Action is revving up on the privatisation of Air India, with the government expected to come out with details for the expression of interest inviting bids in a few days. So far, three contenders have shown interest in varying degrees.
IndiGo, the largest domestic airline by market share, was first off the block. Next up in early January was Tata-Singapore Airlines (SIA), which said it was evaluating the possibilities. Last week, came reports that a consortium of Jet Airways, Air France-KLM and probably US airline Delta (the US airline has denied any move from its side) may bid.
What will this ailing, overstaffed behemoth bring to each of these bidders?
In an analysts’ call late last year IndiGo had said it was mainly interested in the international business but has not ruled out buying the entire airline. The latter option would certainly expand coverage to more cities, given that Air India flies many regional routes. But a combined market share in the domestic skies of over 50 per cent could also bring it in conflict with the competition regulator.
Acquiring AI’s international business is another proposition altogether. As part of its expansion strategy, IndiGo has been looking at flying into middle- and long-haul international routes — with or without AI — after being a cautious player with a modest 5 per cent share. AI would help those ambitions soar, not least by reducing the painstaking process of acquiring landing slots. IndiGo believes it can transform this full-service carrier into a low-cost carrier offering direct flights to European cities at convenient timings for Indians and at fares 25 per cent cheaper than the European competition.
For Tata-SIA, too, AI’s international business would be the major draw. SIA has made numerous aborted attempts to buy or become a joint venture partner in the airline earlier and has sound reasons for doing so. In one go, AI can give SIA access to the lucrative west-bound traffic (Europe, US and West Asia) from India which accounts for over 70 per cent of overseas passenger travel, a market from which it is conspicuously absent.
To be sure, SIA has over 60 per cent of the India-Singapore market, but scope for expansion in the eastern markets from India is limited, which is it has a mere 6.5 per cent of the overall overseas passenger market. Also by utilising the unused seats under the bilateral agreement from the India side, it can obviate the fact that its quota of seats from Singapore is already exhausted. Acquiring AI would mean that SIA could put in more flights on the India-Singapore route from more cities, too
In the domestic market, acquiring AI’s assets could help its two-year joint venture minnow – Air Vistara – bulk up its 3.6 per cent market share to number two position (see chart). And for a company that is planning international operations sometime this year, acquiring AI would allow it to start with a market share of over 16.6 per cent, overtaking Jet Airways.
As with Tata-SIA, the Jet Airways-Air France-KLM alliance, too, would see value in AI’s west-bound operations, though they have declined to comment on a possible bid. The European and US carriers are engaged in a bruising battle with deep-pocketed West Asian carriers to woo India flyers to fly through their hubs to US or European cities rather than from Dubai, Sharjah or Abu Dhabi.
Together, the alliance handles over 1.2 million flyers annually on the India- Europe route — roughly a quarter of the market of 4.7 million passengers — of which about half travel onward to the US. But the real challenge is to woo about six million passengers who transit through West Asian hubs principally because those airlines are priced 30 per cent less and offer far superior service.
So what will AI bring? For one, it can offer, for the first time, direct flights from India to New York, Newark, San Francisco, Chicago and Washington, which West Asian carriers cannot.
Two, it will substantially help the alliance increase its direct services to more European cities. Currently, the three have direct flights only to Paris, Amsterdam, and London. With AI would come direct services to eight more — Milan, Frankfurt, Madrid, Rome, Vienna, Copenhagen, Stockholm, Birmingham — plus more options in London and Paris. It is this wide range of connections that will give them an edge over West Asian carriers.
For Jet Airways specifically, buying AI would catapult it into a dominant position in the international business to and from India with an over 30 per cent market share, three times bigger than its nearest rival Emirates, which has been closing in recently. Air India Express, which primarily flies to these markets, will add an additional market share of over 6 per cent.
A long jump up the domestic rankings, where budget airlines have ruled for some years, is an added benefit. A domestic network that includes Air India would allow Jet to bring more passengers to Delhi, Mumbai, Bangalore or Chennai and offer seamless connectivity to Europe and the US via its partners in Amsterdam and Paris.
The big unanswered question in this reported bid is where this would leave Jet Airways’ 24 per cent partner Etihad, the UAE’ second-largest airline. The Indian airline’s strategy with its European alliance partners which are not shareholders in Jet appears to directly conflict with Etihad’s ambitions to expand its home base of Abu Dhabi as an international hub. Both airlines have denied speculation that Etihad will sell out shortly. A bid for AI may well clarify matters.