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A new flight path: how big businesses can change India’s aviation business game 2022.  

A new flight path: how big businesses can change India’s aviation business game.  

2004 was the year. As a silver Honda CR-V came into Praful Patel’s house in Delhi, the person in the back seat was impatient.

In his early 50s, he got out of the car and rushed into the Lutyens’ house, which had been tastefully modernized. He was wearing blue jeans and a white half-sleeved shirt.

GR Gopinath, the captain of India’s first low-cost airline, was in charge of the plane when it went down.

The founder of Air Deccan didn’t waste any time with niceties, and he got right to the point. The airline had been putting in a new plane every month, but there were not enough pilots in the country to fly them all. If you were a friend of the private sector when you were a transportation minister, Gopinath told you to hurry up and do what you could.

“I said I had 12 Air India pilots who had all retired at the age of 58,” says the teacher. In Europe, pilots can keep flying until they’re 65, Gopinath tells ET Prime. “The minister was very interested in what I had to say.”

Ex-Indian Army captain: He put a file with the international rules and regulations on the minister’s table.

The bureaucrat who works for you, Satinder Singh, is going to say he can’t do it. In the past, he had said, “You have to tell him just to do it.”

Patel was quick to do what he had to do. Soon, the rules changed so that many pilots, even those in the Indian Air Force when they were retired, could retrain and fly until they were 65 with suitable medical checks.

air india flight makes a special announcement as carrier takes off with tata group

For years, low-cost airlines like IndiGo, SpiceJet, and Go First (formerly Go Air) soared in popularity in India. They took over most of the country’s domestic market from Air India and Jet Airways.

In 2003, there were about 135 planes in the industry, but now there are 700 planes, and 144 million passengers fly each year domestically. This boom has been going on for almost two decades now.

However, the Ministry of Civil Aviation’s headquarters in the national capital, Rajiv Gandhi Bhawan, has been the only place where the sector has been able to push for changes.

Today, Indian aviation is coming to a significant change. How can the industry, which is expected to be the third-largest in the world by 2024, move out of the shadow of the aviation ministry and make significant changes? The answer is Tata Sons.

Changes in the landscape

Indian civil aviation is likely to start a new chapter because the USD103 billion-a-year Tata Group is getting more involved in aviation, and the Adani Group is snowballing. The presence of big companies with a lot of money could help calm the nerves of bankers who have had their fingers burned by Vijay Mallya’s bankrupt Kingfisher Airlines and Naresh Goyal’s Jet Airways.

When Rohit Nandan was Air India chairman, he had to wait for meetings with the joint secretaries of the finance ministry for as long as three hours. He was a bureaucrat himself and worked out of the Rajiv Gandhi Bhawan at one point. When he met with the finance ministry, he asked them to release Air India’s money or pay the government fees for running VIP flights on Air India One.

If it looks good from the outside, it might be. But I was like a beggar, and he tells ET Prime. He says that with the arrival of conglomerates, the sector will have more say in how things are done in the government.

“You can be sure that Tata and Adani will start to have an impact on how policy is made in the future,” he says.

Over the last few years, India’s aviation industry has grown at about 15% per year in passenger traffic. By 2024, it is expected to outpace the United Kingdoms, and it is expected to stay there for two decades, right behind the US and China at the top.

According to an analysis by ET Prime, India’s airlines’ combined annual revenue was around INR100,000 crore in 2019-2020. This figure is based on data from the pre-pandemic era. Tata Group, which Ratan Tata owns, will now be in charge of most of this money. It will have about INR43,000 worth of cash from Air India and Air India Express and INR5,000 and INR4,000 distinction from Vistara and AirAsia India. With INR36,000 crore, Rahul Bhatia and Rakesh Gangwal’s IndiGo will be the second-largest.

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India’s airports make about INR24,000 crore a year, which goes to the state-run Airports Authority of India (AAI), INR6,000 crore to GMR Airports, INR5,500 crore to Adani Airports, and INR1,400 crore to Prem Watsa’s Fairfax-owned Bengaluru airport, which Fairfax runs. This figure considers revenue from the six AAI airports Adani Group recently bought and Mumbai Airport, which GMR will run. It also includes income from the Nagpur Airport, which GMR will now run.

According to how aviation usually grows, if India’s GDP grows 6% over the next decade, airline revenues could rise to INR3 lakh crore, and airport revenues could increase more than three times to INR75,000 crore, a lot of money.

vistara to add 14 new flights to domestic network from april 7 | business standard news

It will be riskier for the Tata Group because it plans to grow in the future.

“Airports will stay profitable because of rules.” There is no danger. Investors are very welcome at Indian airports, says a former top executive who wants to remain anonymous.

Tatas have more risk because they have to spend money on both planes and products, and cutting salaries will be hard, he says.

Because they are part of the infrastructure, Airports have the advantage of getting an inevitable return on your money. A return on equity of 16% might be enough to get the likes of Zurich Airport to build the new Noida International Airport. There is a much lower rate of return in countries like the UK, where the rate is about 8%.

Former AERA chairman Yashwant Bhave says that this return on equity of 16% was put in place to help develop airports. As the industry has become more mature, there should be a lower adjustment to this return on equity.

A possible return on investment now stands at about 14%, which could still be a lot of money for most airport developers.

To be sure, the Tatas were also interested in getting into the development, operation, and management of airports. They had already agreed to invest in GMR Airports before Aéroports De Paris bought a 49% stake in the company at a higher price. Aéroports De Paris also had no conflict of interest with the Tata Group, which owns Vistara and Air Asia India.

In addition to taking over the Mumbai airport, the Adani Group has also won the contract to build a new airport in its home city, Ahmedabad, and it has the right to make the new Navi Mumbai airport. It also has airports in Jaipur, Lucknow, Guwahati, Thiruvananthapuram, and Mangaluru, which are cities. More: Amritsar and Bhubaneswar airports will be privatized by the government. The government is also merging the small and unprofitable AAI airports with these six airports.

Adani Group also bought Cleartrip, a travel website owned by Walmart-backed Flipkart, in late 2021. Flipkart also owns Cleartrip. When Air Deccan and Air Odisha were taken over by other companies in 2018, GSEC Aviation was one of the companies that bought them. Rakesh Ramanlal Shah, married to Gautam Adani’s sister, owns the company.

Indian aviation will move on to a new path as Adani Group and Tata Group become the faces of the industry. Naresh Goyal and Vijay Mallya used to be the faces of the industry. Many players will find that their interests will come together and go against each other at times in this new journey.

The flight is ahead.

Airports will say they should get paid for it because they spent a lot of money modernizing their infrastructure. On the other hand, Bleeding airlines will try to get lower prices.

If SpiceJet is having trouble paying its bills, for example, it wants Rajiv Gandhi Bhawan to ask airports to drop small fees like the transfer-processing charges for cargo.

Trucks should be able to drive right up to the tarmac without having to go through the cargo terminal, an airport official who was at the meeting says.

They say that it will break the privatization agreement if this happens, which means that the airports will lose money and charge more to make up for it. There is also the risk that letting trucks into the cargo terminal could be dangerous.

The airlines are fighting over a small fee of INR1.5 per kg of cargo. This shows how airlines are trying to get a break from the high prices they’re facing now.

“The ministry has become very focused on air travel.” The chicken is already cooked as soon as you arrive at the meeting, says the same executive quoted above.

air india flight: tata-owned air india special flight departs from india to bring indians from ukraine - the economic times

A low-cost airline in India called for Rajiv Bansal, the head of the country’s civil aviation department, not to comment on the demand. The airline has been relying on its cargo operations to get through the pandemic, and it has been taken to court for not paying its debts.

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“However,” a SpiceJet spokesperson said, “The company requested that the airline handle its own freight, which would help customers and reduce congestion at major airports like Delhi and Mumbai. This would help the airline provide better service to customers.”

He says, “This will be more efficient, as shown by the fact that this model has worked well at major cargo hubs in Hong Kong, Berlin and Singapore.”

While that’s going on, there could be another fight over access to foreign airlines, especially those in the Middle East.

Emirates is one of the airlines that the aviation ministry hasn’t given new international flying rights. The Comptroller and Auditor General of India (CAG) said in 2011 that when Praful Patel was the aviation minister, the Middle Eastern carrier got a lot of money from the ministry, which hurt Air India’s business.

The shoe is now on the other foot. In light of Air India being taken over by Tatas, the airline may want to get more rights to Dubai, and it may want to expand Air India Express and Vistara flights to Dubai, as well. However, an insider tells ET Prime that Air India may choose to start by improving its non-stop long-haul international flights to New York and other cities, which would play to Air India’s strengths. To avoid a head-on collision with IndiGo, which is the most popular airline in the domestic market, it should follow this plan:

He wants an Air India that has the service levels of Vistara. Chandra wants to make that happen.” So, a lot of money will be spent on that, says this person. Tata Sons wants to let IndiGo fly domestic routes for now.

It doesn’t matter what the Tatas want to do. IndiGo and SpiceJet, and Rakesh Jhunjhunwala-backed Akas Air are likely to push for more flights to Dubai because their planes can only fly to cities next door to them.

Nandan, who used to be Air India’s chairman, says that the national carrier used to get 50% of new bilateral rights. If Air India didn’t want to use them, they were given to someone else.

So, how will it be given out now?

“It was a given.” Now, he says, “there could be an uproar.” “The whole bilateral policy will be changed,” he says.

Because of this, Rahul Bhatia, the owner of IndiGo, might also be buckling up for a bumpy ride ahead. A few years ago, Bhatia took over as the airline’s managing director, even though CEO Rono Dutta was in charge. CEO Wolfgang Prock-Shauer, COO Willy Boulter, COO Sanjay Kumar, COO Riyaz Peer Mohamed, and COO Riyaz Peer Mohamed are the top four people at IndiGo, which is a lot of people at the top.

This means Dutta can now report back not only to the board but also to Bhatia. The airline’s website has been changed so that Bhatia’s profile is now at the top of the leadership page, replacing Dutta’s top spot. IndiGo co-founder Rakesh Gangwal, who had been on the airline’s board and said he would sell his share, did so on Friday.

The Federation of Indian Airlines (FIA) is the group that represents all of the airlines in India. IndiGo, SpiceJet, and Go First are in charge of the FIA led by the three airlines. The FIA has asked the court to put Tata’s Vistara and AirAsia on hold, and it hasn’t let them join the club.

According to a person who was in on the talks but didn’t want to be named, punches have also been thrown inside the FIA about paying for the three-member organization. Some airlines say that IndiGo, the most significant player, should spend most of the bill.

Full-service Air India, for example, left the FIA a decade ago because it said it couldn’t be a part of a group that said terrible things about the government. There were also fears that member airlines would “fix” the prices of their flights together.

“I didn’t do that at all,” I said I would not be a part of price manipulation, and I did not change my mind. There were many times when Jet [Airways] would do this back then. Carriage because it had slabs for full-service airlines. Jet Airways will have what kind of fare slabs, and no-frills airlines will have what type of fare slabs. Full-service airlines will charge more for their flights. Nandan says he never agreed with it.

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Loss-making In 2019, Jet Airways was finally shut down. There are no Air India or Vistara in the industry group. The FIA is now a “federation of low-cost Indian airlines,” because they aren’t in it. It’s not clear yet whether Jhunjhunwala’s Akasa Air will be part of the FIA.

Person: “Akasa isn’t sure yet if she will join them,” an anonymous source 

If it keeps going this way, the aviation industry could go through a phase like a telecom industry did when CDMA players had their lobby group and GSM providers had their own.

In this battle, whether the Tata Group goes aftermarket shares like Mukesh Ambani’s Jio could also play a role in the outcome.

When it comes to money, Tata and the government have different amounts. Airfares will go up, says Bhave, who used to be the head of the AERA. He says that he expects a slowdown in industry-wide traffic growth. “I don’t think it can go above 10% to 13%.”

Another person who works in this field has a different opinion.

Ex-GMR Airports executive director Sidharth Kapur says competition will get even more fierce with Tatas and AKASA Air coming in. “My sense is that competition will get even more fierce,” he says.

When he talks about Air India, he says they charge the most for most flights.

flight

IndiGo and Air India both charge INR10,000 for a ticket from Delhi to Mangaluru. And this has always been the case: Air India was not in the business of competing with other planes. “The Tatas will now give them that extra edge.”

 

 

According to a senior executive at a private airline, there may not be any significant changes in airline prices in the future. Air India’s commercial department may have to be more accountable for its money because of the new focus on profitability.

The Association of Private Airport Operators (APAO) is a group of private airports that work together. It is led by Gautam Adani’s son Jeet Adani, the head of airports at Adani Airports. The Adani Group and GMR Airports are part of the APAO, and other members are also part of the group.

The Zurich Airport-led Noida International Airport has also been added to the group, even though it won’t be operational until 2024, right before India’s high-speed national elections.

Creating hubs like Singapore and Dubai could be the goal for airport operators at the policy level. This could be done by allowing five bottles of alcohol at duty-free shops, like in Brazil, instead of two. The same thing could happen if the AAI Act were changed so that land banks could build malls and movie theatres and housing colonies for e-commerce companies like Amazon and Walmart-backed Flipkart, among other things.

If they want to make more money, they might ask for permission to do financial juggling, which could be difficult from a regulatory point of view because it could cost passengers and airlines more money.

The bottom line is:

One way or another, both Tata Group and Adani Group will have a lot to do.

Captain Gopinath, who still has his silver Honda CRV even though he bought a powerful SUV called the Ford Endeavour, says that everyone should work together to make more room for people.

It’s up to us to figure out how not to have a cartel but also to have competition. Because, in the end, cartelization kills. “Ambassador, too, was a car, if you remember,” he says.

To keep the sector growing at the rate it is expected to, and the North Block will need to give it tax and other help.

It was true that IndiGo asked for tax breaks from the Finance Ministry. They also asked to “make sure that tax windfalls don’t happen because of the investments that airlines are making in building a competitive transportation network.”

India’s largest airline also said that “civil aviation pays the government a lot of money in indirect taxes with very little credit for the money that it spends on the planes.”

While the first statement was made by the airline’s former CEO, Bruce Ashby, in 2007, the second one was made by its current CEO Rono Dutta last month. This shows how little the high-profile sector has changed in a decade and a half. It shows how little has changed.

Bombay House and Shantivan House are now on the list.

edited and proofread by nikita sharma

aadhya

Journalism student with a keen interest in Business world

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