India's effort to liberalise its airline sector has just taken a stumble.
The birth of a joint venture between Tata Group and Singapore Airlines (SIA), which was approved last year, now hangs in the balance, because of protests from a key lobby group.
The Federation of Indian Airlines - a lobby group that represents leading local carriers - has asked Delhi's high court to quash the approval of the Tata-SIA collaboration.
Its argument is permitting foreign investment in greenfield airlines will jeopardise the interest of the "existing cash-starved domestic airlines".
The court is now seeking advice from the new government.
Sudip Bandopadhyay, managing director and CEO of Destimoney Securities Private Ltd, said: "I am very hopeful that I think the government will take a positive stance and probably give them approval to go ahead, but assuming there is a negative decision, I think it’ll hurt the sentiment to an extent.
“Here we are trying to welcome foreign investment, wanting foreign airlines to come and invest and if you don't let Singapore Airlines come… that will send a wrong signal out and I hope and pray that doesn't happen."
Higher operating costs are squeezing margins in India’s airline industry, and passenger traffic growth is weak.
In addition, its aviation safety ranking was knocked down this year.
The pressure is on for the government to turn around the sector.
Kannan Siva, executive vice president of operations at Aranca, said: "I think in order of priority, the first one would be really looking at the tax structure for aviation turbine fuel that's at a state level that needs to be rationalised or reduced.
“The second area that they would be looking at is reducing airport charges which are pretty hefty in India compared to rest of the world, and also airport taxes that passengers have to bear."
Experts said that the new pro-business government will hopefully boost growth and that will encourage people to spend on air travel.
With a stronger but friendlier regulatory regime, plus relaxation in taxes, Indian carriers could soon emerge from the current slowdown.
SOURCE
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