Bleeding rivals gang up in bid to clip new carrier's wings

The Indian joint venture of Malaysia's AirAsia, set to take to the skies next week with rock-bottom fares, faces a market filled with bleeding rivals that have ganged up to oppose the new entrant.

While the competitors have gone to court, petitioned the government and even launched a Twitter war, the pioneer of low-cost flying in Asia says that it is confident of succeeding in one of the world's toughest markets.

AirAsia India is a 49:30:21 partnership between AirAsia, Indian business conglomerate Tata and Telestra Tradeplace, an investment firm.

It is the first airline to be launched since India allowed foreign airliners to invest up to 49 per cent in a domestic firm.

The carrier is set to operate its first flight from Bangalore to Goa on June 12 and tickets for this flight - priced at 990 rupees (S$21) or about a third of market rates - were sold out in 10 minutes earlier this week.

It also said it sold out 25,000 promo seats within 48 hours of being offered.

"I have always been very bullish about India. It has a huge amount of potential that is untapped," Mr Mittu Chandilya, the chief executive officer of AirAsia India, told The Straits Times in a telephone interview.

"I want to target a segment which has never flown before or been able to fly as much as it likes."

Mr Chandilya, who was a management consultant in Singapore before being hired by AirAsia last year at age 33, is not the first aviation executive to fly into the Indian market with ambitious goals.

A slew of full-service and budget carriers have taken to the air in the last decade only to be hit by severe turbulence.

The combination of high aviation fuel costs, expensive airport charges and cut-throat competition forces fares to be kept unreasonably low in a country whose passenger numbers are forecast to nearly triple to about 450 million by 2020.

This has pushed all the main players, barring IndiGo, deep into the red and one high-flier, Kingfisher Airlines, was forced to suspend operations in October 2012.

Mr Chandilya said he is fully conscious of the challenge.

"We learn from the successes and failures of all the others. For the last 12 years we have been successfully doing what we have been doing in similar and different markets. We have internal best practices and we have studied what worked and what didn't.

"No doubt India is a very tough market and the costs are extremely high. It is unparalleled to other markets... It needs a great model to make sure we succeed."

AirAsia India also faces an additional complication.

Rival airlines have joined hands under the banner of the Federation of Indian Airlines (FIA) and petitioned the government and the courts to stop the new entrant, saying foreign investment cannot be encouraged at the cost of domestic industry.

"The government policy which allowed foreign investment was only for existing airlines and not new ones. That is our whole point of contention," a FIA member who did not want to be identified told The Straits Times.

Analysts say existing airliners resent the government move of 2012 as it allows new airliners to come in with foreign investment and without the legacy of problems that have piled up for them. Such new players could crush the old timers, they fear.

While the new government of Prime Minister Narendra Modi has not responded to the FIA petition, the Delhi High Court last month rejected its plea, saying it is hearing another similar petition against AirAsia India which is due to be taken up on July 11.

Mr Amber Dubey, Partner and India Head of Aerospace and Defence at global consultancy KPMG, told The Straits Times: "Unless the new government goes for policy, taxation and procedural reforms that lead to higher ancillary income and lower operating costs we may see worsening losses, leading to the exit of one or two players in the next 12 to 18 months."

yprajesh@sph.com.sg

This article was first published on June 7, 2014.
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