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HindustanTimes Tue,02 Sep 2014

AirAsia sparks fare war with first India flight

AFP  New Delhi, June 08, 2014
First Published: 11:45 IST(8/6/2014) | Last Updated: 11:48 IST(8/6/2014)

Asia's biggest budget carrier AirAsia is set to make its maiden Indian flight this week, fuelling a cut-throat fare war in a sector already reeling from losses.

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AirAsia India will take off Thursday with an eye-catching promotional fare of Rs. 990 ($17) for flights between high-tech hub Bangalore and the popular coastal resort of Goa – cheaper than a second-class train ticket.

"The price war has already begun and will only intensify in the lean July-September quarter," Amber Dubey, partner at global consultancy KPMG, told AFP.

The carrier's founder and chief executive Tony Fernandes – a millionaire ex-music executive who styles himself as Asia's answer to British tycoon Richard Branson – is a hardened discount-fare warrior.

But analysts warn that Fernandes could find the ride more turbulent than he reckoned in India, where no-frills carriers already dominate with a near 65% market share in the country of 1.2 billion people.

"India could be AirAsia's greatest test," said Kapil Kaul, head of India operations for the Centre for Asia Pacific Aviation (CAPA), a consultancy.

The company will start with just one plane -- less ambitious than the three-to-four aircraft first envisaged -- but aims to scale up to 10 planes and 10 cities by the end of the fiscal year in March 2015.

Malaysia-based AirAsia, whose net profit leapt 33% to 140 million ringgit ($43.6 million) in the past quarter, is hoping to break even in India within four months through ambitious operational targets.

It plans to achieve an aircraft turnaround time -- the time it takes to unload one set of passengers and board another -- of 20 minutes, far lower than the 30-to-35 minutes of the best Indian low-cost airlines.

It also aims to have its plane flying 16 hours a day in contrast to the global industry level of 13, and significantly higher than the 12 hours achieved by AirAsia in the wider region. And it's looking at cutting costs by encouraging staff to multi-task.

The Indian launch of AirAsia "affirms India's reputation as a lucrative aviation market in the long run", Dubey said. Even though airlines are making losses at present, passenger numbers are expected to triple to 452 million by 2020-21, according to CAPA.

"But if an unbridled fare war continues... we may see financial distress increasing and the probable exit of one or two airlines in the next 12-18 months," Dubey warned.

Deep in the red
All but one of India's half-dozen airlines are haemorrhaging losses, and AirAsia's plan to pitch its fares 30 percent below those of even low-cost rivals will create new strains.

The Federation of Indian Airlines made a final appeal last week to the new government led by Narendra Modi to stop AirAsia taking flight.

"While foreign investment needs to be encouraged, the same cannot be at the cost of the domestic industry," said the federation's associate director Ujjwal Dey.

Fernandes, who calls himself a "disruptor", tweeted in reply: "Some airlines scared of us. We must be doing something write (sic)."

Indian budget rival SpiceJet, which posted a record loss of 10 billion rupees last year, has cut fares on southern routes and blasted AirAsia's "predatory pricing".

Indigo, the only money-making Indian carrier, has followed suit, with promotional fares of just Rs. 1 plus taxes.

"Indian carriers have a track record of engaging in unsustainable fare discounting," said Kaul of the Centre for Asia Pacific Aviation, "and an unusual willingness to bear losses".

Over the past seven years, Indian carriers have lost a combined 594 billion rupees ($10.1 billion), or an average of $22 every time a passenger boards an aircraft, Kaul notes.

Fernandes, who rescued AirAsia from near collapse in 2001 and turned it into a success story, "may have under-estimated the capacity of Indian carriers to pursue irrational pricing", he said.

Aside from the ferocious competition, Fernandes faces other challenges -- among them the fact India is an expensive place to operate an airline.

Carriers pay 50% more for fuel than in Bangkok, Dubai, Kuala Lumpur or Singapore because of hefty state taxes, while airport charges are also high.

Fernandes also may soon be shopping for a new partner as analysts say the Tata conglomerate could pull out of the venture because it has since tied up with Singapore Airlines to start Tata-SIA Airlines Ltd, a full-service carrier.


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