Question

Question: would you advise Singapore Airlines to enter into the Indian airline market? Why or why not? (think industry analysis)

In February 2013, Singapore International Airlines (SIA) was considering a strategic partnership with the US$100 billion Tata Group, India's largest private conglomerate, to form a full-service airline to serve the Indian market. The move came soon after the Indian government decided to allow foreign direct investment (FDI) in the aviation sector, enabling international airlines to own an equity stake of up to 49% in local carriers. This represented an opportunity for SIA to enter the Indian market with a strong local partner. Tata, however, had just announced its partnership with Malaysia's AirAsia to form a low-cost carrier service in India. Some investors saw Tata's double move as an attempt to hedge its bets by trying to enter the low- cost and the full-service airline industry sectors simultaneously. For SIA, it raised an open question about the possible dangers of partnering with a company that was starting a low-cost airline in parallel. SIA management was trying to determine the attractiveness of entering the Indian airline industry.

In 2012 the global airline industry recorded annual revenue of $679 billion and passenger volumes of 2.98 billion, both of which had been growing over the previous decade - apart from a dip during the recession of 2009. However, the industry delivered a weak net profit of $6.1 billion in 2012 as a result of a slowdown in the global economy and high jet fuel prices

In terms of geographic distribution, North America remained the largest market, capturing 31% of global revenues, particularly due to improved efficiencies driven by industry consolidation in the US. European airlines were the second-largest but they barely broke even, largely impacted by the Eurozone recession. Asia-Pacific (including China, Japan, India, South Korea, Singapore, and others), despite being in the third spot by revenue, delivered the largest profits and also accounted for the largest passenger volumes at 948 million or 32% Over the next 20 years, with a compound annual growth rate (CAGR) of 5.5%, the region was also projected to outpace the 4.7% growth rate in worldwide air traffic, whereas North America and Europe were expected to see a decline.

Overall, industry revenue was estimated to grow 107% to $1.4 trillion by 2032 with a

significant portion of this growth driven by the Asia-Pacific region. In contrast to the passenger

market, however, the air freight business suffered in 2012 due to shrinking markets, falling

utilization, and lower yields. A cargo weight load factor of 66% and the passenger load factor of

79.3% indicated significant overcapacity, cited as a leading concern by airline CEOs at the

Historically, the global airline industry has been fragmented, largely because of regulations - in the form of landing rights and freedom to form alliances - that protected national carriers, which were either wholly or partly owned by their country's government. As air travel increased, in the late 1970s in the US and the late 1980s and early 1990s in Europe, the industry deregulated, allowing new entrants into the market. The creation of the European Union (EU) removed some country-specific barriers and allowed free competition among European airlines for the EU space. Inbound landing rights continued to provide protection against Asian and American airlines, but by the late 1990s, agreements were negotiated to allow landing rights based purely on free-market principles. This meant that airports in any one country or region (in the case of the EU) could sell landing rights to any carrier from a country in a different region provided the flights originated in the carrier's country of origin. At the same time, the US-led Open Skies policies (initiated in 1979), which aimed to completely deregulate the industry worldwide, gained momentum as several bilateral agreements2 were signed over the following decades. However, only moderate success had been achieved in terms of multilateral agreements between major markets (for example, the US with New Zealand, Singapore, Brunei, and Chile in 20013 and US-EU in 20074).

Deregulation opened the way for airlines to position themselves strategically to compete on a global scale. Legacy airlines started forming alliances that allowed them to sell flights to destinations to which they did not fly through codesharing with their partner airlines, thus increasing their network. More importantly, with the increased competition, passenger yield - i.e. the average fare per kilometer per scheduled passenger - experienced downward pressure, and customers became more price-sensitive. Price, of course, was not the single factor, customers were able to choose among different levels of price and service. The flip side was that airlines' profitability suffered as it became increasingly difficult to maintain a reasonable margin over costs. Commoditization of airline services since the mid-2000s and an incredibly competitive and fragmented market structure continued to beleaguer the industry.

After several years of losses, consolidation ensued in the US airline industry, reducing the number of large carriers from 10 to five by mid-2013. This trend, however, struggled to take hold in Europe, except for mergers between Air France and KLM, and British Airways and Iberia. Much-needed cross-border airline mergers were difficult in the EU because many governments preferred to have independent flag carriers. Industry experts felt that such small

IATA AGM in 2012.

and medium-sized flag carriers could be doomed unless they found protection inside a larger 5

group. For example, Lufthansa, the largest airline in terms of revenues, represented only 5.7% of the market with $38.8 billion. The 10 biggest airlines by revenue in the world

The Indian aviation market was the ninth-largest in the world in terms of passenger traffic providing service to over 3,864 airports.

The Indian Aviation Market

and reported total revenues of $9.5 billion, with losses of $1.65 billion, in fiscal year (FY) 2012/13. According to industry think tank CAPA, the sector had the potential for significant growth, with passenger numbers projected to grow to 270 million by 2020, which would make India the third largest aviation market globally after the US and China. Indian aviation had experienced a turning point in 2004/05, with the liberalization of the market and the entry of domestic low-cost airlines, which rapidly grew their market share to reach 59% by early 2013. In tandem, domestic passengers carried by India's scheduled airlines tripled from about 20 million in 2004/05 to 60.66 million in 2011/12. For the second-most populous country in the world, with 1.22 billion people, this represented a tiny fraction. In contrast, the primary alternative means of transport for long-distance travel - the railways - carried 23 million passengers every day. Experts were undecided whether the airline industry could transform to become the mode of choice for long-distance passengers and freight transport in the entire country.

Factors expected to drive India's aviation growth story included increasing affordability of air travel, growing air connectivity driven by government initiatives, strengthening of viable domestic airlines (especially low-cost carriers), and an increase in inflows of FDI. Other positives projected to have an impact were a rapidly rising middle class, increasing levels of disposable income, a new wave of growth in the Indian tourism industry, and greater integration of local businesses with global markets.

However, Tony Tyler, director-general of IATA, cautioned, "operating in India presents bigger challenges than most other markets."8 This was because the aviation sector faced multiple headwinds - a slowing economy, high oil prices, a hostile cost environment caused by the weakness of the Indian rupee, liquidity constraints, and a decline in domestic passenger traffic to 57 million in 2012/13 í pushing all but one player into the red. The five major players were the flag carrier Air India, Jet Airways, IndiGo,

GoAir and SpiceJet while the sixth í full-service Kingfisher Airlines - had gone bankrupt during the year, underlining the fragility of the sector. The exit of Kingfisher Airlines, however, served to improve the prospects of competing airlines which gained market share

The high-cost structure of the Indian aviation market was mainly seen to be the consequence of over-taxation via central and state taxes on fuel and maintenance, service taxes on air tickets, and high airport charges. For example, jet fuel was about 60% more expensive than in Singapore because of state taxes of 35%. Furthermore, the combined debt of India's airlines was estimated to be $14.5 billion, with Air India accounting for about 60% of the debt. loss-making flag carrier had been continually supported by subsidies and protectionist government policies, the most recent being an equity infusion of INR 30,231 crore (about $6.5 billion) starting from 2012 until 2021. Privatization of Air India was on the agenda, with a possible decision on the divestment schedule in 2014.

Singapore International Airlines: Entering the Indian Market?

Founded in 1972, Singapore Airlines had evolved over four decades from a regional airline to one of the most respected travel brands around the world, with a reputation for being an industry trendsetter. From the beginning, SIA had positioned itself as the leader in customer service, offering enhanced standards on the ground and new levels of comfort, cuisine, and entertainment in the air, across all three travel classes. It concentrated on the geographical segments of Southeast Asia, East Asia, South Asia, and the "Kangaroo Route," which flew passengers between the UK and Australia across the eastern hemisphere. In 2000 SIA joined the Star Alliance network of airlines in order to offer to codeshare to increase the number of destinations it served. The most notable among SIA's many firsts was launching the world's longest non-stop commercial flight from Singapore to Los Angeles in 2004; taking delivery of the world's first Airbus 380 in 2007, and becoming the first carrier to operate an all-business-class non-stop flight from Singapore to New York in 2008. For 25 out of the past 26 years, SIA had been named "best airline in the world" by Condé Nast Traveller specifically for its customer service. In FY2011/12, the airline reported total revenues of $9.6 billion16 with net profits of $310 million. Since it started operations, SIA had never posted a negative annual return.

India was the sixth-largest market for the SIA Group, accounting for 6.3% of its seat capacity while controlling just about a 4% share of the international skies from India. SIA's growth had been restricted largely by the refusal of the Indian government to concede to its demand for more seats in terms of the bilateral flying agreements on the India-Singapore route. SIA had therefore long been looking for the right opportunity to enter the growing domestic Indian air travel market. Having Tata as its local partner would provide the best possible assurance of clout, financial support, and professionalism for launching a world-class full-service carrier in the country. There was still the issue of Tata's parallel venture with AirAsia to compete in the low-cost segment. While the two represented clearly different markets with different strategies globally, the dynamics in India were such that the lines between the two were becoming blurred as the price differential narrowed. SIA's foremost concern, when it first embarked on conversations with Tata, was to make sure that the rationale for entering the Indian airline industry was solid.

Answer 1

according to me the Singapore Airlines has to be enter in the indian airline market beacuse indian airlines has total debt of $ 270 million by 2020. I think Singapore airlines has an open mind. It really depends eventually on whether there is a business case.I dont think we know enough at this moment , Leslie Thng , Chief Executive officer of Vistara , a joint venture between Tata Sons Ltd and Singapore Airlines. Both the Tata Group and Singapore Airlines Have attempted to take over AIR INDIA in the past and are seen as potential bidders for the debt -landen airlines. Positive projected to have an impact were rapidly rising middle class , increasing levels of disposable income, a new wave of growth in the Indian tourism industry, and greater integration of local business with global market. The 5 major players were the flag carrier Air india, Jet Airways , Indigo, GoAir and Spiecejet while the sixth full- service Kingfisher Airlines - had gone bankrupt during this year. If the Singapore Airlines entered in the indian Airlines market then posibaly that amount will be less, Singapore Airline is the 4decade old airlines , it maybe hapen they will provide better facilities to the Indians , If its done . then this will be a positive sign for Indian Airlines market.