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Corporate Feb 21, 2013

AirAsia-Tata deal is positive for Indian aviation

By Firstbiz Editors

Malaysian no-frills carrier Air Asia's announcement of its Indian joint venture comes at a time when airline companies in India are engaged in a fierce fare war. Is this just coincidental? There is no evidence to prove otherwise.

Jet Airways, SpiceJet, IndiGo and Air India are fighting a declining passenger traffic and in their bid to keep their "head above water", as explained in this Firstpost analysis, are engaged in a "new round of bloodletting".

This is just one of the bad news from Indian aviation. The government has not made much headway in making its aviation policy friendly for the companies.


The government has not made much headway in making its aviation policy friendly for the companies.Reuters

Almost dead Kingfisher Airlines itself is a grim reminder of the troubles in the sector.

Though most of the travails of Kingfisher are Chairman Vijay Mallya's own creation, there are a few, like irrational fuel taxes and airport charges, which the government also has to take the blame for.

Despite this abundance of troubles in Indian aviation, AirAsia Chief Executive Officer Tony Fernandes is positive about the sector.

He thinks he can change people's lives here. In an interview in Mint newspaper today, he has said that it is the driver whom he hired during his travel in India who gave him this confidence.

"This man took 40 hours to get from Madras to Delhi in a train and we were talking about fares (as he drove him around for meetings in Delhi) and how much he would pay to fly and that gave me the confidence to change many people's lives in India and really create a product which could really be low-cost and make an impact," Fernandes has been quoted as saying in the interview.

He told CNN-IBN that he hopes to start operations of the three-way joint venture by investing $30-50 million.

He said the company is not deterred by the high ATF rates and airport charges in India. He feels a progressive government with an eye on growth is more important. Clearly, his optimism stems from the recent policy reform initiatives undertaken by the government.

As far as strategy is concerned, he told the TV channel that Air Asia will do it differently from other airlines in India.

"We are here to create a new market, address new routes," Fernandes told CNN-IBN.

Mallya just became more confident

Among those who have become more confident after the three-way joint venture announcement yesterday is none other than Mallya, whose Kingfisher has not flown a single plane since October.

"With this deal, AirAsia is clearly going after the potential of the domestic market. This is one of the reasons why I have been relentlessly pursuing the re-start of Kingfisher, which I am very confident about with the support from all the stakeholders," Mallya has been quoted as saying in a report in the Times of India.

Mallya's confidence about Kingfisher may be a bit misplaced considering the sorry state of affairs at the airline, but the confidence he has about Air Asia's entry is really something.

Fernandes's grit and determination is storied. According to this Reuters report, in 2001 he forayed into aviation by buying "the then loss-making AirAsia from Malaysian conglomerate DRB-Hicom for about 33 cents and took on the airline's debt of $13 million".

When he started off, the company just had two Boeing planes, one destination and a staff of 250. In five years, he had 30 Boeing 737-300 aircraft and 15 Airbus A320s. It also started flying to more than 45 destinations in Malaysia, Thailand, Indonesia, Macau, China, Philippines, Cambodia, Vietnam and Myanmar, according to this report.

Now the airline flies across more than 20 countries and has five associate companies AirAsia X, Thai AirAsia, Indonesia AirAsia, Philippines' AirAsia Inc and AirAsia Japan.

The growth is fabulous considering that the company started operations during the tumultuous post-9/11 days.

In the years to follow, Fernandes fought many a battle, against rivals and also the Malayasian government in his bid to clinch routes. He lobbied with various governments in the South East Asian nations to open up the market for low-cost airlines, according to a report in the ToI.

Bigger rivals were forced to follow AirAsia and start low-cost airlines.

The phenomenal success is also because Fernandes is a hands on CEO. Once every month he works as a cabin crew member or supervises loading and unloading, another report in the ToI said.

Shining through all these is Fernandes' determination. "Go with your gut, give it your best bet and you may fail, but don't give up," he once said in an interview.

This is the animal spirits that India is lacking in at present. And, naturally, the response to the announcement from India, in Fernandes' own words, has been "amazing".

"The Indians are very excited about it. It's something I am very proud of, it's something that's been long in the making," he told Mint.

One thing is for sure, with the confidence he exudes and people's goodwill, this Malaysian of Indian origin-his father Stephen Fernandes was an Indian from Goa and mother Ena Fernandes a Malaysian from south India-is all set to change the dynamics of the much-battered Indian aviation.

by Firstbiz Editors

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