Both AirAsia and SIA will compete constructively: Ratan Tata - Livemint

From left: Tony Fernandes, group chief executive of AirAsia, and former Tata group chairman Rata Tata at the AirAsia conference on Thursday. Photo: Hemant Mishra/Mint

Bangalore/Mumbai: Former Tata group chairman Ratan Tata said the group’s airline ventures—AirAsia India and Tata-SIA—will compete with each other “constructively” without taking “an adversarial position”.

Ratan Tata, who is also an adviser to the AirAsia India board, made an unexpected appearance at the AirAsia press conference on Thursday to officially launch the airline’s Bangalore operations.

Tata group had joined hands with AirAsia Group Bhd of Malaysia to float a low-fare airline, and with Singapore Airlines Ltd (SIA) for a full-service airline. AirAsia and Tata group had said that the two airlines will operate in different spaces.

Ratan Tata, who retired as Tata Sons Ltd chairman in December 2012, said “there is place for both a budget airlines like AirAsia India and a full-service airline like Tata-SIA.”

“There is a huge market to allow both segments to compete,” he said

Arun Bhatia , whose Telestra Tradeplace Pvt. Ltd is one of the partners in AirAsia India, had said that it was unethical for the Tata group to have entered two joint ventures at the same time, The Economic Times had reported in September. Bhatia was not present at the conference.

On 24 March, Tony Fernandes , group chief executive of AirAsia, had told ET Now that “there will be some cannibalization and it is really for the Tatas to decide. They have to define their model (with SIA) clearly, otherwise there will be cannibalization.”

Replying to questions on potential competition from Tata-SIA, Fernandes said that there was “no objection to Tata-SIA.”

In a May report, consulting firm Centre for Asia Pacific Aviation, or Capa said there is increasingly limited price and product differentiation between full-service and low-fare airlines in India, and more recently there appears to be an acknowledgement by the promoters that some cannibalization between the two carriers is inevitable.

“It therefore remains to be seen whether the Tatas will continue their involvement with both ventures. Should they decide to exit as is possible, AirAsia India could lose some important leverage given the positive relationship that Tata Sons enjoys with the newly-elected Prime Minister,” Capa said.​

AirAsia India is likely to break even in its first year of operations, Fernandes said. On 12 July, Mittu Chandilya , AirAsia India’s chief executive officer, said his company will break even in four months. On Thursday, Chandilya said AirAsia India “will keep costs low and there is no secret recipe to keep costs low but the company scrutinizes its costs every day and maintains discipline on the cost.”

The Bangalore launch of AirAsia comes at a time when Indian airlines are together expected to lose $1.4 billion in the current fiscal, according to Capa. Costs are expected to increase and two new airlines, Air Asia India and the Tata-Singapore Airlines venture are entering the market. The combined loss of Indian airlines was at $1.77 billion in the last fiscal and in the last seven years, the industry’s accumulated losses have reached $10.6 billion, consulting firm Capa—Centre for Aviation said. Fernandes said that “despite millions of court cases, our dreams have come true,” while Ratan Tata told reporters that “whether the environment is conducive or not, AirAsia India is here to stay.”

AirAsia (India) Pvt. Ltd is a joint venture between Tata Sons, Telestra Tradeplace and AirAsia, with AirAsia holding 49%, Tata Sons holding 30% and Telestra Tradeplace holding 21% in the airline. All private airlines in India, including IndiGo , Jet Airways (India) Ltd , SpiceJet Ltd and GoAir , had written to civil aviation regulator in February objecting to the grant of a licence to AirAsia India, arguing that a September 2012 policy change allowing foreign airlines to invest in local airlines was applicable only to existing airlines and not new ones.

Fernandes had expressed concern about the restrictions the company faces due to airline turbine fuel (ATF) taxes and high airport charges and the five-year rule that restricts airlines like AirAsia India to fly abroad. “We hope the government of India and the state governments help us.”

He added that the airline is “exploring new areas and looking to expand to North-East India.”

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