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Corporate Feb 25, 2013

Air Asia’s recipe for success: A thorough study of Indian avation

By Sindhu Bhattacharya

New Delhi: The new airline which AirAsia proposes to set up with Tata Sons and the Bhatias seems to have studied the Indian market at length before taking the plunge. Some of its decisions, which are coming to light only now, appear to be born out of this careful study.

Malaysia based AirAsia, Asia's largest budget airline, has already moved the Foreign Investment Promotion Board (FIPB) for approvals to begin a budget airline in India. It won't raise debt: According to a story in the Hindustan Times this morning, the airline has said in its FIPB application that it will not raise debt to fund the venture in India.

Reuters

It will use AirAsia brand name. Reuters

It proposes to invest $15 million for 49 percent stake in the three way joint venture and "we will not risk any loan in India towards our contribution in the share capital of the JV". Given the huge debt pile that Indian carriers are struggling under, this decision would go a long way in helping the new airline stabilize. It will use AirAsia brand name: The same story also says that the airline will continue to use the AirAsia brand name in India.

Again, since the brand is already well established in the Asian market as an ultra low cost carrier, the already strong brand equity will help it gain traction in the Indian market as well. Tony Fernandes could build pressure: The third thing which could work in favour of the new airline is CEO Tony Fernandes' panache.

A veteran who has worked across other flambouyant businesses, Fernandes comes across as a sharp contrast to the extremely low profile owners of IndiGo, the current market leader and single largest competitor to the AirAsia venture. Said an industry veteran "Fernandes knows how to pressurize the Government to build low cost infrastructure so that his airline gets the basics right.

The existing LCCs such as IndiGo, SpiceJet etc have been asking the Government to build low cost airports but their pleas have fallen on deaf ears. With Tony, the Government may not be able to ignore public pressure". Government now thinking of low cost airports: As if on cue, senior officials in the Ministry of Civil Aviation told Firstpost this evening that the Airports Authority of India (AAI) has constituted a committee to study establishment of low cost airports in India.

At present, even though 70 percent of domestic airline operations happen in the LCC segment, India does not have designated low cost airports. Now that the Government has begun thinking of setting up these airports, its obviously not only going to help existing LCCs but also be a major boost for AirAsia, which operates the world over from these low cost airports. The Ministry officials said that AAI may eventually set up these airports in the smaller towns and cities where airport facilities are either non-existent now or the airports are suited for operation of only smaller aircraft like ATRs.

The committee is expected to submit its report by March 15th. Already expanding distribution:AirAsia obviously believes in speed. Though the airline is expected to take off only by end of this calendar year, AirAsia has already begin forging tieups with travel portals such as Yatra.com and makemytrip.com for wider distribution reach. Earlier, its sole distributor was expedia.com while it also sold tickets through its website and a limited number of travel agents.

by Sindhu Bhattacharya

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