Business

AirAsia taps on strong financial muscle of Tata & Telstra

February 22, 2013

NEW DELHI, Feb 22 — After months of speculation and expectations, AirAsia finally made its announcement for entry into the Indian market with a tie-up with Tata Sons Ltd and Arun Bhatia of Telestra Tradeplace Pvt Ltd.

At first glance, it may be a match made in heaven as AirAsia and Tata are world-renowned brands with undisputed expertise in their respective fields.

AirAsia has been in the low cost carrier business for over a decade now while Tata is an Indian conglomerate with strong financial muscles. Their decision to join hands in aviation would appear that they would have done their sums properly before inking the deal.

 AirAsia would hold a 49 per cent stake in AirAsia India, Tata 30 per cent and Telestra 21 per cent.

The market is excited as AirAsia venture could be a game changer for the local aviation industry, which has been on a life support for a while now.

In fact, within hours after the announcement, there was also news that the partners might take their partnership to a higher level, like bringing the world’s cheapest car, Tata Nano, to Malaysia.

Although that may take a while to materialise, one could now expect the standard modus operandi of AirAsia to bring along the group’s value hotel arm, Tune Hotels, to India with 100 hotels for a start.

And for those seeking low air fares but luxury hotel stays, Tata’s Taj Hotels and Resorts would just fit in well, making the tie-up looking nothing less than a dream come true.

But the road towards successful execution may not be as smooth.

In his first remarks on the venture, India’s Aviation Minister Ajit Singh said although he is not opposed to the tie-up, he would have preferred the country’s pre-eminent conglomerate to start its own airline.

The Financial Times here quoted Singh as saying that the main purpose of the recent policy change in the civil aviation sector, in allowing foreign airlines to own up to 49 per cent stake in an Indian carrier, was to increase investment in existing Indian carriers.

Although the venture is new, problems in the industry remain the same.

AirAsia India, which is scheduled to take off by end of this year, would need to face the same old problems such as insufficient infrastructure but more damaging is the taxes on domestic fuel, which means higher operating costs.

This was the main reason, why despite the huge potential in the country of 1.2 billlion people, investors did not fly in quickly when the government relaxed the aviation rules.

In fact, AirAsia Group chief executive officer Tan Sri Tony Fernandes himself said a few months ago that he was not in a rush to enter the market because of the high costs and taxes.

But a tie-up with Tata, a conglomerate with US$100 billion in revenue, which recently introduced Starbucks Coffee to India, would perhaps make the venture more palatable. — Bernama

Biz Updates from PR Newswire

More