AirAsia's Foray into India

AirAsia chief Tony Fernandes says that the market in India is now favourable and it's the perfect time to enter as silly capital has gone out. AirAsia India will start operations from Chennai in October.

The writing is on the wall. Asian airlines are going to dominate the skies in the not so distant future. Airlines from Middle Eastern countries and South East Asia have started making expansive global footprints to prove that. From Malaysia comes AirAsia, the award winning and the largest low fare airlines in Asia, which in a matter of 13 years has expanded rapidly and broken travel norms around the globe to be in the reckoning of top airlines. Now, it is foraying into India.

The budget carrier, which already has connected to a few Indian destinations, is now set to capture the Indian market by launching AirAsia India operations, hopefully by October this year. Efforts are on to get the air operators’ certificate and the airline is partnering India's best known corporate conglomerate Tata Group and Telestra TradePlace in a 49:30:21 holding joint venture. Recruitment process has already begun and the clearance from the Indian Foreign Investment Promotion Board (FIPB) has been received.

AirAsia Group Chief Tony Fernandes (who has Indian roots, his father is a Goan), like many other top airline executives, knows what the Indian market means to aviation business. “The potential of India was always there in my eyes. But the market was not conducive and so I stayed back. There is much scope now although lot of change needs to be done structurally,” he said, in response to a query by Jayant Baranwal, Editor-in-Chief, SP’s AirBuz, on the prospects of the Indian aviation market.

“India is fantastically located and can be a major international hub. India is now favourable and it’s the perfect time to enter. Silly capital has gone out. Eight years ago, I said, I will never come to India as there are crazy guys in this business who had too much money to throw away. They have lost all their money now.”

Stating that ticket fares in India were abnormally high, Fernandes vows to keep AirAsia ‘low-cost’. “I want to bring air ticket to a price where the drivers who drive me in India can afford to fly.” While tickets on this airline will be available at a discounted price, other facilities such as inflight catering, seat of one's choice and baggage will have price tags. “Nothing comes free,” he avers.

AirAsia will have Its Indian footprint from the southern states considering the flying time from Kuala Lumpur (three to four hours). The airline will have its head office at Chennai airport with connectivity to Kochi, Bengaluru and other cities in the region. There are plans to set up a maintenance, repair and overhaul (MRO) facility in Chennai. As for Delhi and Mumbai, he feels that the airport charges here are too exorbitant for any low-cost airline, making operations economically unviable. Making a case for low-cost airports, he insists that airports should become more proactive as to prop up airline business which will have a cascading effect on the economy.

Fernandes has had series of meetings with the Union Finance Minister P. Chidambaram, Civil Aviation Minister Ajit Singh and Industry Minister Anand Sharma apprising them of AirAsia's plans, during a month which has seen hectic decision making with regard to Indian aviation policies. Fernandes is all praise for the Indian bureaucracy stating “I have dealt with many governments and I find Indian bureaucrats knowledgeable.” During his visits, he was accompanied by AirAsia adviser Ratan Tata and AirAsia India CEO Mittu Chandilya as well.

Praising Ratan Tata, he says, “We have a fantastic chemistry.” He says that while he has experience in aviation, Ratan Tata has experience of doing business in India and is highly revered in the country. “The partnership with Tata is sacred and so is with Arun Bhatia,” declares Fernandes. As regards the government, he quips, “The Ministers here are smart.” The AirAsia team is explaining to the Ministers what is required and how it will have a multiplier effect.

He knows how India's pioneering low-cost airline bit the dust. There are lessons to be learnt from such failures, he states and believes strongly in cost management. “Indian revenue management is too primitive.”

It remains to be seen how Fernandes is going to introduce a new revenue model in India where existing airlines have had financial issues. Attributing the failure of Air Deccan to its structure - lack of a balance sheet and having two types of aircaft, he emphasises how AirAsia has been relying on Airbus. With regard to Air India he states private enterprise should be at the helm of its management if it has to revive to go back to its glory of the Maharaja days. “If you cannot make an airline work in a 1.2-billion population then something is wrong,” he remarks. “Too many people have vested interests and do not think of what India needs. The Government should just think of what is good for India. Airlines should focus on opportunity.”

The high cost of aviation turbine fuel (ATF) continues to be a bugbear for all airlines, irrespective of whether they are full service or low-cost. “The price of ATF has increased from $30 ( Rs. 1,800) to $130 ( Rs. 7,800) a kilolitre since I started business 11 years ago, but our margins are better. ATF price is 30 per cent higher in India. I am dealing with it and it doesn’t bother me anymore. We will talk to the governments.” He has no plans of importing ATF.

Fernandes’ man in India Mittu Chandilya seems even more excited about the Indian opportunity. Stating that he is bullish about India, he affirms that AirAsia India is a fantastic proposition. “My goal is to make AirAsia India bigger than AirAsia. My aim is to revolutionise completely and create an entirely new market. I am a competitor and will work hard.”

The success story of AirAsia and Tony Fernandes are closely interlinked. Malaysia-born Tony Fernandes had acquired the lossmaking AirAsia for the token sum of one ringgit (about $0.26) and had a debt of $11 million ( Rs. 66 crore). But Fernandes turned the company around making huge profits and launching many new routes. It took him seven years to persuade the Malaysian Government to let AirAsia fly to Singapore and once approved there has been no looking back. Now it is destination India.

Airline business is a long-term business and the trend no doubt is towards low-cost. Five years from now, Fernandes feels that there will be substantive changes with more people flying, facilitated by low fares. Low-cost airlines, low-cost airports, etc, will spur the industry, creating jobs and opportunities. Though the outspoken AirAsia Chief admits that there is no guarantee of success, he quickly adds, “You will see me for many years to come.”

To make things easier for new air travellers in India, AirAsia India plans to make booking air tickets easier. The tickets, he said will in course of time be available in Tata Group’s retail outlets and with small travel agents, so that people without credit cards also can book. “Flying should be for everyone and not only for the rich.” In line with the company’s tagline “Now Everyone Can Fly.”