AirAsia To Enter India’s Newly Liberalized Aviation Sector

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Feb. 22 – AirAsia, Southeast Asia’s largest budget airline, is set to enter the Indian market in a joint venture (JV) with India’s Tata Group and Telestra. This marks the Tata Group’s first enterprise in the aviation industry since the 1930s.

India liberalized its civil aviation sector to foreign investment last September, and this has opened up the way for Kuala Lumpur-based AirAsia to submit a proposal to India’s Foreign Investment Promotional Board to create a JV. AirAsia will have a 49 percent stake in the business while Tata and Telestra will own 30 percent and 21 percent respectively.

The airline, which will reportedly have an initial investment of between US$20-US$50 million, will likely be based in Chennai on India’s east coast. Tata will only be an investor and will not have any operational roles in the JV. The three parties have already signed an agreement and will apply to the civil aviation regulator for a flying permit soon.

The JV will initially target businessmen, holiday travellers and family members travelling to Singapore and Malaysia from Chennai, and will then expand to other tier two and tier three cities and towns. AirAsia already services Chennai with fights from Bangkok and Kuala Lumpur, and also connects the Indian cities of Bangalore, Tiruchorappalli, Kochi and Kolkata to numerous ASEAN destinations.

“When AirAsia approached Tata with the proposal…[we] concluded that given its reputed business model, AirAsia could be a relevant and successful service provider in the domestic sector,” said a spokesperson for Tata.

Tata further explained that the AirAsia JV will “benefit the domestic market [in a number of ways] including: a) AirAsia’s reputed service, which will further grow aviation as a mode of transport in what is a relatively underserved market and b) employment generation.”

Upon hearing the news of the JV, competitors SpiceJet and Jet Airways experienced a drop in their stocks by 4.45 percent and 2 percent respectively.

Air travel in India is expected to triple by 2020. Middle East-based Etihad Airways is also in negotiations with Jet Airways of India in a similar JV structure to enter the Indian market.

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