Can Singapore Airlines’s Newest Venture Be a Winner?

Last September, Singapore Airlines Ltd (SGX: C6L) had first announced a possible joint-venture with India-based conglomerate Tata Sons to launch a full-service airline in New Delhi, India. The joint-venture got the greenlight in November 2013 and there were subsequent plans to have the new airline operational by October this year.

Unfortunately, those plans seem to have stumbled upon a road block as it seems that the joint-venture airline, named Vistara, has yet to receive the full set of regulatory approvals. Would this affect Singapore Airlines negatively? Let’s take a closer look at the joint-venture.

The partnership

Vistara is a joint venture between Singapore Airlines and Tata Sons, one of the largest conglomerates in India. The Singapore carrier will be holding a 49% stake while Tata Sons will own the other 51%. Unlike Singapore Airlines’ previous new ventures such as Scoot and Tiger Airways Holdings Limited (SGX: J7X), Vistara will not be positioned as a low-cost carrier. Instead, Vistara would be a full service carrier with a focus on providing customized services for passengers who are able to afford a premium flying experience.

The growth plan

India is one of the fastest growing nations in the world and might even become the world’s most populated country within the next decade. Getting a foot into the aviation scene of such a country could present SIA with one of its best growth opportunities.

Even though Vistara is facing a delay in its launch, it is already taking delivery of its first plane this month and it expects to boost its fleet to a total of 20 planes in 5 years’ time. As a reference, Singapore Airlines now maintains a fleet of 104 aircraft; having 20 planes in Vistara would boost its fleet size by a fifth.

History of expansion in India

Vistara is new, but it must be noted that it is not the first time Singapore Airlines has tried to enter the Indian aviation industry with Tata Sons. In 1995, the two partners had jointly launched a domestic airline but the project failed to take-off due to changes in government policies. They tried again in 2000 by bidding for a stake in Air India but withdraw their offer in the end.

Foolish Summary

Singapore Airlines hasn’t had much chance to flex its operational muscle in India, so this new joint-venture could be a great chance for it to do so. A delay isn’t ideal, but the more important thing is that the airline is at least given a chance to begin operations in the country.

With all that said, despite the promise that Vistara might hold, it also pays to note that the Indian aviation industry is highly competitive. So, it might be good for shareholders to at least temper  their expectations regarding the prospects of the venture until some concrete results are seen.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim does not own any companies mentioned.