Jayesh Sharaf | PGP’37 (E) | 9 July 2021

SIA India entry - JV Tata – 2013

Written in brief to make it quick read, facts may not be precise. (Have avoided numbers, what’s the point in memorizing?)

Time frame: Feb 2013

Question: Wise for Singapore Airline (SIA) to enter India in partnership with Tata (for full service carrier) considering Tata was partnering with AirAsia
for low-cost carrier? (Conflict of interest for Tata?)

Why problem? :

 Full service and low cost are different markets elsewhere but becoming not so distinct in India (because prices not so different in India)
 Tata good local partner: Clout, Financial Support, Professionalism

SIA:

 Strategy not aligned with low cost:

o Leader in customer service, enhances standards on ground, comfort, cuisines, entertainment
 Never posted negative annual return since operations started
o Excl. Indigo, all Indian airlines posted loss in FY 12
 SIA India growth restricted by Gov. refusal for bilateral flying agreement on India-Singapore route

INDIAN AVIATION

Opportunities
 9th largest market by passenger traffic
 Expected to be 3rd largest by 2020 (Case is from 2013)
 Increasing affordability, growing connectivity driven by gov.
initiatives, strengthening of viable airlines (especially low
cost), increased FDI
 Rising Middle class, increasing disposable income, tourism
growth, local business integrating in global market
Problems
 Loss making (check figures in exhibit)
 Low cost airlines market share reached 59% (had entered in
2004/5)
 Slowing economy
 High oil prices
 Hostile cost environment (weak rupee)
 Liquidity constraints
 Decline in domestic passenger traffic in 12/13 (Excl. Indigo,
all Indian airlines posted loss in FY 12)
 High Cost due to over taxation
 High combined debt of Indian Airlines (Air India ~60%)
 Indian Airports raising charges, major airports still
experienced sever congestion

GLOBAL AVIATION

 2002 to 2012: Growing trend in revenue and passenger volume (excl. 2009)
 2012: Week net profit (Global economic slowdown + high jet fuel prices)
 Regional situation:
o North America: 31% global revenue (Better efficiency driven by industry consolidation in US – Large carriers reduced from 10 to 5)
(Consolidation: Less players, higher market share for each)
o Europe: 2nd Largest but barely profitable (Eurozone recession: Several European nations unable to repay gov. debt since 2009)
o Asia Pacific:
 #3 by revenue but largest profit and largest passenger volume
 2012-2032 (20yrs): Faster growth rate than global rate
 expected APAC CAGR: 5.5% (vs 4.7% global)
 North America and Europe: Decline expected
 Significant Overcapacity in 2012
o Cargo load factor: 66%
o Passenger load factor: 79.3% (# of passengers carried / # of available seats)
 2nd page: Kaafi history ( Regulation, De regulation, Fragmented market etc)
o CodeSharing: Airlines formed alliances to sell destinations not on their routes – Increased Network
 Allows an airline to place its two-letter identification code on the flight schedules of another airline. Flights can be
marketed by one airline and operated by another
o Deregulation in 2nd half of 20th century
o Fare per km per passenger reduced - increased competition – customer more price sensitive
o Struggling to profit as good margin over cost became difficult
o Consolidation in US after many years of losses; not so much in Europe
o 10 largest airlines by revenue: Only 40.8% market share