From AirAsia To You
Almost everyone agrees that Malaysia’s AirAsia has the potential to be a disruptive force in the Indian aviation space. This is evident from the nervous reaction of civil aviation mandarins to the provisional nod given to the airline—which proposes to start an Indian carrier in joint venture with Tata Sons and Arun Bhatia’s Telestra. Industry veterans see in those responses the keenness of existing players to keep out the Southeast Asian company with a niche in the low-cost travel segment.
The entry of AirAsia India has coincided with major West Asian players like Dubai’s Emirates Airline, Abu Dhabi’s Etihad Airways and the Qatar Airways pursing options to invest in Indian carriers. Cyrus Guzder, chairman of afl Ltd, brackets AirAsia with global low-cost majors like Virgin Atlantic, Ryan Air, Virgin America and Virgin Australia, and describes it thus: “The consumer has many reasons to be happy, but competitors have a lot to worry about”.
The recent history of civil aviation in India is marked by the opposition the Tatas have faced the three times they (unsuccessfully) tried to set up an airline. A few years ago, when Ratan Tata revealed that his decision to not bribe the then civil aviation minister was the crucial factor, he added, “But an individual thwarted our efforts to form the airlines.” He was referring to Jet Airways’ Naresh Goyal, who lobbied furiously to keep the Tatas out of aviation.
Despite questions being raised in India (including whether the third partner in AirAsia India, Telestra, is a front for someone), the quick provisional approval by the Foreign Investment Promotion Board (FIPB) to the airline proposal has created considerable overseas goodwill for the government. This is the first application after the UPA regime decided last September to allow foreign airlines to invest up to 49 per cent in Indian ventures. Initially, the move was seen as a policy sop to help cash-starved Kingfisher woo a foreign partner.
Players in wait AirAsia CEO Tony Fernandes, Telestra’s Amit Bhatia, and Ratan Tata
It’s no secret that the interests of a few prominent domestic firms to corner a larger share of a competitive though fast-expanding market have been protected in the past. The ultimate loser was the consumer. Since the last quarter of 2012, even low-cost carriers have become pricey, leading to considerable drop in capacity utilisation, says travel and tourism veteran Subhash Goyal. But of course, higher fares will help domestic airlines show fourth quarter profits, an aviation ministry official points out.
Industry veterans are cynical, given the cartelisation in the aviation sector that led to airlines being ‘low-cost’ mostly on paper. It is another matter that in February, coinciding with AirAsia announcing its India plans, we witnessed a bonanza for consumers for a brief period, with several airlines led by Jet slashing fares by 50 per cent. The good times didn’t last, with the regulator stepping in and proposing a price band to ensure sustainability of airlines.
Going by its reputation, AirAsia is expected to trigger a rethink on price and operational efficiency. Travel agents and frequent travellers say that despite its practice of charging for every convenience, AirAsia works out 30-40 per cent cheaper (no wonder, all their flights from India to Malaysia, Singapore or Australia are packed), which would help open up the Indian aviation experience. Official sources, however, fear that “the civil aviation ministry will extract its pound of flesh—hopefully it won’t make (AirAsia group CEO Tony) Fernandes rethink his plans and make the low-cost carrier in India a high-cost model”.
What exactly are the sticking points? It is only after getting an NoC from the civil aviation ministry that AirAsia can apply for a flying licence from the Directorate General of Civil Aviation (DGCA). The regulator looks into the financial health, the operation plans, the fleet and the personnel before its nod. The route plans and allocation of ground slots are also under DGCA command.
Union aviation minister Ajit Singh, who heralded the change in FDI rules for the sector, says the entry of Tatas and AirAsia will be good in general terms as it will help increase connectivity and competition, which leads to improved efficiencies. “But there are inter-ministerial differences about the procedure of the joint venture—at what point they should have come to the civil aviation ministry,” Ajit told Outlook.
Obviously, this will see the start of a lengthy process of getting a no-objection certificate from the civil aviation ministry, and through it, a nod from the home ministry, as many of the airports in the country like in Agra, Goa, etc operate out of defence infrastructure. The top brass of the new airline will also need home ministry clearances. The process is not very simple. “The devil will be in the details,” says Bharat Bhushan, former additional secretary, civil aviation and DGCA, who was eased out for initiating action against Kingfisher.
Sure, it will take some time. “Over the next year, I expect the government to push it through to send a strong signal to investors,” says Kapil Kaul, CEO, South Asia, Centre for Pacific Aviation, hopeful that issues about the structuring of the joint venture will be resolved soon. It’s not clear for now if AirAsia will apply to be a regional carrier or a national one. Experts share concerns about the lack of transparency in the framework for issuance of national licences to airlines.
Mark Martin of Dubai-based Martin Consulting, a former vice president of Spice Jet, is optimistic that AirAsia India will be able to start operations by year-end and act as a catalyst to woo back foreign investors due to its credibility in overseas markets. “Kingfisher had destroyed India’s reputation abroad. Companies had become wary of leasing aircraft to Indian companies. AirAsia, which is a mature player in the market, known not to suck money out of the country, should be able to win back credibility not just from aircraft leasing companies, but also from fuelling and spare parts companies,” he says.
Echoing that sentiment, Stic Travel Group chairman Goyal says the AirAsia venture in India will help promote tourism. He states that 25-30 per cent of his customers, particularly independent travellers to Southeast Asia, opt to buy AirAsia packages. The question mark, however, remains whether Indian policymakers will play along and set the pace for course correction in low-cost air travel within the country.
".. several airlines led by Jet slashing fares by 50 per cent. The good times didn’t last, with the regulator stepping in and proposing a price band to ensure sustainability of airlines."
What?? Lower limit of the air fair mandated by the government? Regulators genuinely believe all airlines operating in the country are Air India.
The cost of aviation fuel is very high. The reason why this is so, is because the aircraft, today consumes great amounts of fuel, the reason why kerosene is relatively less expensive than even diesel is the same. If aviation fuel was as important as diesel, or kerosene, it would be interesting, because I don't know what the price and it's mechanism would rest on. The idea, 'miles to the gallon', is no concern to the consumer, in aviation fuel terms, and shouldn't be. Airbus as an example, makes very outstanding aircraft, but if the aircraft in it's most fuel efficient model, was manufactured, in very great numbers, then the man would feel that the situation is not very satisfactory, when he was not flying. If we had a certain priority, then aviation fuel might be very cheap. Just because we consume fuel in large quantities, the price is so, and we consume in particular ways. It appears, that it is very agreeable for people like me, that companies like Airbus exist, and Air Asia, and Air India. It also seems, we appreciate high value manufacturing, and this is very resource intensive, but every man, will appreciate it more, even Mr. Tata, that if there is a problem with cooking fuel, and with automobile fuel, then people feel it is an unnecessary nuisance(problem). I see a perception, that human civilisation is naturally following a path, where manufacturing is high value, and resource intensive, because we want to give it a lower priority later. This seems a natural biological function.
Even as I welcome the Malaysian investment in India’s civil aviation sector via Air Asia, I have still my doubts as to whether the low cost airlines in general would be able to do well in India. As all know very high occupancy rate of 80 per cent is required for a low cost airlines to survive and grow in the local civil aviation market. Of course, Kingfisher Airlines is not an ideal example of a low cost airline nor is the closed venture of Captain G R Gopinath (Deccan Airways). I believe that our civil aviation market is still not ready for absorbing huge passenger capacities because there are not enough passengers who use air travel for private visits, although it now quite common for company executives and businessmen to go by air. Hence it would be big challenge for new low cost airlines, Air Asia, to widen the market and increase the number of those wish to travel by air even for personal work.
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