Air India’s proposal for AirAsia unlikely to face hurdles, say experts

Air India’s proposal to acquire the entire equity share capital of AirAsia India was anticipated ever since the national flag carrier was handed over to the salt-to-software Tata Group in January upon the completion of the transaction, various experts have told Business Today.

Air India is an indirect wholly-owned subsidiary of Tata Sons Pvt. Ltd (TSPL), which presently holds 83.67 per cent equity share capital of AirAsia India. Malaysia’s AirAsia Investment Ltd holds a balance 16.33 per cent stake in the carrier. The Competition Commission of India (CCI) has notified the proposal for the combination. From a legal perspective, the proposal is unlikely to face any hurdles due to the presence of other carriers and multiple routes.

“During the Jet-Etihad combination assessment, CCI had decided on a route-based market. The proposed acquisition may be assessed along similar lines,” said associate partner at the law firm DSK Legal, Abhishek Singh Baghel.

Way back in April 2013, Jet Airways and Etihad Airways had agreed to enter into a strategic partnership, where the UAE’s second flag carrier had agreed to pick up a 24 per cent stake in Jet for a consideration of about Rs 2,060 crore. The deal was cleared by CCI in November of that year.

“Given the significantly large market share of other players on similar flying routes, AirAsia’s acquisition and eventual integration with Air India will not have any adverse impact on the existing competition in the airlines market,” added Baghel.

“With airlines like SpiceJet, Go First and other regional carriers still operating within the Indian environment, and the launch of Akasa Air and Jet 2. 0, there is enough competition in the market,” pointed out partner at aviation advisory Caladruis Aero, Rohit Tomar.

A duopoly emerging in Indian skies

The deal coming through is expected to immensely help Air India to save costs and offer an enhanced product in terms of the number of seats under its branding.

“Resource utilisation and economy of scale are critical in the airline business to control costs and this is an expected move as Tatas look at merging the smaller LCC into the bigger airline. In terms of implications, it would not be significant for the Indian aviation industry that is unfairly skewed in favour of a single airline in terms of market share and capacity,” asserted Tomar.

Gurugram-headquartered IndiGo currently dominates the Indian skies with a 54.8 per cent market share and a passenger load factor (PLF) of 81 per cent, according to data compiled by aviation regulator the Directorate General of Civil Aviation (DGCA).

“The Indian skies are gearing up for a duopoly of sorts. We are still at a nascent stage as far as penetration is concerned and, hence, it will be critical to build scale and to channelise scarce capital more productively,” emphasised director and practice leader for transport and logistics at CRISIL Infrastructure Advisory, Jagannarayan Padmanabhan.

Commencing operation in 2013, AirAsia India currently operates with an all-Airbus fleet of 33 aircraft, including 28 A320-200 and A320neo in 180 and 186 seat configurations, respectively. In FY2020-21, the airline saw its losses balloon to Rs 1,532.32 from Rs 782.30 crore in the previous fiscal.

“The coming together of Air India and AirAsia India will lead to a sharper focus on the LCC market by the group. Also, the sector is coming out of the woods and it’s good they would be able to ride the recovery path with little course correction in the coming quarters,” said Padmanabhan.

“We expect a further consolidation that Tatas would make with Air India Express and then look at Vistara. The process in my view is a three-to-four-year long process, which would eventually place the Tata Group-funded airline on a strong footing in the Indian market,” said Rohit Tomar.

A few analysts, however, believe that Vistara may continue to be a premium player with a strong focus on profitable sectors where it will be projecting its product suitably to maintain its pricing power.