Maharaja may be jaded, but still casts a charm

Ashwini Phadnis | | Updated on: Mar 12, 2018
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More airlines showing interest in Air India disinvestment

After IndiGo expressed interest in picking up stake in Air India, on Monday came reports that the Air France-KLM combine is tying up with Jet Airways to form a consortium to bid for the State-owned airline.

Though there has been no official confirmation from the three airlines about such a move, one should not be surprised if more airlines come forward to bid for the Maharaja. The real bidders, however, will only be known once the government issues the Expression of Interest, which is expected within the next two weeks.

The issuance of the EoI will in many ways be the formal start of Air India’s divestment process as details of how much equity the government wants to shed, what will happen to the airline’s debt and other details that will allow interested parties to bid, will be made public for the first time.

But despite little clarity on critical issues, it is not difficult to understand why airlines such as Air France, KLM and Jet Airways are keen to get a stake in Air India.

Lucrative opportunity

One of the biggest attractions is the VFR (Visiting Friends and Relatives) market — a large chunk of Indians travelling abroad falls under this category, majority to the US, Canada and some parts of Europe, primarily England.

At the moment, Indian carriers including Air India have a low share in Indian out-bound traffic. Bidding for Air India will be a good opportunity for foreign airlines to tap into this under-served market for Indian flyers.

Besides, in the past few years, the rise of the middle class with more disposable income has seen Indian travellers becoming more adventurous and visiting places around the world. Right now, a large chunk of this Indian passenger traffic is flown by foreign airlines. Picking up a stake in Air India will help a foreign airline reverse this trend. Besides, the foreign airline will also gain as it will also be able to take Indian travellers on its own flights operating to and fro India.

The other advantage will be that the new owner of AI will be able to garner a larger share of outbound traffic as it will be in a position to respond quickly to the needs of the market in terms of pricing.

For KLM-Air France, Air India looks like an attractive proposition as the combine is eyeing a greater share of passenger traffic on both ways of the Atlantic.

“Air India has some very valuable assets in terms of landing rights and bilaterals that could be leveraged by players, such as a potential combine of Air France, KLM, Jet and Delta. From the Indian traveller’s point of view, this will open up access from over 40 Indian cities to over 100 European and US destinations, which will be a huge boost to outbound travel, and further catalyse growth in one of the fastest-growing aviation markets in the world,” said Sharat Dhall, COO - B2C,

Pointing out that KLM and KLM Asia have in the past made several attempts to lower the dominance and stronghold of West Asian airlines, Mark Martin, Chief Executive Officer, Martin Consulting, added: “ Prima facie , it seems clear that KLM will want to take advantage of Air India’s established bilateral, flight rights, code share and vast global network, while at the same time harness the nearly 30 per cent lower operating costs from India on account of labour, maintenance and lower organisational management costs.”

However, snapping up Air India along with Jet will create its own problems for the KLM-Air France combine. Air India is a member of Star Alliance, a global airline club of 28 members, while KLM-Air France are in the rival grouping, SkyTeam. Then there is the issue of Jet being part-owned by Etihad and not being part of any of the three global airline alliances. The European and American carriers have often complained about unfair practices in pricing of products due to indirect State subsidy for the Gulf carriers, something which the West Asian carriers deny .

Celebi, a Turkish ground-handling company had shown interest in buying the ground-handling services of Air India.

The Centre for Asia Pacific Aviation (CAPA) had, as early as January this year, said that up to four Indian carriers — Jet Airways, IndiGo, SpiceJet and Vistara — and 1-2 non-airline companies could be interested in the opportunity that a stake in Air India has to offer.

Published on March 12, 2018

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