AirAsia boosts Indian confidence in new joint venture

NO, budget carrier AirAsia is not taking the route of Etihad Airways which is still mulling over a possible buy-in of Jet Airways. It will not be laden with the debt of airlines such as Kingfisher Airlines, a possible candidate for takeover. Instead, Asia’s largest discount carrier is partnering with non-aviation Indian investors to set up a new budget carrier to be based in Chennai, taking advantage of India’s relaxed ruling to allow foreign owner4ship up to 49 per cent. AirAsia will own 49 per cent of the new venture, with Tata taking 30 per cent and Bhatia 21 per cent.

GETTY IMAGES

GETTY IMAGES

AirAsia’s foray may be seen as a move to restore confidence in the somewhat messy and debt-ridden Indian airline business. Only one of India’s six main scheduled carriers- IndiGo – made a profit last year.  AirAsia chief Tony Fernandes is beaming with confidence, having reportedly said: “First, there are a billion people in India; second, millions of people travel in trains; and third, there is a big potential in under-developed routes. We have been studying the Indian market for the past three years and we feel now is the right time.”

Few analysts would refute the potential of the Indian market, which explains the continual sprouting of upstarts, yet not few have come and gone. AirAsia, which planned to kick off operations of the yet-to-named airline in the third quarter of the year, said it would introduce new low fares – very much its trademark selling pitch across its network – and this comes at a time when airfares in India are rising. How will this play out in the competition?

It may be a test of staying power. AirAsia is backed by strong partners without the mess of a debt hangover. Besides, AirAsia is not an unknown brand in the Indian market, as the carrier already operates to five Indian cities. AirAsia’s long haul arm – AirAsia X – pulled out of India last year because of poor demand. If the new domestic carrier succeeds, AirAsia will stand to gain even more in attracting customers beyond India.

But the competition may become more challenging for the smaller carriers such as SpiceJet and IndiGo, especially when AirAsia is targeting the same market. But that’s India. Despite the turbulent skies, there are opportunities. And in spite of the opportunities, some carriers will make an exit sooner than expected.

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About David Leo
David Leo has more than 30 years of aviation experience, having served in senior management in one of the world's best airlines and airports. He continues to maintain a keen interest in the business, writes freelance and provides consultancy services in the field.

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