International aviation giant Singapore Airlines has invested over SGD 100 million (about 71 million USD) in Vistara, a young and upcoming Indian flight carrier. Vistara is a subsidiary of Tata Sons and was established in 2013 as a joint venture between Singapore Airlines (SIA) and the Tata group with the latter having a 51% stake in the child company. It commenced operations in early 2015.
The airline industry has high entry barriers and involves large scale operations and financing compared to other industries. The profitability of most airlines has also been questionable in the recent past. In spite of this, airlines have been springing up especially in the domestic segments. In spite of the odds being against them from an industry standpoint, Vistara has been upping its game in a slow but steady fashion. It grew to an organisation with 900 employees and had captured 2.3% of the market by the beginning of FY 2016-17. Headquartered in Gurgaon, Vistara now has 13 aircrafts which were not acquired at one shot. There are 45 domestic routes which are serviced.
The benefit for Singapore Airlines
The investment in Vistara by SIA is a classic example of organic cum inorganic growth sought by a large company. By starting and periodically investing money into it, SIA has taken the initiative to become a significant player in the Indian market. By allowing Vistara to grow as an Indian organisation by finding its own path and standing on its own feet as an independent entity, SIA has given the reigns over to Vistara. SIA seeks to expand to newer geographies and Vistara is an excellent way to do so. However, as per the civil aviation rules in India, an aviation company has to have a minimum of 20 aircrafts before it starts operations on routes that take passengers across country borders. It is estimated that by next June, Vistara would be eligible for going international. According to analysts, profitability will emerge only in 2020 but that is not a deterrent since Vistara is showing promise.
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