India has become a hot ticket for international carriers since opening its airline industry to foreign investors last year. But the potential of a giant market, where only a sliver of the population travel by plane, also comes with a catch: airlines in India are vastly unprofitable thanks to sky-high costs and cut-throat competition. The new entrants believe they can succeed where Indian airlines have stumbled. Kapil Kaul of the Centre for Aviation says Indian airlines suffered combined losses of $500 million last quarter alone.
In recent months, Abu Dhabi’s Etihad Air announced it was taking a $379 million stake in India’s Jet Airways. Malaysia-based AirAsia said it would start a budget carrier with Indian conglomerate Tata Group. Most recently, Singapore Airlines signaled its intention to go into business with Tata for a full-service airline.
They are lured by a vista of seemingly limitless potential in a country of 1.25 billion people. The number of airline passengers is growing by 10-20 percent annually and is expected to triple to some 450 million trips per year by 2020 as an expanding middle class trades up from slow train journeys to planes in a country that spans thousands of kilometers (miles) from Himalayan mountains to sub-tropical coasts.
“It’s seen as the last frontier for big growth in airlines. Only 2 percent of Indians travel by airplane now. There’s a huge untapped market,” said Dhiraj Mathur, an aviation analyst at Pricewaterhouse Coopers in New Delhi.
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