The Tata Group is all set to return to Indian skies, 80 years after J. R. D. Tata piloted the first scheduled flight from Karachi to Mumbai.

Kuala Lumpur-based low-cost airline AirAsia has tied up with Tata Sons and Arun Bhatia of Telestra Tradeplace Pvt Ltd to start a low-cost airline in India. While the exact investment for the airline has not yet been firmed up, it is likely to be $30-50 million.

In a statement, AirAsia said it has submitted an application to the Foreign Investment Promotion Board (FIPB) through its investment arm, AirAsia Investment Ltd (AAIL), seeking approval for AAIL to invest 49 per cent in the proposed Indian joint venture. Tata Sons will hold a 30 per cent stake in the project and Arun Bhatia the rest.

AirAsia, which is Asia’s largest low-cost carrier with 118 aircraft, operates 63 weekly services from Kuala Lumpur and Bangkok to Chennai, Tiruchi, Kochi, Kolkata and Bangalore. According to analysts, the draw for AirAsia is the huge Indian market. Indeed, another foreign airline, Etihad, is looking to tie up with Jet Airways.

New Initiative

Though Tata Sons is to be a ‘mere investor’, the airline foray is the first major initiative by Cyrus Mistry, who on December 28 took control of the Tata Group from Ratan Tata. A qualified pilot, Ratan Tata had in the 1990s applied for starting an airline and in 2000 even tied up with Singapore Airlines to bid for Air India, the 1953 nationalised avatar of Tata Airlines set up in 1941 by JRD. This bid came to nothing after Singapore Airlines opted out.

As a Group spokesman said, “When AirAsia approached Tata Sons with the proposal for a stake in the venture, Tata Sons concluded that given its reputed business model, AirAsia could be a relevant and successful service provider in the domestic sector.”

To be headquartered in Chennai, the outfit will apply to the Directorate-General of Civil Aviation for the mandatory Air Operators Permit. The new airline plans to focus on providing connectivity to Tier II/Tier III cities. Sources indicated that the date the airline will become operational and the cities it will operate to will be decided in the next few days.

Fare war

AirAsia’s entry into the domestic market comes at a time when air travel is dipping on fare hikes and a slowing economy. This has triggered a fare war, with Jet Airways putting up some 20 lakh seats at discounts of 30-50 per cent. IndiGo too slashed fares and Air India joined battle today.

According to analysts, fares should dip further as has happened in Thailand and Indonesia, where AirAsia has a strong presence.

(This article was published on February 20, 2013)
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