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AirAsia to focus on large JVs in bigger markets like India

CEO was in India on a second visit since foreign airlines were allowed to buy up to 49% in local airlines
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First Published: Fri, Dec 07 2012. 12 26 AM IST
AirAsia chief executive Tony Fernandes. Photo: Romeo Gacad/AFP
AirAsia chief executive Tony Fernandes. Photo: Romeo Gacad/AFP
Updated: Fri, Dec 07 2012. 01 03 AM IST
New Delhi: Malaysian discount airline AirAsia Bhd plans to focus on huge Asian markets such as India with large joint venture airlines, its chief executive Tony Fernandes said in online posts on Thursday.
Fernandes was in Mumbai on his second visit to the country since the Union government in September allowed foreign airlines to buy up to a 49% stake in local airlines.
“Feeling really good about India. Going to be a big market like China for AirAsia,” Fernandes said on Twitter. “AirAsia will focus on larger joint ventures. Think we are done in Asean (Association for Southeast Asian Nations). We focus on what we have.”
His previous trip to India in late September was to receive an award from a fashion magazine.
While Fernandes’s entries made evident his interest in running airline operations in India, it wasn’t clear how this would come about. He did not respond to an email seeking comment.
AirAsia’s subsidiaries in other Asian nations—Thai AirAsia, Indonesia AirAsia, Philippines AirAsia Inc. and AirAsia Japan—face competition from new rivals such as Indonesia’s LionAir that have placed big orders for aircraft.
Civil aviation minister Ajit Singh said in an interview this month that the government was keen on getting foreign capital into existing airlines.
Fernandes last week rejected speculation that AirAsia, which operates a fleet of Airbus SAS planes, had “submitted a bid for the Indian budget carrier (SpiceJet)”, adding that the airline “has no intention of doing so”.
SpiceJet Ltd primarily runs Boeing Co. aircraft and has a limited fleet of Bombardier planes to fly to small cities and towns.
Jet Airways (India) Ltd, the country’s second largest airline by passengers carried, is in talks to sell a stake to Etihad Airways, the national airline of the United Arab Emirates. Kingfisher Airlines Ltd has huge debt and so may not be attractive to AirAsia, while IndiGo, owned by InterGlobe Aviation Pvt. Ltd, has said it has no plans to sell a stake.
That leaves only GoAir, which runs on an Airbus fleet, as a potential partner for AirAsia in India, said an executive with a private airline, declining to be identified.
GoAir chief executive Giorgio De Roni could not be reached for comment. A text message sent to his mobile phone on Thursday remained unanswered.
The airline executive mentioned above said AirAsia will face tough competition in India—where Air India Ltd, IndiGo, Jet Airways and its budget subsidiary Jet Konnect, SpiceJet and GoAir serve 60 million domestic passengers a year—unlike in Malaysia where only Malaysia Airlines is a major competitor.
“In markets like the Philippines, AirAsia started with one or two planes. So when Tony says large joint ventures, he may want to start bigger in India, otherwise he won’t matter,” this executive said.
A second executive with another private airline said AirAsia’s order for 280 Airbus aircraft will leave it with a huge surplus of aircraft, requiring it to tap into new markets.
“If he (Fernandes) does start an airline in India, it is almost certain that he will start with a huge cost advantage over most other existing players because of the scale of his existing operations in Asean. AirAsia already has the lowest cost on per-unit basis in the world,” this executive said.
“A record aircraft order of over 280 aircraft means a huge savings on capital cost of buying these aircraft. Industry estimates suggest a discount of over 50% on list prices. In addition, 100 of these aircraft are new generation A320 NEO’s that promise to bring a 15% reduction in operational costs as they have new engines,” he said.
India still does not have a true hub-and-spoke airline—a large airline such as Singapore Airlines that flies primarily to one “hub” airport from where its passengers embark to their final destinations.
Full-service airlines in India have for years not paid much attention to building their networks and connectivity. As a result, the entry of another low-cost airline would scare full-service airlines that are not prepared for additional competition, the second executive said.
But he also said AirAsia will find its operations restricted in India because only about 35 of the 125 airports in the country have runways equipped to serve the Airbus 320 type of aircraft in its fleet.
“That is the real risk. Why do you think SpiceJet went in for a two-aircraft strategy? Because if you are a single-aircraft type pure-play LCC (low-cost carrier), using an Airbus A320, you can’t grow beyond the 35 cities that can handle an A320 operation. That’s just one-third of the airports in India with about 90 airports that are available for scheduled airline operations,” the official said.
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First Published: Fri, Dec 07 2012. 12 26 AM IST