Air India Sale Tata Group Air India may win lead to a war on costs not on prices

Jamshedpur, Jan. With the Tata group taking over Air India, there has been a strange unease among its rivals in the aviation sector. Everyone is assessing what Tata can do to grow Air India.

There is talk in the aviation market that Tata will attract passengers by reducing the ticket or fare or increasing the quality of passenger convenience by reducing the cost price. In both cases competition will increase. It is also being said that the Tata group can work on both the strategies simultaneously. If this happens, their problems may increase.

Nonetheless, dynamics related to listed airline operators InterGlobe Aviation and better pricing power are likely to change, largely driven by consolidation. Not so much aggression from the opponent, and a strict focus on cost. Analysts said efficiencies are some of the factors that are likely to improve the normalized operating profit of the industry in the medium term.

Tata will not fault Jet Airways

Changes in business conditions in a capital-intensive sector such as aviation are primarily driven by demand, cheaper crude oil, less competition, and the exit, entry or emergence of a company following consolidation. In case of exits it has historically been observed that existing players gain market share and valuation premium. I sincerely hope that Tata will not make the mistake of Jet Airways.

In 2019, Jet Airways was closed due to this reason. The sector’s earnings were up 23 per cent month-on-month in April 2019 in the initial months following the airline’s shutdown, and analysts expect earnings before taxes and rentals (Abiter) to at least double. growth was anticipated. The entry of a new player, if backed by a strong promoter, changes the dynamics, as it leads to most price wars.

Tata group will not reduce ticket rates

Analysts believe that the takeover of a few airlines by an existing airline which is well managed and backed by one of the top-notch promoters is a different kind of game. The Tata group may not want to eliminate competition by reducing ticket prices in a market full of potential.

At present, the Tata group may operate Vistara and AirAsia as a joint venture with Air India, which already has around 25 per cent market share in the domestic aviation industry. This will help in controlling the cost of his company.

This would be a good strategy for healthy competition in the aviation sector. Reducing ticket prices will add to market uneasiness, while increasing convenience will not create a war-like situation in the aviation industry. Air India’s debt reduction will also reduce the debt of the industry. Among the listed airlines, InterGlobe Aviation (57.6 per cent market share) and SpiceJet (8.9 per cent) may get higher valuations than their historical average in the medium term.

The story of the invincible warrior set

An analyst at a leading broking firm said which strategy the Tata group will focus on, but it is certain that it will emerge as an unstoppable player. The same thing will unfold in the coming quarters, with the gap indicating the emergence of a formidable player.

Valuation of an airline will have a significant degree of cost control involved in premium pricing. The Tata group would like to maintain healthy competition and not eliminate rivals.