AirAsia India hopes to break even in a year

Last Updated: Tue, Jul 02, 2013 05:05 hrs

AirAsia India, a joint venture between Malaysia-based low-cost airline AirAsia, India's Tata Group and investment firm Telestra Tradeplace, will break even with 57-58 per cent loads, according to group chief executive officer (CEO) Tony Fernandes.

"Once we have a stable cost structure, that is after seven-eight planes, we will break even with 57-58 per cent occupancy," Fernandes said here on Monday. This is about half the number of passengers Jet Airways (India) Ltd required to recover cost in the last quarter of 2012-13.

AirAsia follows a strict cost control structure across its network and will replicate it in India as well. The airline has said it will start with three planes later this year, and then will add an aircraft every month.

Fernandes expects ancillary income to contribute as much as it does in Malaysia. Like other airlines in the country, AirAsia India will offer 15 kg of free luggage on domestic routes. In Malaysia, AirAsia earns about 18 per cent of all its revenue from ancillary sources.

"I am not going to reveal everything about ancillary revenue. We own our planes and owning aircraft is cheaper than leasing. They (IndiGo) are a good airline but this is not a zero sum game," Fernandes said, responding to queries on challenges from other low-cost airlines such as IndiGo. The AirAsia group will lease planes from its fleet to the Indian subsidiary at cost basis.

"India has a population of 1.2 billion. We are not here to take anyone's market share. We are here to grow the market. People doubted us when we started a flight from Kuala Lumpur to Trichy (Tamil Nadu) and now we have three daily flights. We are adding a flight to Madurai," he said.

Fernandes said AirAsia would match its sales and distribution strategy in India on the market requirement and would encourage web sales. As much as 80 per cent of AirAsia's bookings happen on its website; in India, an identical number uses travel agents for bookings.

"We keep receiving requests from portals like MakeMyTrip, but we have a special partnership with Expedia," he added.

Fernandes and deputy CEO Kamarudin Meranun are in India to interact with their team here, stakeholders and government officials. On Monday, they met Ratan Tata and Tata Group chairman Cyrus Mistry and on Tuesday, will meet civil aviation minister Ajit Singh.

Fernandes, who just snapped ties with All Nippon Airways and pulled out of a low-cost airline in Japan, admits there is a burden to succeed in India. "It has been struggle for us in Malaysia. It will be a struggle for us here. There is no guarantee of success... We can't change the market overnight, but we will go for it.''

Also, after AirAsia's Japan fiasco, Fernandes has decided not to partner with another full service airline. He added he believed in organic growth and saw mergers and acquisitions as value destroyers.

So far, AirAsia India has recruited 50 employees and pilots and cabin crew. Fernandes denied that he had hired pilots from IndiGo and said he would pay as per the prevailing market conditions.

"I am concerned about cost management," said Mittu Chandilya, AirAsia India CEO. "There are a lot of challenges, but we are focussed on opportunities. The challenges are mostly internal. I am focussed about cost management and hope to get it right.''

AiAsia India plans to launch operations from the end of this year, but is yet to receive a no objection certificate and permit from the government. It plans to add 10 planes over the next year and will focus mainly on south India before expanding to other parts. "We will bring India and Southeast Asia closer. Business between the two regions will expand and small and medium enterprises will benefit. India will become an important hub for us,'' said Fernandes.

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