The Business Times

SIA-Tata airline to take flight in October

But Indian law requirements mean Vistara is 'unlikely to add to SIA's bottomline soon'

Published Mon, Aug 11, 2014 · 10:00 PM
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[SINGAPORE] A new airline jointly run by Singapore Airlines (SIA) and India's Tata Group and headquartered in Delhi is expected to start operations in October, marking a culmination of SIA's 20-year-long efforts to operate an India-based carrier.

The move will give Singapore's flagship carrier a foothold in one of the region's largest aviation markets in the longer term.

It also has implications for India's aviation sector in that it is expected to heat up competition among the subcontinent's already embattled airlines.

Tata SIA Airlines (TSAL), the joint venture formed between Tata and SIA last September, after India changed rules to allow foreign airlines to own stakes in start-ups, announced yesterday that the new airline will take delivery of its first plane, an Airbus A320-200, next month.

Soon after that, The Business Times understands, the carrier, to be named Vistara, should receive its air operator's permit (AOP), which would be the final regulatory hurdle.

The statement said Vistara plans to expand its fleet to 20 aircraft, including Airbus A320neos, by the end of the fifth year of operation.

This is so that it would fall in line with India's requirement that carriers be at least five years old and own a fleet of at least 20 planes before they become eligible to operate international flights.

There is, however, some expectation that this rule could be changed under the new administration.

TSAL also unveiled Vistara's branding and livery yesterday, reflecting the standards the airline is committed to delivering.

It said the name Vistara is derived from the Sanskrit word vistaar, which means "limitless expanse"; it draws inspiration from the brand's domain, the "limitless" sky.

The logo is derived from a yantra, a perfect mathematical form that reflects the unbounded universe.

TSAL chairman Prasad Menon said: "Vistara will redefine the way we travel in India. I can confidently say that Tata's and SIA's legendary hospitality standards and service excellence will make Vistara a natural choice for passengers."

Phee Teik Yeoh, the chief executive of TSAL, added: "Our core belief is that we will be intuitively thoughtful about our guests' needs from the time they contact us to the time they leave the airport ... We aim to build an emotional connect with our guests through service excellence delivered by the best people, supported by best-in-class technology and processes. Vistara will redefine industry standards and aim to be the finest full-service airline of choice."

Analysts have said, however, that Vistara is unlikely to contribute significantly to SIA's bottomline in the near term, since it will be restricted to just domestic flights in the first five years.

SIA has a 49 per cent stake in the venture, with a US$49 million investment; Tata owns the rest with a US$51 million investment.

Analysts are expecting the airline to intensify the already-keen competition within India's aviation space, where incumbents are struggling to eke out a profit amid challenges such as high fuel taxes and limited infrastructure.

It has been estimated that Indian carriers will post collective losses of between US$1.3 billion and US$1.4 billion in FY2015, slightly less than the US$1.7 billion in red ink for FY2014.

Still, despite the absence of immediate hefty profits, Vistara will fulfil a dream two decades in the making for Singapore's flagship carrier. SIA and Tata first tried - and failed - to start up their joint-venture airline in India in 1994; the Indian government of the day had then barred foreign airlines from holding stakes in domestic start-ups.

In 2000, however, as India was mulling the privatisation of unprofitable Air India, SIA and Tata once again joined hands to form a consortium, in the hope of buying into the ailing carrier and turning it around.

But a year later, in September 2001, SIA ditched this plan.

It was a case of "third time lucky" for SIA and Tata, thanks to India's sudden and unexpected decision in September 2012 to allow foreign carriers to own up to a 49 per cent stake in start-ups.

This prompted Malaysia's AirAsia to set up a joint venture with Tata early last year to run a low-cost airline.

Vistara is distinct from that in that it is the first full-service offering operating out of India since the liberalisation of ownership rules.

Swee Wah Mak, the director of TSAL and executive vice-president of Commercial in SIA, said: "From a global investor's perspective, the Indian aviation sector has a lot of potential for growth and I am delighted that SIA now has a fruitful role to play here."

SIA shares finished unchanged at S$9.80 yesterday; SIA 200 closed up 4 cents at S$9.85.

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