Air Asia's entry will impact domestic airline yields: J P Morgan

May prove to be wake up call for Singapore Airlines that has been keen on investing in India

Air Asia's plans to set up a joint venture airline in India will impact pricing and yields of domestic airlines. It will also be a wake up call for Singapore Airlines, according to a J P Morgan research report.

 

"We think (alliance) it is negative for the Indian carriers especially SpiceJet given its major presence in tier II/III cities. With traffic under pressure it would be a challenge to sustain higher yields. The entry of new players could put pressure on pricing, said JP Morgan analyst Corrine Ping in her report.

Air Asia' s entry will increase the competition in domestic market and could drive down fares. Air Asia is known for its aggressive low cost fares and often does massive sales in which it offers free tickets. This could impact yields of other airlines which too may forced to drop fares.

 

In a conference call with media persons the airline's chief executive officer Tony Fernandes indicated that pricing will be a key strategy for the new joint venture airline and ruled out operations to high cost airports like Mumbai to keep costs under control.

 

Air Asia's entry into domestic market will also force Singapore Airlines to review its strategy. Singapore Airlines has been keen on investing in India and in the mid-90s had partnered with Tatas to launch an airline. However, that plan was scrapped because it did not get government approval. 

 

"Singapore Airlines has been looking to invest in India but the window of opportunity may be closing near term following Etihad's proposed investment in Jet Airways and Air Asia's JV plans," the report said.