Local Subsidiaries of Foreign-based Airlines Good For India

Monday, 14th October 2013 at 05:01am

After the recent amendment on FDI laws in the country's commercial aviation, India is witnessing an influx of foreign-based airlines seeking permit to set up local subsidiaries in the country with local partners.

Already, three foreign airlines have successfully sought approval from the Indian government to set up local subsidiaries. AirAsia Bhd of Malaysia was the first foreign-based airline company to set up a joint venture with a local partner in India to start a new airline. To be named AirAsia India, the airline successfully obtained its permit to fly and operate from Indian aviation office recently. It will soon launch its inaugural service out of Chennai mainly to local and regional destinations.

Following AirAsia's lead, Etihad Airways, the Abu Dhabi-based carrier successfully purchased 24% stake in Jet Airways, India's second largest airline. The stake purchase has enabled the Gulf-based airline to enter the Indian local aviation market.

The most recent foreign-based airline to seek entry to the local aviation market is Singapore Airline. It started out as a rumor but eventually confirmed recently by Singapore Airline official that it has partnered with Tata Group to start their new airline venture in India.

The partnership between SA and Tata Group, however, has sparked controversy considering that the latter has already partnered with AirAsia Bhd. of Malaysia to set up the AirAsia India.

The Indian government relaxed its regulation laws regarding FDI in local commercial aviation business following crisis crippling its aviation industry in the last six years where local carriers suffered losses and mounting debts in addition to labor unrest. In fact, it claimed one carrier, Kingfisher Airlines, once India's second largest airline, that was forced to cease operations in September 2012 following the suspension of its license. It was unable to renew its license when it expire in December of that year.

It is said that the entry of more players serving the vast travel market of India can benefit consumers, some view it as a bane for the domestic aviation industry whose airlines are already struggling to stay profitable to sustain operations.

The aviation industry in India does not offer a good business proposal to commercial airlines as fuel cost per unit is 35% more expensive than in Dubai and Singapore. Its major airports, likewise, charge higher fees than their counterparts overseas.

Despite the less-than attractive business proposition in India, this has not deterred AirAsia and other foreign-based airlines to set up their local subsidiaries in the country.

AirAsia India has found a way to keep its operating cost low by choosing a minor hub in southern India, in Chennai. It also picks Bangalore and Kochi as its minor hubs.

By: Pete Lee.