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AirAsia's India take-off may make your air tickets cheaper

india Updated: Apr 10, 2013 22:48 IST
Tushar Srivastava
Tushar Srivastava

Will AirAsia be able to replicate the success of its low-cost model in India - a country where high airport charges and fuel taxes have seen airlines fold up operations in the past?

While the jury is still out, aviation experts are of the view that AirAsia, with its aggressive low fares, ruthless cost-cutting strategy and high aircraft utilisation will certainly stimulate the Indian aviation market like never before.

"The AirAsia-Tata combine is a formidable combination having both deep pockets and access to latest technology," said the CEO a low-cost carrier. "Anybody who says they are not bothered about AirAsia's entry would be lying."

Indian carriers expect AirAsia to unleash a price war offering "the lowest of low fares" and other Indian carriers who have been neck-deep in losses will be forced to match fares. IndiGo, the only Indian carrier to have made profits for three consecutive years, ended 2011-12 in the red.

While Gurgaon-based SpiceJet is engaged in talks to get a foreign partner on board, Jet Airways is in advanced talks with Etihad to sell a stake. IndiGo plans to launch a regional airline though it has officially denied this, while Air India has been promised a Rs 30,000-crore bailout by the government.

"AirAsia is creating a pan-Asean LCC with multiple cross- border JVs and is aggressively pursuing this strategy," said Kapil Kaul, CEO, South Asia, aviation consultancy firm, Centre for Asia Pacific Aviation.

"The group has very successful and profitable airlines in Malaysia and Thailand with 23% and 11% operating margins but it is struggling in Indonesia," added Kaul.

"We expect AirAsia to bring an ultra low-cost airline model to India with 14-15 hours of aircraft utilisation, high labour productivity and low distribution costs. We expect ruthless focus on costs to achieve higher level of productivity than existing levels," said Kaul.

Airlines, however, point to the fact that AirAsia is entering into a market at a time when the industry lost Rs 19,000 crore between 2008 and 2011. "AirAsia pulled out of Delhi and Mumbai last year owing to high operating costs," said a senior airline executive.

"Just because AirAsia is successful in Malaysia that does not mean it will be successful in India," said Saj Ahmad, a London-based aviation expert. "AirAsia will have to pay top-dollar for slots - no way will they get anything cheap."

AirAsia's entry, Ahmad said, won't cause too much concern for existing players. "Once the buzz of AirAsia's debut in India wears off, you will see a greater erosion of profits and market share for all airlines as they all chase the finite pool of passengers."