New Delhi: AirAsia India, the proposed budget airline of the Tata group and AirAsia Bhd, plans to develop a network across the country starting with Chennai as the hub, with a fleet that it sees expanding to 36 planes in five years.
By the fifth year of operations, it expects to have a dozen planes each from its all Airbus SAS A320 fleet based in Chennai, Bangalore and Kolkata, according to the business plan that it presented to the civil aviation ministry on this week along with the application for a no-objection certificate to start an airline in India. Mint has reviewed the business plan. Kolkata will be the airline’s second hub, according to the plan.
AirAsia India can take to the skies only after ministry and then the aviation regulator approve the business case. The Foreign Investment Promotion Board (FIPB) approved the AirAsia proposal to set up an Indian subsidiary together with the Tata group on 6 March.
The airline submitted a detailed business plan of more than 30 pages to the aviation ministry, according to two people familiar with the matter who asked not to be identified. “The plan is to expand fast,” said one of the two.
India has about 420 passenger aircraft, and AirAsia says there is scope to add to this fleet.
The Tony Fernandes-led airline plans to connect its Chennai hub to Ahmedabad, Bangalore, Kochi, Kolkata, Delhi and Hyderabad and one other city with some of the five planes it plans to start with.
It will take a while before the new venture has a significant impact on rivals, said Binit Somaia, a Sydney-based director at Capa-Centre for Aviation, in an email.
“AirAsia plans to commence with three-four aircraft, and although it will ramp up quickly, it will likely be another year or so before the carrier develops a scale that starts to be felt by the incumbents,” Somaia said. “As AirAsia grows, we can expect to see the competitive dynamics of the market start to change.”
In the next phase, as more aircraft join the fleet, AirAsia India will make Kolkata a second hub with flights from there to Hyderabad, Delhi, Bangalore, Hyderabad, Ahmedabad, Lucknow, Pune and two other cities.
AirAsia India will have an authorized equity capital and subscribed equity capital of Rs.50.5 crore each, according to the plan. Parent AirAsia will hold about 48.95% in the joint venture, Tata Sons Ltd 30%, and Arun Bhatia of Telestra Tradeplace Pvt. Ltd 21%.
The board members of the Mumbai-registered company are Fernandes; R. Venkatraman, a former executive assistant to former Tata Sons chairman Ratan Tata; Bharat Vasani, the chief legal counsel of the Tata group, and Telestra’s Bhatia. Ratan Tata, a private pilot himself and one of the prime movers of the alliance, won’t be on the board as had been initially expected.
In its plan, the company cited the experience of the Tatas in aviation—having set up Air India, which was later nationalized—as being an advantage in its bid to build the business.
Only one director, Fernandes, is a foreign national. The security clearance by the home ministry takes longer for overseas citizens than it does for Indian nationals. Such clearance is mandatory for the board members of airline companies in India.
AirAsia didn’t list the name of the chief executive officer (CEO), who has already been chosen, according to tweets by Fernandes. Not naming the CEO suggests the person is an Indian national, who therefore won’t need clearance, said one of the persons cited above.
AirAsia India’s Airbus A320 planes will have 180 seats with a seat pitch, or space between rows, of 28-29 inches. Rivals SpiceJet Ltd and IndiGo have a seat pitch of 32 inches and 30 inches, respectively, according to Tripadvisor’s SeatGuru.com.
All the aircraft will be dry leased from lessors such as GE Aviation, Ansett Worldwide Aviation Services, International Lease Finance Corp., BOC Aviation and Macquarie AirFinance. Dry leasing means the planes will be staffed by pilots and cabin crew hired by AirAsia, a process that’s already under way.
In the first year, the airline will have five aircraft, all of them based in Chennai. In the second year, it will have 12 aircraft in its fleet with seven based in Chennai and five in Kolkata. In the third year, it will have 20 aircraft—nine in Chennai, seven in Kolkata, and four in Bangalore. In the fourth year, the airline will have 28 planes with 11 in Chennai, nine in Kolkata, and eight in Bangalore. By the fifth year—2018, if the carrier can get off the ground this year itself—its aims to have 36 planes, 12 each in Chennai, Kolkata and Bangalore.
The airline will be a strong competitor in the Indian market, but will face the same costs as rivals, said Somaia of Capa. Besides, its rivals will also be augmenting capacity over the next few years.
“AirAsia brings a formidable proposition to India, combining experience, expertise, capital and strong partners. However, there is unlikely to be any significant threat to the established players for the next couple of years,” Somaia said. “Firstly, the licence approval process may take some time, so the launch of the airline could be at least 9-12 months away. By that time, (rivals) IndiGo and SpiceJet will have fleets in excess of 70 and 60 aircraft, respectively.”
AirAsia India said in its pitch to the ministry that the country has vast potential that’s yet to be tapped. The number of trips per 1,000 people in the country is a low 0.11 compared with the international average, it said. Separate from this, India’s passenger traffic has been declining of late because of a combination of factors such as slowing economic growth, the grounding of Kingfisher Airlines Ltd since October, and fares rising amid fewer flights.
Globally, parent AirAsia is South-East Asia’s biggest airline with 108 aircraft and 475 on order, which will come in handy to support expansion.
Apart from its home base of Malaysia, AirAsia has ventures in the Philippines, Japan, Thailand and Indonesia. AirAsia Bhd, according to Bloomberg, ordered 100 Airbus A320s in December valued at $9.4 billion, in addition to the 200 it agreed to purchase in 2011. These are part of the planes it has on order.
Ground handling at Chennai airport will be done by AirAsia itself while it may outsource this at the other airports.
AirAsia India will have its own engineering and maintenance division and hire employees for this, as stipulated under Indian regulations. The AirAsia group company with expertise in the subject will help in this regard, according to the plan.
The airline, however, did not mention its ultra-low cost model of charging for all ancillary services on flights—check-in baggage, food, etc.—in the plan presented to the ministry.
AirAsia India may not be able to gain the kind of cost advantage its Malaysian parent has been able to develop, Somaia said.
“AirAsia (India) will be operating in the same challenging environment as the incumbent airlines. It will pay the same high fuel prices, operate at the same airports and airspace, and be subject to the same regulatory distortions as all of the other airlines. Achieving a cost advantage will therefore not be easy,” Somaia said.