SpiceJet and Tigerair to tap each other's network with interline pact

Expects to wipe out accumulated losses by roping in potential investors; rebound to profits in a year

The Singapore-based Tigerair on Monday grabbed the first-mover advantage over its rival AirAsia in the lucrative India-Southeast Asia airline market by entering into an interline agreement with India’s second largest low-cost carrier SpiceJet.

Low-cost airline Tigerair, in which Singapore Airlines has 33 per cent stake, has been slugging it out with the Kuala Lumpur-based AirAsia, the largest player in this space in the Southeast Asian market. The move comes just a few months before AirAsia (which has a joint venture with the Tatas) is set to launch a low-cost domestic airline in India.

Under the new agreement with Singapore’s largest low-cost carrier, customers travelling on SpiceJet’s domestic network from 14 Indian cities can enjoy seamless connectivity through the Hyderabad airport onto Tigerair’s Singapore-bound flights from January 6, 2014. With this move, Tigerair would be able to carry passengers from India to Singapore through 20 cities, including six from which it flies directly to Singapore.

The other 14 cities would be Ahmedabad, Bhopal, Mumbai, Kolkata, Coimbatore, Delhi, Goa, Indore, Mangalore, Madurai, Pune, Rajahmundry, Tirupati and Visakhapatnam. Tigerair flies directly to Chennai, Trichy, Trivandrum, Bangalore, Kochi and Hyderabad.

The move will preempt AirAsia’s ambitious strategy to add more cities from where it can get passengers and connect them to Kuala Lumpur and Bangkok, among other destinations, through hubs like Chennai. Currently, AirAsia flies directly from Kuala Lumpur to Chennai, Kochi, Kolkata, Trichy and Bangalore while Thai AirAsia flies from Bangkok to Kolkata and Chennai. With AirAsia setting up a domestic airline, it will have access to passengers across the country.

Starting January 12, 2014, Tigerair customers from Singapore will also enjoy easy access to SpiceJet's domestic network. Both airlines will use their Navitare reservation systems, integrated to enable the issue of single tickets by each.

“Looking at interlining is a part of our strategy and Tigerair is our first partner. Other discussions will take place and we expect more such arrangements,” Sanjiv Kapoor, chief operating officer of SpiceJet, told the media. Stating that SpiceJet’s move would increase competition for AirAsia, which hopes to connect various cities in India to Kuala Lumpur from its Chennai base, sources said SpiceJet was expecting an additional 200 passengers daily to and from Hyderabad with its tie-up with Tigerair, besides expecting 6 per cent revenue growth in the first year of the alliance.

According to a JPMorgan research report, the two had 6 per cent share each of the India-Asean market in 2012. Their share of the South India-Asean market is bigger, with Tigerair having 13 per cent market share and AirAsia 11 per cent. On an all-India scale, they are still small players with a share of 4 per cent each of the India-Asia market.

Analysts say the relationship beginning on the Singapore route will likely be extended to others cities in Southeast Asia, including those in Indonesia and the Philippines, and Australia. AirAsia also has joint ventures in the Philippines, Indonesia and Thailand. On Monday, Tigerair had announced the signing of an agreement with China Airlines to set up a new low-cost carrier in Taiwan and the expansion of its partnership with Singapore Airline's low-cost carrier Scoot.

“The agreement will bring operational benefits rather than financial as of now as there is no equity infusion. The deal will enable network expansion and given the higher inbound and outbound travel as compared to domestic growth rates, it should improve the load factors. Given that the airlines can tap into each other’s network, it is a win-win for both,” said Deven Choksey, managing director of KR Choksey Shares and Securities.

“From SpiceJet’s point of view, our load factors are currently around 70 per cent, which could be raised further using the Tigerair relationship,” said Kapoor. Tigerair's load factors range between the mid 70s and low 80s in percentage terms.

Refuting reports that SpiceJet would shrink its fleet as well as the route plan, Kapoor said the company would rationalise its routes and planned to redeploy its fleet into a more profitable network design. Even as network revamp processes are underway, the airline officially confirmed that negotiations were on for equity sale.

"We are talking to people. We want the right partner from an equity perspective... Hopefully soon," Kapoor said, without disclosing more details. On the accumulated losses, currently around Rs 1,137 crore, he said there were ways to address such issues. “There are some possible solutions to come out of these. We are talking to potential investors,” he said, declining to comment further.