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Airline sector is witnessing some interesting developments off-late. Even as AirAsia is yet to start its operations and Jet Airways is yet to formalise its relationship with Etihad, SpiceJet has signed an inter-line agreement with Singapore based low fare airline Tiger Airways Singapore Pte Ltd.
There is nothing much in the deal that deserves a 12 per cent rise in the stock price that was seen when the news hit the market. Inter-line agreement is nothing more than SpiceJet getting rights to sell tickets of Tiger Airways along with its own tickets and vice-versa. It will help passengers flying abroad to plan their trip better, taking services of two low cost airlines to complete their journey. The impact on SpiceJet's financials is unlikely to be significant, but the underlying message in the deal is.
Tiger Airways is AirAsia's main rival in South East Asia. By entering into a relationship with SpiceJet, it is bringing the dog-fight to Indian skies. Though Tiger Airways is not pumping in money at this stage, probably an inter-line agreement could be a precursor and a probation period before a formal tie-up is announced.SpiceJet will be tested for its operations, flight schedules and in-flight services as Tiger Airways passengers might be using its services to connect with India.
Another message that comes out of this agreement is about Indian airlines attracting regional and some global players through agreements and strategic tie-ups. The Western sector has seen Etihad announce its deal with Jet Airways while others like Emirates, Qatar Airways and Oman Air either looking at an investment opportunity or looking to increase their seats.
Similarly in the Eastern sector, we have AirAsia already announcing its entry in the country with Tatas. Singapore Airlines will also be entering the country through another deal with the Tatas. Incidentally, Singapore Airlines owns 33 per cent in Tiger Airways. Just like the Tatas, they will be present both in the low cost airlines as well as full services carriers.
With most of the airlines in Europe and US in poor financial health, Middle East and South East Asian airlines have taken an early lead in wooing Indian passengers as the sector opens up.
Apart from AirAsia, almost all the other airlines are looking to tap passengers flying abroad. It is obvious few are interested in flying their planes within the country, unless it is a connecting flight. Only two Indian companies (Indigo and GoAir) are profitable flying in India. Others are making losses in their Indian operations but are profitable on their international routes, which explains why foreign airlines are keen only on international flights.
As for SpiceJet, while such agreements with Tiger Airways will give it an opportunity to showcase itself, what the company desperately needs along with passengers is funds. It is scraping the bottom of its barrel and unless someone pumps in funds it will start defaulting on its payments. Same also goes for Jet Airways, unless its proposal is cleared by the government and the company gets to see some cash, it is on the respirator.
The sector can witness hectic activity as airlines are lining up to land in the country, provided of course our Air Traffic Controller (read government) clears their proposal.
