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Business

Singapore Airlines' Indian JV eyes international service next year

Expansion to new markets crucial as price competition hits yields

A Vistara Airbus A320 passenger aircraft at Chhatrapati Shivaji International airport in Mumbai   © Reuters

SINGAPORE -- Vistara, a Delhi-based airline jointly held by Singapore Airlines (SIA) and Tata Sons, could be flying international routes as early as the middle of next year, as it expands beyond India amid tight price competition.

Vistara is to receive its 20th aircraft by March 2018, and two more in mid-2018, said SIA Chief Executive Goh Choon Phong. After that, Vistara will deploy the aircraft on international routes, said Goh at a press conference discussing SIA's July-September earnings.

CEO Goh Choon Phong, right, expects significant growth from overseas joint ventures

Southeast Asia's largest airline announced on Tuesday its net profit for the quarter almost tripled to 189.9 million Singapore dollars ($139 million) year-on-year, thanks largely to an increase in demand in passenger and cargo businesses. Revenue for the quarter increased 5.3% on the year to S$3.84 billion.

The tide has clearly turned for SIA's cargo business, which saw a volume increase of 5.4% year-on-year and a 9.1% rise in yield. The company sees the cargo market continuing to improve in the peak holiday season year-end.

Vistara is taking delivery of two Airbus A320 neo in June, although details for international operation such as exact timing and destinations are currently being finalized. SIA holds a 49% stake in the joint venture.

Vistara started flying domestically in January 2015, but was not able to go overseas because of local regulation that requires airlines to have at least five years of operational history and 20 airplanes before they can start international services. The rule, however, was relaxed last year.

The requirement now is for a carrier to put 20 airplanes or 20% of its capacity, whichever is higher, on domestic routes. Once Vistara starts international operation, SIA is expected to benefit from growing international travel demand from India, as the two airlines can work closely in network development.

Another SIA joint venture Bangkok-based NokScoot is expected to expand its foothold in China and Taiwan. The long-haul low cost carrier is 51%-owned by Thailand's Nok Air and the remaining by SIA subsidiary Scoot. It has taken delivery of its fourth aircraft in October and the fifth one is arriving in 2018.

Goh said however, that the financial impact from these joint ventures is expected to remain small for now, but "in due course, as it becomes [to have] sizable presence in respective markets, we expect a significant contribution."

DBS Bank aviation analyst Paul Yong said that Singapore Airlines will have to wait about five years until the joint ventures bear fruit, but they have the potential to be a meaningful contributor given the size of the Indian market as well as the fact that Bangkok is a major aviation hub.

Expanding its turf is crucial for SIA. Despite a significant profit jump in the July-September quarter, the company is still suffering from falling ticket prices. Passenger yield, the revenue that an airline earns for carrying one passenger a kilometer, was 2% lower than a year ago.

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