Business

A Flight For Pidgeons

Low-cost AirAsia’s expected entry will rejuvenate a sickly sector, boost foreign investor confidence

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A Flight For Pidgeons
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From AirAsia To You

  • Known to offer special discounted price for early birds; online bookings through own site
  • Charges for almost everything on board, from luggage to meals, blankets to entertainment.
  • Yet, package deal for frequent travellers is 30-40 per cent lower than those of rival airlines
  • Will introduce “free” tickets (taxes extra) and open up new short-haul segments in south
  • On most routes operates at above 80 per cent capacity; keeps unit cost lowest for profitability

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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.

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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.

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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.

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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”.

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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.

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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.

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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.

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