News: Young Indians say cheers to vodka & gin

(IANS 03/06/2007) Bangalore - The winds of change and a yearning for variety are making young Indians raise a toast to white spirits like vodka and gin even as the old generation still swears by traditional hard liquors like whisky and rum.

As part of the global trend, the consumption of white spirits such as vodka and gin is fast catching up in the subcontinent, thanks to the changing profile of drinkers, especially in the age group of 25-35 years.

"Changing lifestyle, growing consumerism, increasing purchasing power and the preference to taste something new or different are making young Indians take to social drinking and experiment with a variety of drinks as cocktails," Jayant Kapur, the Bacardi Martini India Ltd president and CEO, told IANS.

"Though whisky, rum, wine and beer continue to dominate the market, the share of white spirits has doubled to 20 per cent over the last seven-eight years."

Of the 120 million cases of total spirits marketed in the subcontinent and valued at around $2 billion, white spirits like vodka account for 24 million cases in volume and 25 per cent in value terms.

"As a social drink that can be had any time or on any occasion, the white spirit has come to stay. Being gender neutral and lighter than hard drinks in terms of alcohol content, white spirits offer a wide choice to sip with mixers such as martini, lime juice and orange," Kapur said, showcasing Bacardi's new Eristoff premium vodka, being launched in the metros this month.

With its 200-year-old original recipe from Georgia in Russia, Eristoff is bottled at Bacardi's production facility at Nanjungud near Mysore, about 190 km from here, and will be priced at Rs.480 for 750 ml.

Prince Nikolai Alexandrovich Eristoff first produced the authentic premium Russian vodka in Georgia in 1806 as a family recipe. With the family origins dating back to 200 BC, the recipe was passed down for generations. The prince was the last surviving descendant.

"The vodka is still made from pure grain. It is triple distilled and charcoal filtered for retaining its purity. As a neutral spirit, its clean taste leaves no after-taste but a pleasant sensation," Kapur pointed out at a preview of the product.

Among white spirits, the vodka category has been outperforming the others in terms of market growth, which stood at 2.8 million cases with a CAGR (cumulative average growth rate) of 47 per cent during 2002-06.

"Thanks to a booming economy, young Indians are getting connected to global trends and are looking for new experiences. In fact, the premium segment offers huge potential for distinct brands like Eristoff," Kapur noted.

With the premium vodka growing at 20 per cent and accounting for 25 per cent of the spirits market, Bacardi plans to produce 400,000 cases per month at its plant, which has a total production capacity of one-million cases a year.

As a favourite drink among young adult Europeans, Eristoff is widely consumed in Austria, Belgium, Chile, France, Portugal and Spain. It continues to gain acceptance as a growing brand even in a price competitive set-up.

"High tariffs and other barriers also deter white spirits from reaching out to discerning drinkers. With import duties, excise and local taxes ranging between 200-450 per cent, the vodka retail price is prohibitive. As a result, the grey market continues to thrive and deprive the exchequer of billions of rupees," Kapur said.

If tariffs are lowered, Bacardi plans to bring Grey Goose super premium vodka into the country, besides Martini and Rossi vermouths. To comply with a WTO ruling, the central government plans to lower the taxes, which are still a whopping 550 per cent on spirits and wines.

Commerce secretary G.K. Pillai was quoted as saying in the media recently that the duty structure was in the process of realigning to WTO rules. According to market research firm Euromonitor International, the spirits market consisting of whisky, rum, brandy and vodka has been growing at eight-nine per cent annually over the last five-six years despite high tariffs and entry barriers on foreign brands.

News: RBI introduces form for overseas investment

(PTI 03/06/2007) Mumbai - Doing away with the clutter of forms required for different kinds of overseas investments by corporate and individuals, the Reserve Bank of India has replaced six existing forms with a single application-cum- reporting form for all types of investments and remittances.

"As per the new reporting package, all the forms have been subsumed into one form viz Overseas Direct Investment (ODI), comprising of four parts," RBI said in a recent guideline.

The decision to have a single form would make it easier for the Indian corporates to file requisite investment information about their overseas ventures and ensure monitoring of foreign investment in a "dynamic environment".

The central bank also proposes to introduce online submission of the ODI forms "once the system stabilises and the accuracy and timeliness of submission improves".

The central bank has rationalised the ODI reporting form to keep pace with the liberalisation in the policy on overseas investments that has enabled many Indian corporates to establish presence in overseas markets, the guideline said.

"The reporting framework has not kept pace with the developments and does not capture data comprehensively on overall costs of acquisition, funding patterns, performance indicators," RBI said giving reason for the rationalisation of reporting formats.

At present, application for overseas direct investment is required to be made in any one of the three forms viz ODA for direct investments in Joint Venture (JV)/Wholly Owned Subsidiary (WOS) under automatic route, ODI for investments under approval route and ODB for issue of ADRs/GDRs on back to back basis.

Reporting of remittances is currently required to be made through authorised banks in either of the two forms - ODR for remittances made for overseas direct investments and ODG for overseas acquisitions made under ADR/GDR Stock Swap Scheme.

RBI has taken the step pursuant to the annual credit policy with a view to improve the coverage and ensure monitoring of the foreign exchange flows.

The new reporting format, which prescribes same form for overseas investment, either under the automatic route or under the approval route, has four parts including reporting of remittances, annual performance report (APR) and report on closure/disinvestment/voluntary liquidation/winding up of JV/ WOS.

The Reserve Bank, however, said the revised form is only a rationalisation of the reporting procedure and there is no change or dilution in the existing eligibility criteria/ documentation/limits.

In cases of overseas investment under the automatic route the form should be directly submitted to the RBI, while in case of approval route the form should be submitted after scrutiny and with specific recommendations by the designated authorised bank, the monetary regulator said.

Meanwhile, the Reserve Bank also said it proposed to liberalise the procedure for the hedging of 'genuine exposures' with particular focus on small and medium enterprises (SMEs) and resident individuals.

The main objective of the proposed liberalisation is to simplify the documentation requirements as well as 'dynamic' hedging of exposures as mentioned in the annual credit policy. RBI has put a draft circular in this regard on its website for public comment.

News: Russia's VTB Bank plans corporate branch in India

(BL 03/06/2007) New Delhi - JSC VTB Bank (VTB), Russia's second biggest bank, hopes to start operations in India by opening a corporate branch in the Capital by the year-end. The bank aims to address problems of Russian companies operating in India on issues that arise in their foreign economic activities.

Dr Yuri Yakovlev, VTB's representative in India since 2005, told Business Line, "We are in the process of completing the application process, which should be over by the month-end and then we plan to submit it to the Reserve Bank of India. It might take another four to five months for us to get the requisite permission to begin operations."

The Russian bank has had initial talks with the RBI officials and Dr Yakovlev said that all the meetings so far have been very "positive" and the bank expects to begin operations by October or November.

"We have identified the place where the branch would come up in Delhi. And, initially, we plan to recruit around 15 employees from India and three from Russia," he added.

Dr Yakovlev said that the bank identified India as a location because it would encourage development of the bilateral trade and economic partnership between the two countries.

"There are a lot of Russian companies in infrastructure, steel, power, defence and metallurgy sectors that are doing business in India. And they are facing problems on issues that arise in their foreign economic activities. The companies also have to overcome hurdles in getting guarantees, we will address some of these issues," Dr Yakovlev said.

He, however, did not divulge the minimum capital that the bank plans to start operations with. "As per the RBI norm, the minimum capital required is $25 million. But we plan to bring in more than this," he said.

Apart from opening a branch in Delhi, VTB is also looking at opening a back office in Mumbai. "We might open a branch in Mumbai at a later date, but initially will only have a back office there. It will be responsible for getting us new clients," he said.

VTB recently raised $8 billion in an initial public offering (IPO), the largest in the world this year. Post-IPO, the Government of the Russian Federation is the majority shareholder with shares accounting for 77.5 per cent. The assets of the bank as of December 31, 2006, amounted up to $52 billion and it posted a net profit of $1.2 billion.

Apart from opening office in India, the bank is also looking at a presence in Shanghai and West Asia.

News: 'Expatriates adding to realty demand'

(BL 03/06/2007) Bangalore - Influx of expatriates has resulted in more demand for high-end residential properties in all metropolitan cities, says a study "South India Retail & Realty Report: 2015 and Beyond" by Images F&R Research with real estate services firm Cushman & Wakefield as its knowledge partner.

It says the country's smaller towns and cities would catch up with the "mall culture" prevalent in urban centres.

According to the report, by 2011 roughly 300-million-sq-ft additional retail space would be generated. Currently, there are about 200 malls, which are expected to rise to almost 600 by 2010-11.

Of the new malls coming up, 40 per cent are concentrated in smaller towns and cities.

The total supply of shopping centre space in South India is 14.1 million sq ft (2006-07), accounting for an increase of about five million sq ft over the availability in 2004.

Capital value up

Capital value of residential properties across all centres has seen a rise during the review period, with 2007 witnessing the highest rates (Chennai: Rs 9,300 per sq ft, Bangalore: Rs 7,175 per sq ft, and Hyderabad: Rs 3,875 per sq ft).

Besides the influx of expatriates, other reasons for this exponential growth include increase in rental values by about 25-45 per cent in all prime residential markets across the country; demand shift from central locations to suburbs owing to more supply and lesser rentals; and the long-awaited Comprehensive Development Plan is also expected, which proposes an additional Floor Area Ratio.

Rents to rise

Thanks to more IT companies and foreign banks setting shop in Chennai and the booming retail market in the city, capital values and rentals are expected to rise further in 2007.

Capital values of commercial properties went down between 2002 and 2003, followed by a consistent rise till 2007 across the three metropolitan cities in the South.

Rates were highest in 2007 (Chennai: Rs 4,920 per sq ft; Bangalore: Rs 4,400 per sq ft; and Hyderabad: Rs 3,633 per sq ft) and lowest in 2003 (Chennai: Rs 2,720 per sq ft; Bangalore: Rs 3,180 per sq ft; and Hyderabad: Rs 2,000 per sq ft). Bangalore set the rates in commercial property prices from 2001 to 2005, till Chennai surpassed Bangalore in 2006.

Office space demand

Commercial rentals fell during 2003 and 2004, followed by a rise till 2007. This phenomenon was visible across all metros, except Hyderabad, where there was an incremental rise throughout the review period.

About 70 per cent of demand for office space in India is being driven by the IT/ITeS and BPO sectors. Coimbatore, Thiruvananthapuram and Kochi are benefiting from the marked price increases in the office markets of the top three cities.

Capital values increased throughout the review period across all centres. Rates were highest in 2007 (Bangalore: Rs 17,083 per sq ft; Hyderabad: Rs 16,388 per sq ft, and Chennai: Rs 11,014 per sq ft).

Forecast

According to Cushman & Wakefield, the next decade will see the residential sector continuing to hold the largest pie of the real estate demand, followed by commercial, hospitality and retail, with demand for organised real estate increasing by about 8-9 times.

News: Best Western to develop 100 hotels

(IANS 02/06/2007) Hyderabad - Cabana Hotel Management Pvt Ltd, the Indian master licensee for Best Western, the world's largest hotel group, will develop 100 hotels in India's emerging business centres over the next seven to eight years by bringing in an investment of $1.2 billion.

After signing an agreement in Mumbai this week, a team of officials from the Mumbai-based Cabana and Best Western are going around the Indian metros and tier II cities to finalise their plans.

The Cabana group will develop 3.5 to 4 star hotels in various cities and 5 star capable hotels in major cities. It would also look at acquiring hotels in tier II cities and converting them into Best Western brand hotels.

Cabana has finalized plans to establish six hotels in Ooty (Tamil Nadu), Bangalore, Jaisalmer (Rajasthan), Kanyakumari and Rameshwaram (Tamil Nadu) and Bhubaneshwar.

The construction of these hotels is likely to be completed in two years.

"We are now looking at Delhi, Mumbai, Chennai, Chandigarh, Indore, Lucknow, Patna, Ahmedabad, Surat, Nagpur, Aurangabad and Hyderabad," Prabhu Goel, co-chairman of Cabana Hotel Management, told IANS.

"Business centres are our priority. We would like to cover all metros and state capitals," said Prabhu, whose group owns and runs eight Western-branded hotels in the US.

The master licensee agreement with Cabana is part of US-based western International's aggressive development plans for India to leverage the country's growing business travel and tourism market.

"The Indian economy is growing at incredible speed and the growth potential in Indian hospitality industry is immense," Anil Wad, CEO, Cabana, told IANS.

There is huge under supply in hospitality industry.

"The airlines industry is growing at 25 percent for five years but there the hospitality industry is not keeping pace with this growth. The hotel tariffs are going sky high and even exceeding the tariffs in the West," said Anil.

India has an estimated 110,000 hotel rooms across all categories, 40 times less than the total rooms in the US. "The number of hotels in India is less than the hotels in Las Vegas," he said.

Cabana says that the hotels it would build in India would offer premier services but at the pricing will be lower than the luxury hotels.

Best Western will not participate in equity while Cabana will finance the investments through a mix of equity, debt and private equity placements.

"The funding will be on our own. There are private equity prospects and we will also do public financing," said Prabhu.

"We are going around the country to see potential sites to invest in. The Best Western people are keen to see the kind of growth India is experiencing. We are taking them to tier II cities like Bhubhaneswar," he said

Cabana hopes that the six properties it was building would break up in the very first year of their operations. "It usually takes two years to break even but we expect it in first year," he said.

The revenues for first few years from each of these hotels are expected to be $2-4 million and they will scale up to $4-5 million. The revenues from the luxury hotels in metros are expected to be $20-25 million.

On the advantages of being master licensee for Best Wester, Prabhu says: "There is lot of flexibility in operating hotels. They have set of standards but you can exceed that set of standards. It is the largest chain of hotels in the world and the licensing fee is also very low."

Best Western wants to have a strong brand in India to target the large number of Indians going abroad, especially to the US, Europe and China, where the Best Western already has strong presence.

Headquartered in Phoenix, Arizona, the Best Western owns and operates 4,200 hotels in 80 countries.

News: Bank of Baroda set to open in Trinidad

(IANS 02/06/2007) Port-Of-Spain (Trinidad) - Bank of Baroda and Essar Steel Corp are set to open in Trinidad, according to Minister of Overseas Indian Affairs Vayalar Ravi.

The minister told the media that in addition to these two companies, India's business sector was looking for further opportunities in Trinidad while providing opportunities Trinidad & Tobago businesses to operate in India.

Bank of Baroda (Trinidad and Tobago Ltd) managing director Kishor Kharat said the bank would open in July.

The Bank of Baroda received approval to commence operations in March. It now operates in 21 countries, Kharat said.

Simultaneously, three other branches will open in other parts of the world.

"We are ready to open the doors. The only thing is establishing connectivity worldwide is taking time," he added.

P.R. Dhariwal, managing director of Essar Steel Caribbean Ltd., said he expected the plant to be completed by 2009 with a production capacity of 2.5 million tonnes a year.

Minister Ravi left Trinidad Friday morning on a visit to St. Vincent and will fly out later in the evening to Suriname.

Indian High Commissioner Jagit Sapra Singh hosted a reception for the minister at his residence Thursday night.

News: One retail solution does not fit entire India

(BL 02/06/2007) Bangalore: - Do not mistake the South for a single market. While the South is no doubt different from the North, retailers must also not make the folly of generalising South as one market - as the customer from Hyderabad is different from the shopper in Chennai or Bangalore.

Drawing from their own experiences, retailers from diverse product spaces and categories, participating at the two-day conference, The Shop, on retail in South India, unanimously agreed that one retail solution does not fit the whole of India.

While putting together their retail strategy, retailers must not only recognise the cultural differences but also go down to the micro-level and dissect each region with its various components, said the speakers, discussing the Rs 2.5-lakh crore retail landscape in South India.

South, North divide

Some of the differences brought out between the South and the North: The value of trust is greater in the South compared to the North; while at the top end, the differences between the South and North are narrow, lower down the differences are more pronounced. While customers down South go in for future value of products, in the North customers prefer current value.

C.K. Venkataramani, COO, Tanishq, said the South is more brand and quality-conscious, which explains why the highest grade of diamonds are sold in Tamil Nadu, and the lowest in Punjab.

Some of the differences can be attributed to historical events as well. Shumone Chatterjee, Managing Director, Levi Strauss, said: "The customer in the South is more stable and more resistant to change than the customer from the North - perhaps, because the North has always been susceptible to invasion and attacks than the South."

Bhaskar Bhat, Managing Director, Titan Industries, said the South market was more mature and organised, which paved the way for several experiments by Titan, such as its foray into jewellery retailing with Tanishq and mass jewellery business through Gold Plus.

The franchisee model especially has worked well in the South, said Bhat, who addressed the inaugural session of The Shop.

While all may seem rosy down South, it's not so, warned Bhat. The growth of retail in malls could be hindered by the lack of adequate infrastructure support. "Unlike in Delhi and Mumbai, malls in the South do not have proper infrastructure. While high-street locations are developing in the South, malls are not. This is a problem in the South where the number of Tier 2 and 3 cities is also large."

Day one saw retailers addressing the issue of ensuring good footfalls in the face of competition. Commenting on the number of reasons created by retailers to attract crowds, like Valentine's Day discount or New Year sale, Bhat said: "For a retailer, everyday walk-in is important. Thus, retailers resort to creating days out of non-days, hours out of non-hours." But the key character in all this is still the customer, he said. A point echoed by Kodandarama Setty, Chairman and Managing Director, Vivek's (Chennai-based retailer of consumer durables): "For the retail business to be successful, the retailer must not lose focus of the customer. Consumers, especially in the South, are knowledgeable and demanding."

News: India likely to be emerging wine destination

(IANS 02/06/2007) New Delhi - India is fast emerging as the next big destination for wine, thanks to its potential to grow world-class grapes along with other high value produces like orchids and medicinal plants, says a new study.

"There is an additional opportunity to cultivate globally priced crops such as wine grapes, orchids and medicinal plants. This could increase the income of farmers by two to five times," says a report by the Confederation of Indian Industry (CII) on the flagship rural development programme of the United Progressive Alliance (UPA) government -- Bharat Nirman.

The report said there is growing recognition worldwide that India has large tracts of fertile land, low-cost farm labour and multiple seasons that can help the country become the supply and demand centre for several agricultural sectors in the future.

Currently, wine grapes are grown on less than 4,000 acres of land in India, amounting to a mere three percent of total arable land used for grape crops.

The report also said that extending wine grape cultivation to 35,000 to 40,000 acres could help increase rural income by Rs.1000 crore and create over 50,000 jobs for the rural people directly related to the wine industry over the next five years.

It said it could also help in tapping significant tourism opportunities in many wine-growing areas of the world.

News: Indian realty cos hit by AIM less listing

(DNA 02/06/2007) Mumbai - Despite the boom in real estate, Indian realty companies listed on London's Alternative Investment Market (AIM) have seen value erosions and are generally trading at a discount of 8-20 per cent to their issue prices.

"While this is disappointing, it is not surprising," said Shiv Dayal, managing director of Langham Capital Ltd, a boutique financial advisory firm with a focus on corporate cross-border transactions between India and the UK.

"News is sporadic about these companies and there is a lack of information for the investor to trade on. So, there is a slide," said Dayal.

Hiranandani's Hirco, Raheja Group's Ishaan Real Estate, Unitech, Eredene Capital, West Pioneer, Alpha Tiger and Dev Properties of the Indiabulls Group are some of the Indian real estate companies listed on AIM.

While most of these companies have a huge potential, their stocks are trading down. Most analysts have put the lack of a profile in the UK as the major cause for the slide. "They have to keep investors informed of developments with regular information and education if they want to attract new investors," Dayal told DNA Money.

"Indian real estate should not see AIM as just a one-off way to raise capital," he added, insisting that they should learn investor relations from Wipro. Indian real estate companies also have a lead time of around two years before any profits will show up. "It takes two-three years for the development of projects and there is no real pick-up in equity prices until the properties are close to occupation," said Dayal. Investors need to ride out the lead time.

Analysts also believe that as many of the real estate companies listed are family businesses like Raheja Group, it is a good opportunity for investors to get a stake in them. However, this also has the downside in that there is no certainty about when the returns will come, given the fact that investments may be made at a time of the family's choosing.

Non-family-owned companies tend to deploy their capital quickly and efficiently and so offer returns on investments more enough.

News: GDP figures are proof that India is an emerging giant

(DNA 02/06/2007) Mumbai - During the final quarter of 2006-07, India's real gross domestic product decelerated to 9.1 per cent from 10 per cent during the same quarter of the preceding fiscal, according to the latest data released by the Central Statistical Organisation.

But the growth rate is still robust and more importantly, it is the manufacturing sector that is calling the shots. For the year as a whole, the economy expanded at the rate of 9.4 per cent, compared with 9 per cent in 2005-06. This rate is also higher than the growth of 9.2 per cent, anticipated in the advance estimates released by the CSO.

With the growth juggernaut maintaining a strong momentum, the per capita income is also sharply up 14.3 per cent to Rs 29,382 last year. This is on top of a spurt of 12.1 per cent in 2005-06. Even adjusted for inflation, the trend in per capita national income is gratifying.

It rose by 7.4 per cent and 8.4 per cent during the last two years (at 1999-00 prices). The tempo of investment too has proceeded at a brisk pace of late. The rate of gross fixed capital formation, which stood at 26.3 per cent in 2004-05, quickened to 28.1 per cent in 2005-06 and further to 29.5 per cent in the just concluded fiscal.

According to CSO, the modest slide in GDP growth rate in the final quarter of 2006-07 vis-à-vis the year ago period was on account of a poor showing in agriculture - the growth rate here had slackened to 3.8 per cent from 6.2 per cent - and in construction to 11.2 per cent from 16.1 per cent.

Assorted financial services and business, community and social services also witnessed a slowdown of sorts. But this was partially offset by a commendable show by manufacturing, which jumped to 12.4 per cent from 9.4 per cent, helped by an improved performance from mining and quarrying, electricity and trade, hotels etc.

A word of caution may not be out of place here. CSO's estimates are very tentative and are therefore subject to revision in the light of more data pertaining to the last quarter of 2006-07 becoming available in the due course. Therefore, it should be taken as indicative rather being definitive.

For example, many figures for the previous quarters have been modified in the latest data released by the agency. The GDP growth for the first quarter of the last fiscal has been reworked to 9.6 per cent from the earlier 8.9 per cent, for the second quarter to 10.2 per cent from 9.2 per cent and for the third quarter to 8.7 per cent from 8.6 per cent.

In the case of manufacturing, the revision has been substantial - to 12.3 per cent from 11.3 per cent in the first quarter, to 12.7 per cent from 11.9 per cent in the second quarter and to 11.8 per cent from 10.7 per cent in the third quarter.

But there is no denying the one overarching reality - we are an emerging economic giant and proof can be had from the growth story portrayed by official national income data. Consider the latest numbers put out by the CSO. Despite the setback in the last quarter of 2006-07 - if the slowdown may be termed a setback as the spurt in real GDP was quite substantial at over 9per cent - the Indian economy has catapulted itself in to a high growth orbit.

There is a qualitative transformation as well in that it is the manufacturing sector that is calling the shots. At 12.4 per cent, the contribution of manufacturing during the January- March 2006 was the highest ever since the system of quarterly estimation of GDP came into vogue just over a decade ago.

Not only does this surge represent a three percentage point improvement over the GDP emanating from the manufacturing activity in the same period of 2005-06, but also it is also a far cry from the poor showing that persisted till 2001-02. Since then, there has been no looking back, with the real output in manufacturing steadily climbing up.

India seems to be entering a phase of manufacturing led GDP growth. In 2005-06, GDP rose by 9 per cent while manufacturing rose by 9.1 per cent. In the advance estimate for 2006-07, the rise in real GDP was envisaged at 9.2 per cent of which manufacturing was projected to increase its GDP by 11.3 per cent.

But revised estimates, now available, indicate that the performance has been more flattering than earlier indicated - a 9.4per cent surge in GDP propelled by manufacturing. During the first three years of the new millennium, India had fared poorly with GDP growth ranging between 3.8 per cent to 5.8 per cent. But from 2003-04, economic advance has been rapid - and sustained.

But, along with this growth story, the officialdom's ability and resources to disseminate key economic data also seem to have improved remarkably. Who would have imagined that, the many key statistics including GDP at market prices, private and government final consumption expenditure and gross fixed capital formation for 2006-07 would be in the public domain barely two months after the close of the fiscal year.

News: Kingfisher + Deccan: Hope trumps reality

(DNA 02/06/2007) Mumbai - When liquor baron Vijay Mallya and low-fare aviation pioneer Capt GR Gopinath decided to tango on Thursday, the prime reason they gave for the decision was synergy.

Using the your-beauty-and-my-brains logic, the two said that Kingfisher's upmarket full-service carrier (FSC) will complement the no-frills airline's mass market, with infrastructure being shared for cutting costs for both airlines.

History, unfortunately, is not on their side. Full-service carriers and low-cost carriers (LCCs) belong to separate worlds, and their DNAs seldom match. Whenever they have developed the urge to merge or work together under one umbrella, they have almost always failed.

It happened when UK's full-service carrier British Airways got together with budget carrier Go. It was repeated with Delta Air and Song. When Germany's Lufthansa tried to soar high with GermanWings, it crashed, too.

But if Mallya and Gopinath are looking for more cheerful examples, they should look down under. Australia's full service airline Qantas took a shot at running no-frills airline Jetstar Asia and came up trumps. So what clicked with Qantas?

Industry players and experts say Qantas' model has worked because Jetstar's operation was insulated from any Qantas influence. "Earlier examples have not worked because they were not planned well.

But since then the business model of airlines with FSC and LCC operations has evolved. Qantas has been successful because it has maintained a high level of 'strategic distinction' between the two operations," said Centre for Asia Pacific Aviation (CAPA) CEO Kapil Kaul.

And now India has three airlines with similar models (full service and low-cost airlines run by one organisation) ready for take off. Full service carrier Jet Airways is converting the acquired Air Sahara to a low-cost airline - JetLite.

National flag carrier Air India's low-cost subsidiary Air India Express (AIE) will soon be launching domestic low-cost services. Kingfisher chairman Mallya, who has picked up a 26% stake (to be raised to 46% after an open offer to minority shareholders) has also decided to retain the identity of the acquired airline.

Will these Indian models work? "Kingfisher's decision to not merge with Air Deccan and keep it as a standalone operation is very good," says Kaul. Ankur Bhatia, executive director of Bird Group, a travel conglomerate, says the two services have to be kept separate as they have different cost bases and pricing strategies.

"It is not feasible for an FSC to operate a LCC. They have to be run independently. They are two different models and there is no middle path. There can be a sharing of resources for maintenance, ground-handling, engineers and pilots between the two but they cannot switch inventories (seats) because their cost base is different," says Bhatia.

Kingfisher + Deccan

And it's not just economic issues that necessitate an arm's length distance between two. Culture clashes can also cause havoc.

"While one is used to pampering its passengers by totally focusing on services, the other is used to taking out frills from services and saving cost. Apart from engineers and pilots, even the workforce - the cabin crew, airport staff and others - cannot be common as they are tuned to different cultures," says SpiceJet Ltd CEO and chairman Siddhanta Sharma.

There are some who are sceptical of such a model succeeding at all. Says IndiGo president and CEO Bruce Ashby: "There were several of such experiments in the US but they were eventually abandoned." United Airlines started 'Shuttle by United', Delta tried with 'Delta Express' and US Airways tried 'MetroJet'.

"The idea of each was to run a low-cost airline within an airline, with differential rates of pay for some or all of the employees, different branding, and a different product on board the aircraft (typically, no-frills).

These experiments were generally successful as branding exercises, but the FSCs found that were not able to reduce costs sufficiently to create an airline within an airline that was truly cost-competitive with their lean, focused LCC competitors," says Ashby.

Mallya and Gopinath have a lot of history to learn from.