India remains distant for AirAsia

Last Updated: Mon, Jan 14, 2013 05:15 hrs

Barely two months after 9/11, Tony Fernandes, then a vice- president at Warner Music, acquired AirAsia from a Malaysian government entity for a token amount. For the struggling airline, it was virtually a rebirth. Whether it was the mega sale of free tickets, or last month's $9.4billion order for 100 Airbus A320s, AirAsia has been making headlines regularly - all for the right reasons.

The low-cost airline has set up subsidiaries in Indonesia, Thailand, the Philippines and Japan and become the largest low-cost airline in Asia. However, its Indian story has been far from perfect. Instead of expanding and adding new routes to India, AirAsia was forced to pull out of Mumbai, Delhi and Hyderabad routes in the last two years. The airline cited high rate of taxation and tariffs in India as the primary reason for the move.

But Fernandes, according to media reports, seems to be having a rethink about India. AirAsia has apparently held preliminary discussions with the Videocon group for a possible joint venture in India.

  • First flight to India : Trichy in December 2008
  • Flies to : Chennai, Trichy, Kochi, Thiruvananthapuram, Bangalore and Kolkata
  • Weekly seat capacity (non-home markets) : India - 20,500; Macao - 22,680; Vietnam - 25,560; Hong Kong - 28,800; China - 47,612
  • Fleet - 117 airbus A320s. (AirAsia X, which flies medium and long-haul routes, has nine airbus A330s)
  • Aircraft on order - 475, including the A320neo
  • Destinations - 85 (AirAsia X - 12)
  • Passengers flown ( first three quarters of 2012) - about 25 million. Air Asia X - 1.91 million

Note : AirAsia X is a separately owned long-haul carrier of AirAsia group. It used to fly to Mumbai and Delhi . AirAsia Group includes its airlines in Malaysia, Thailand, the Philippines and Japan. 2012 statistics do not include data from airlines in Japan and the Philippines which were launched last year

Will Fernandes, who has been quite vocal about the lack of a level playing field in India, play ball? Analysts are skeptic. "AirAsia is always studying several potential new markets for new JVs and affiliates and obviously India has become an option for the first time. But I think the market fundamentals (sales tax on fuel, high airport tariffs) would need to change and/or more consolidation would need to occur before AirAsia invests in an Indian airline or establishes a new Indian JV," says Brendan Sobie of Centre for Asia Pacific Aviation.

Sobie's analysis shows that while AirAsia has grown rapidly in the region, it has shrunk in India. It now offers more capacity to even Macao than to India. "AirAsia is growing rapidly. In 2012, the group's passenger growth was 12 per cent. In 2013, the growth is likely to be even higher. That's why the decline in India is unusual," Sobie says.

In fact, India has been the only market in Asia which has seen a decrease in AirAsia capacity. The AirAsia brand now accounts for about 10 per cent of seat capacity in the India-Southeast Asia market, compared to about 13 per cent a year ago (in January, 2012). As a group, AirAsia currently offers only about 20,000 weekly seats to and from India. That makes it the 12th largest foreign airline brand in India.

From 2009, Air Asia launched flights to nine cities in India but has now pulled out from three. "We would like to increase flights to India. But constraints like high taxation are keeping us back. We have eight daily flights from India to Malaysia while there is only one flight by an Indian airline," a senior AirAsia executive remarks. AirAsia operated an Airbus A330 with 377 seats (under its AirAsia X brand) on the Mumbai and

Delhi routes. It uses a narrow body airbus A320 on other Indian routes. But high taxation and low demand from Malaysia forced the airline to withdraw from Mumbai and Delhi.

Competition from rival Malaysian Airways and relatively weaker distribution network in India have also impacted the airline. AirAsia is a point-to-point carrier and does not have code share or alliances with other airlines. Like other low-cost airlines, it does not use global distribution systems to sell tickets and does not pay fixed commission to agents.

While AirAsia offers low fares, it does charge passengers on board service like meals and entertainment, luggage and priority seating. Its other cost saving practices like not tagging bags meant for onward destinations (beyond Kuala Lumpur for instance) requires passengers to collect bags on arrival in that city and do check-in again for the connecting flight. This requires passenger to obtain a Malaysian entry visa and adds to costs.

"The launch of international routes by Indian low-cost airlines with very aggressive marketing and pricing strategy has definitely made the competition tougher for Air Asia," says G M J Thampy, chairman of Riya Travels.

What does the man at the Air Asia cockpit has to say about India? Fernandes was recently quoted by Malaysian news agency Bernama as saying that AirAsia is keen to have more presence in India, but only if the "aviation environment" and tax structure are "conducive and friendly" for low-cost airline operations.

"If everything is right, we will be stupid not to enter the Indian market," Fernandes said. Many say the "if everything is right" part will prove to be a tall order.

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