Overseas airlines well placed to enter Indian aviation

For Indian aviation industry that has always been inherently vibrant, last week was unusually eventful for aviation. It began with the news that a sale of stake by Jet Airways, India’s second-largest carrier by passengers carried, to Abu Dhabi’s fast-growing airline, Etihad Airways, will be delayed.

If the news was disconcerting, Jet didn’t show it. The airline cut fares by nearly a half on February 19, mimicking a move by budget carrier SpiceJet in January, when Indian air travellers had become accustomed to the idea that the era of cheap airfare was history. A day later, the Tatas said they were taking another shot at aviation partnering Malaysian budget carrier AirAsia.

Understandably, in the euphoria over lower airfare, the news concerning Jet receded into the background. Yet for Indian aviation, a Jet-Etihad deal trumps the other developments in significance.

Falling airfares are a flash in the pan. SpiceJet’s offer was a buffer against a lean travel season and Jet’s price cut was nothing but a counter. AirAsia’s plan to enter the domestic aviation market partnering the Tatas is surprising on many counts. The airline’s wariness about the Indian market is well-known because of its struggles on overseas routes from India since the launch in December 2008.

According to consultancy Capa, a Jet-Etihad deal has the potential to be a game-changer, according to consultancy Capa. Despite the early hiccup, most aviation analysts say a deal is at hand because of the substantial benefits for both carriers (see Why Jet & Etihad…). Jet is starved for capital and Etihad, which has pushed alliances that give it strategic access in specific geographies, stands to grow in one of its most important markets.