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Corporate Mar 8, 2013

Why Indian carriers may be gunning for AirAsia venture

By Sindhu Bhattacharya

New Delhi: If history is any indication, India's established low-cost carriers (LCCs) are sure to resist AirAsia's attempts at starting a budget airline in India.

After all, the new airline, where Tatas and Bhatias are also equity partners with AirAsia, is speaking of consistent low fares as its USP-a space which the IndiGos and SpiceJets currently occupy. And they are unlikely to give it up in a hurry.

It is also pertinent to note that the Tatas' two previous attempts at entering aviation were thwarted by well-connected competitors.

Reuters

The message is clear: AirAsia will perhaps be in direct competition with IndiGo and SpiceJet for fares. Reuters

"India's incumbent airlines will almost certainly resist the entry of such a force as AirAsia in representations to the government, which in turn will have to weigh up the consumer benefits from increased competition and the impact on the stability of the sector. AirAsia Group's pricing strategy, utilisation of its brand asset and aggressive marketing tactics could pave the way for another shakeout in the market which has already seen the suspension of operations by Kingfisher Airlines in October 2012," said aviation consultancy CAPA in an analysis this morning.

Already, there are murmurs in the corridors of Rajiv Gandhi Bhawan, which houses the ministry of civil aviation, about competitors being none too happy about AirAsia's entry.

An industry official closely associated with the new airline told Firstpost earlier this week that while the new airline would like to offer the lowest possible fares, it would be foolhardy to expect Re 1 kind of fares since the operating environment in India is not as low cost as in Malaysia.

"They will compete on low fares with existing LCCs but they obviously cannot offer shockingly low fares since airport charges, fuel costs etc are very high in India," this person said.

The message is clear: AirAsia will perhaps be in direct competition with IndiGo and SpiceJet for fares and this would be particularly true in the south Indian markets since AirAsia's base would be Chennai.

In a story this morning, the Economic Times also points to competition moving in to scuttle the new airline. "Some of the country's leading airlines have indicated their opposition to AirAsia's aircraft purchase programme, saying they could lobby with the ministry to scuttle the purchases if these are large in number."

A senior official in the ministry of civil aviation had earlier indicated to Firstpost that since the new airline proposes to bring paid up equity of Rs 80 crore, it can technically seek permission for a fleet of 15 aircraft.

In its report, CAPA goes on to add that though AirAsia is a strong brand in the ASEAN region, the brand has not had entirely smooth sailing in India since it launched Kuala Lumpur-Tiruchirapalli service in December 2008.

Inability to access local distribution networks is a big reason, which the airline is now addressing. India has been the only market in Asia that has seen a decrease in AirAsia capacity over the past 12 months.

The AirAsia brand currently accounts for just about 10 percent of seat capacity in the India-Southeast Asia market, compared with about 14 percent one year ago. As per the latest data, there are 5,171 weekly international services to/from India of which AirAsia operates 78 and Thai AirAsia operates 24 for a total of 102 services in the week.

This makes the combined AirAsia Group the 16th largest carrier operating to/from India, or the 11th largest foreign airline group operating to India but competitor Malaysia Airlines has a larger operation to/from India in terms of seat capacity.

So will competition allow AirAsia and the Tatas a shot at the Indian market? Unless the government's various arms move together to permit AirAsia to at least begin operations, the airline will find it tough to operate here.

by Sindhu Bhattacharya

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