Tatas to look at Air India once data comes: N Chandrasekaran

Tata group Chairman N Chandrasekaran, in a series of interviews to the media, has unravelled his aviation strategy for the first time by saying the company might consider looking at Air India, being disinvested by the government. 

Chandra, as the chairman is popularly known, also said the group cannot run two airlines (it has 49 per cent stake in Air Asia India, and 51 per cent in Air Vistara with Singapore Airlines) with just 15-20 aircraft, as all businesses need to have scale. 

His statement is an acceptance of the fact that even after over three years, the group’s tryst with airlines has not made a major dent in the Indian market. Referring to Air India in an interview with CNBC-TV 18, aired on Monday, Chandra said: “We will definitely look at it when all the details are available. We have to look at all the data.”

Air Asia and Air Vistara together have a domestic market share of only 6.8 per cent (April-June 2017) with a fleet of 29 aircraft. Even Go Air, with a similar number of planes, has a market share of 8.3 per cent (in April-June 2017). 

While the two airlines are ambling along, market leader IndiGo has increased its fleet size from 107 in 2015-16 to 138 at present. And, if the company’s future plans are anything to go by, it is looking at having a fleet size of 350 in the next five years. So, they are doing exactly what the Tata chairman expects his own airlines to do — scale up. 

IndiGo has kept costs down, say analysts, by putting in more flights on a single route and amortising the cost over more planes (you can use the same handling staff and equipment for more flights). So, its 138-strong fleet covers only 39 cities. In contrast, Air Vistara, with its 16 aircraft, flies to 21 cities. 

Air India could be a good fit depending upon how much Tatas are willing to pay. Experts say that one of the key strategies for Air Asia and, especially, Air Vistara has been to fly the profitable international routes as early as possible. But the government continued with the 20-plane restriction, delaying the airlines’ entry into international skies by over a year. Despite open lobbying by the Tatas, the government merely removed the clause under which a domestic airline could not fly abroad in the first five years. 

But their international foray could change completely with the acquisition of Air India, as then they would not have to build operations from scratch. There is huge value in buying Air India — it has 18 valuable level-three slots (cities with huge shortage), which include London, Paris and New York. The value could be gauged from the fact that a slot in Heathrow was sold for $75 million recently. 

The international foray would give the Tatas a 16.9 per cent share of the international market, making them the largest player ahead of Jet Airways, with a 14.5 per cent share. Plus, it would get the scale — a point which Chandra has talked about. Over 119 aircraft (excluding Air India Express) would be added in one go, including new Dreamliners.

Even in the domestic market, the deal could help them in getting a substantial market share — they would then together (Vistra and Air Asia) control a 20 per cent of the market — about half the size of IndiGo and larger than SpiceJet. 

However, there are some issues. The current policy does not allow foreign airlines to bid for Air India. Which means the Tata’s cannot bid, with Singapore Airlines being their joint venture partner. But the government is reassessing the policy after witnessing a lukewarm response on Air India divestment.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel