture, that it plans to establish a full-service carrier in a joint venture with Singapore Airlines has caused more than a flutter. The Tata group will have a 51% stake in the venture while Singapore Airlines will have the rest. The move comes barely months after the TATA group tied up with Malaysian low-cost carrier AirAsia to start a budget airline in a three-way joint venture that also includes India's Telestra Tradeplace.
Dr S Raghunath, Professor, Corporate Strategy & Policy Area, Indian Institute of Management Bangalore discusses both the JVs and the implications for the Indian aviation industry.
Do you see the TATA-Singapore Airlines pact as a backdoor deal? The TATAs say that their talks with Singapore Airlines started around the same time that discussions on the joint venture with the Malaysian airline commenced and this was disclosed to AirAsia. Meantime, AirAsia India, which has secured approval for its joint venture, has been preparing for a December take-off though final approvals for commencing operations are not yet in place. Airline veteran Jitender Bhargava, a former executive director of state-owned carrier Air India and author of 'The Descent of Air India', has gone on record to remark that there will certainly be a conflict of interests.
No, I do not agree that there is either a conflict of interests or that it is back-door deal. That is because the partnership that the TATAs have announced with AirAsia to start a budget service and with Singapore Airlines to start a full-service airline cannot be seen as cannibalizing each other. Those who travel low-cost and those who travel in a full-service airline are served in different categories with varied ticketing and comfort. I do not think they mix at all.
Analysts say the venture will open up opportunities for better training facilities in India. How do you think the TATA-Singapore Airlines JV will benefit the India aviation sector?
The TATA-Singapore Airlines JV will certainly improve the domestic service. However, in the future they will hope to include international services, as and when they are permitted. The TATA-AirAsia deal is an international joint venture. They are catering to different markets. Counting on the positives of this, the TATAs, by signing these two ventures, will develop the potential to become one of the top three airlines in the next 24 months. Right now, the international traffic is dominated by foreign airlines. So, by beginning with Air Asia and later by TATA-Singapore flights to international destinations, at least the Indian footprint will get stronger in the international arena.
Intrigue and drama laced with accusations of conspiracy have long been a part of the aviation business in India that is heavily regulated by government. Do you think Singapore Airlines will be comfortable with such a strong role of the Government?
This 'intrigue' is because the sector itself is very capital intensive and the Government plays a major role in clearances, permissions to flyover etc. Government controls the market access. Earlier, the plan of Singapore Airlines to contribute 40% of the equity in a joint venture did not go through. The important step is that after a long time Singapore Airlines has been able to gain a degree of headway with Indian government. The actual operations are not going to start now. That is going to take some time. In the case of TATA-Singapore Airlines, the launch date, according to the newspapers, is May-June of 2014 whereas AirAsia is expected to fly earlier.
By the time TATA-Singapore Airlines launches service, do you see changes in the landscape of regulation?
Definitely, I do see changes. AirAsia received the No-Objection certificate in September this year. Singapore Airlines will get the No Objection certificate in 2015. TheGovernment changed the regulation and allowed 49% investment by foreign carriers. The market in India, though growing,has been adversely affected by devaluation of rupee, slower growth of the economy, low yield and high operational costs.
So the Singapore-TATA JV will increase competition. One of the first things that will happen is that the capabilities and the skills which are available with the existing airlines that are not receiving regular remuneration will move to greener pastures. These deals will prove good for the economy but bad for competitors. It is good to have international presence for Indian airlines in the form of joint ventures. Liberalization of regulation has made cross-border airline partnerships necessary and possible.
In all these bi-lateral air service agreements, it takes a form of cross-border airline alliances. Such partnerships will increase in future. Regulations governing airline acquisitions and mergers attempt to avoid anti-competitive behavior i.e. we have the Competition Commission. Regulation tries to ensure that competition is not distorted and the way they go about doing this is to ensure domestic airlines are also participating along with international airlines even if international airlines bring in substantive investments.
What makes matters a little tricky is that Singapore Airlines and AirAsia are fierce rivals in international markets, especially in Southeast Asia. So, what should be the strategies for both JVs?
For both these airlines the joint ventures with TATAs will have to evolve with clear goals for developing synergies resulting in revenue generation through network expansion and joint marketing, cost reduction through joint maintenance, joint call-centres, and fleet harmonization leading to an environment of a single operating company with high level of integration. The success of both the joint ventures will depend to a large extent on whether they can implement aprogramme for developing mutual appreciation for cultural and organizational differences, whether partners are able to maintain high customer oriented service standards ; whether the staff of the JVs are willing to solve customer-related problems relating to partner's clients.
If they succeed in achieving these internal milestones, then the partnerships may yield long-term results for each partner.
(Interviewed by Kavitha Kumar)
Dr S Raghunath sees flight of skill from existing airlines, that are not receiving salaries regularly, to greener pastures
The announcement by the TATA Group, a partner in Air Asia's Indian venture, that it plans to establish a full-service carrier in a joint venture with Singapore Airlines has caused more than a flutter. The Tata group will have a 51% stake in the venture while Singapore Airlines will have the rest. The move comes barely months after the TATA group tied up with Malaysian low-cost carrier AirAsia to start a budget airline in a three-way joint venture that also includes India's Telestra Tradeplace.
Dr S Raghunath, Professor, Corporate Strategy & Policy Area, Indian Institute of Management Bangalore discusses both the JVs and the implications for the Indian aviation industry.
Do you see the TATA-Singapore Airlines pact as a backdoor deal? The TATAs say that their talks with Singapore Airlines started around the same time that discussions on the joint venture with the Malaysian airline commenced and this was disclosed to AirAsia. Meantime, AirAsia India, which has secured approval for its joint venture, has been preparing for a December take-off though final approvals for commencing operations are not yet in place. Airline veteran Jitender Bhargava, a former executive director of state-owned carrier Air India and author of 'The Descent of Air India', has gone on record to remark that there will certainly be a conflict of interests.
No, I do not agree that there is either a conflict of interests or that it is back-door deal. That is because the partnership that the TATAs have announced with AirAsia to start a budget service and with Singapore Airlines to start a full-service airline cannot be seen as cannibalizing each other. Those who travel low-cost and those who travel in a full-service airline are served in different categories with varied ticketing and comfort. I do not think they mix at all.
Analysts say the venture will open up opportunities for better training facilities in India. How do you think the TATA-Singapore Airlines JV will benefit the India aviation sector?
The TATA-Singapore Airlines JV will certainly improve the domestic service. However, in the future they will hope to include international services, as and when they are permitted. The TATA-AirAsia deal is an international joint venture. They are catering to different markets. Counting on the positives of this, the TATAs, by signing these two ventures, will develop the potential to become one of the top three airlines in the next 24 months. Right now, the international traffic is dominated by foreign airlines. So, by beginning with Air Asia and later by TATA-Singapore flights to international destinations, at least the Indian footprint will get stronger in the international arena.
Intrigue and drama laced with accusations of conspiracy have long been a part of the aviation business in India that is heavily regulated by government. Do you think Singapore Airlines will be comfortable with such a strong role of the Government?
This 'intrigue' is because the sector itself is very capital intensive and the Government plays a major role in clearances, permissions to flyover etc. Government controls the market access. Earlier, the plan of Singapore Airlines to contribute 40% of the equity in a joint venture did not go through. The important step is that after a long time Singapore Airlines has been able to gain a degree of headway with Indian government. The actual operations are not going to start now. That is going to take some time. In the case of TATA-Singapore Airlines, the launch date, according to the newspapers, is May-June of 2014 whereas AirAsia is expected to fly earlier.
By the time TATA-Singapore Airlines launches service, do you see changes in the landscape of regulation?
Definitely, I do see changes. AirAsia received the No-Objection certificate in September this year. Singapore Airlines will get the No Objection certificate in 2015. TheGovernment changed the regulation and allowed 49% investment by foreign carriers. The market in India, though growing,has been adversely affected by devaluation of rupee, slower growth of the economy, low yield and high operational costs.
So the Singapore-TATA JV will increase competition. One of the first things that will happen is that the capabilities and the skills which are available with the existing airlines that are not receiving regular remuneration will move to greener pastures. These deals will prove good for the economy but bad for competitors. It is good to have international presence for Indian airlines in the form of joint ventures. Liberalization of regulation has made cross-border airline partnerships necessary and possible.
In all these bi-lateral air service agreements, it takes a form of cross-border airline alliances. Such partnerships will increase in future. Regulations governing airline acquisitions and mergers attempt to avoid anti-competitive behavior i.e. we have the Competition Commission. Regulation tries to ensure that competition is not distorted and the way they go about doing this is to ensure domestic airlines are also participating along with international airlines even if international airlines bring in substantive investments.
What makes matters a little tricky is that Singapore Airlines and AirAsia are fierce rivals in international markets, especially in Southeast Asia. So, what should be the strategies for both JVs?
For both these airlines the joint ventures with TATAs will have to evolve with clear goals for developing synergies resulting in revenue generation through network expansion and joint marketing, cost reduction through joint maintenance, joint call-centres, and fleet harmonization leading to an environment of a single operating company with high level of integration. The success of both the joint ventures will depend to a large extent on whether they can implement aprogramme for developing mutual appreciation for cultural and organizational differences, whether partners are able to maintain high customer oriented service standards ; whether the staff of the JVs are willing to solve customer-related problems relating to partner's clients.
If they succeed in achieving these internal milestones, then the partnerships may yield long-term results for each partner.
(Interviewed by Kavitha Kumar)