Opportunities Open Up As AirAsia India Takes Off

Competitors were taken by surprise while industry pundits could not figure out the logic as AirAsia India announced its launch with an Airbus A320 aircraft taking off from Bangalore Kempegowda airport on June 12 afternoon to land in Goa’s lone airport in Dabolim, 30 km from Panaji, in 75 minutes. The announcement came on May 30, which was just the 23rd day after the airline cleared the last hurdle to get the Air Operator’s Permit (AOP) from Directorate General of Civil Aviation (DGCA). The launch comes at a time the peak season was to end in days. It defied conventional wisdom as a two-month lean period soon after the launch could mean the risk of compounding loss. Aviation experts were expecting a September launch when the peak season once again begins. But the newbie had other plans.

AIRASAI_B_31.5

The 16 months from its announcement in February 2013, the going for AirAsia India was not smooth with rivals ganging up against the joint venture of Malaysia-based AirAsia Bhd, Tatas and Telstra and fighting a court case. BJP leader Subramanian Swamy and rivals under the aegis of Federation of Indian Airlines (FIA) approached the court against a series of approvals for the new airline saying the relaxed FDI norms allowing 49 per cent foreign investment was for existing airlines, which are already in operation, and not for new or proposed joint ventures. The DGCA granted the AOP with a rider that the Delhi High Court, which is hearing a case, would have the final say. After the DGCA gave its nod, the FIA approached the court again seeking quashing of the AOP but the High Court refused to be drawn into it, saying the regulator has noted that the permit is subject to its final verdict. The court has now set July 11 for hearing the petition challenging the approvals being granted to AirAsia India. As there is no stay, the new airline could start operations but will have to wind up if the verdict goes against it if the airline does not choose to legally challenge it.

With the regulator clearing the schedule, the AirAsia India rushed to launch its operation “with just one airline”, which the FIA said was “unheard” of.  The FIA alleges that the authorities acted with “indecent haste” to “pre-empt a review” by the new government of the decisions taken by UPA government and DGCA in favour of AirAsia India. This, it alleged, is to ensure that the authorities have made the decision a “fait accompli and irreversible through the creation of third party rights”. A possible shrink in market share might have prompted the existing airlines to stall a new entrant.

The need for more investments and more players in the sector had been aptly put by a three-member panel set up by DGCA earlier this year to look into objections raised against allowing AirAsia to operate.

The tail section of an Air India Airbus

The panel emphasized the “strong need” for facilitating air traffic by encouraging existing airlines as well as allowing new entrants, saying it gives public improved global and domestic connectivity at “reasonably affordable” tariffs.

It talked about bringing operational efficiency and expertise in the existing airlines so as to ease their financial hardships, “which could only be brought by stiff competition and improved work culture, which can only be provided by introduction of new entrants”.

The competitors also sprang their share of surprise with a counter-attack to tackle AirAsia’s aggressive pricing strategy. Even before AirAsia officially announced where it would fly, SpiceJet came up with a discount sale for the same routes their rival was flying. IndiGo too followed suit with a Re 1 plus tax tickets while AirAsia had announced Rs 5 plus tax tickets.

With its arrival, AirAsia India has ruffled quite a few feathers. Fliers are excited about the war in air, as it would mean less to spend on air tickets. It could also allow more people from with modest means in smaller towns to take the aerial route to reach far-off their destinations. However, experts warn that the fare war may lead to choices getting limited, as some airlines may have to shut down in such scenario. Another question that arises is whether fliers will be at the mercy of airlines once there is consolidation of market as fare could rise as we witnessed in the recent times. Initially, at the time of their launch, IndiGo and similar carriers had offered low-cost tickets but after consolidation of the market, they started increasing fares. In some sectors, a study has pointed out that the fares of low-cost carrier are higher than that of the full service carrier. Now, an intensive fare war is on to garner the market share and once it settles, the worry for fliers could be an increase in fares.

“The intense competition, which is expected to greet AirAsia’s entry will also place great pressure on some of the incumbent carriers which are struggling and whose holding power may be tested,” the Centre for Asia Pacific Aviation (CAPA) said in an analysis.

Air-India-2-logos

A section in the industry believes that the entry of new players bring in robust competition in the Indian skies, which will benefit the growth of the sector. They believe it will attract international players. To make this a win-win situation, experts say India needs to be open up its air. India should aim to turn itself as a hub rather than losing it to Dubai or Singapore, they say. For this, India needs to have more international brands and private players.

Now, it is to be seen whether AirAsia India’s entry will help the existing operators redefine the low-cost model by unbundling of services that will lead to passengers paying extra for services like baggage. It will also bring in international practices on the low-cost model to India.

The entry of Tata and Singapore Airlines with a joint venture is also expected to stimulate the sector as it opens an opportunity to develop the industry. A rollback of a “discriminatory” rule, which says that an Indian carrier can start foreign operations only after five years of existence and having 20 aircraft, will enable it to start foreign operations. More investments mean more growth and more jobs.

With a new government in place, the industry believes that things will change and they would be able to rise from the slump. The government would have to pilot the sector with a number of airlines are still in the woods to safer skies. The industry has a long list of demands like notifying Air Turbine Fuel as a declared good resulting a reduction of sales tax to 4 per cent from 24 per cent.

Every decision the government now takes would have a long-lasting bearing on the sector as it was witnessed in 2004 when the Indian skies were liberalized. More foreign airlines are showing interest in investing in Indian carriers. Ashok Gajapathi Raju, the new Civil Aviation Minister, says he has an open mind on dealing with the issues. For him, the challenges have been outlined. Industry is expecting speedy and decisive action from the Minister on crucial issues.

(An edited version appeared in Spotlight of Deccan Herald on June 8, 2014)

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