Home >Companies >AirAsia India set to get fresh funds for expansion drive

Mumbai: Promoters of AirAsia India Pvt. Ltd have agreed to invest fresh funds in the low-fare airline as it aims to expand fleet and fly abroad, the company’s chief executive said.

“It’s the start of our next chapter in India. We have been very categorical in stating that we get new aircraft as soon as possible," chief executive Amar Abrol said in an interview.

Abrol declined to reveal the quantum of investment, but said it can run into “multiples of million dollars".

Tata Sons holds 51% in AirAsia India while Malaysia’s Air Asia Bhd holds the rest.

Abrol took charge of the India operations in April after Mittu Chandilya quit the company.

Overseas flights fetch better margins; however, India’s aviation policy for long have barred airlines from flying abroad until they gained five years of domestic flying experience and 20 aircraft. The policy, often called the 5/20 rule, was diluted in July, removing the five-year part. New airlines, such as Vistara and AirAsia India, had lobbied for scrapping the rule, but the 20 aircraft stipulation that remains is expected to delay their overseas expansion, since fleet expansion is a costly and time-taking affair.

AirAsia currently has six aircraft, while Vistara has 11.

By the end of June quarter, the two-year-old airline had flown 530,000 passengers and its market share stood at 2.2%, according to data from the directorate general of civil aviation. India is the world’s fastest growing aviation market, expanding at 22-23% year-on-year.

Abrol said it’s a “natural fit" for the company to look to Thailand, Indonesia and Malaysia where its part owner AirAsia Group Bhd is a dominant player. 

“We will be taking advantage of the AirAsia network. Having said that, where we fly internationally will be determined by AirAsia India and may fly to other destinations as well," said Abrol.

Both Vistara and AirAsia India aim to boost their fleet size within a year, but flying abroad may not be easy. “AirAsia India is yet to get their India strategy right and continues to be an underperformer. The fleet size of six to seven aircraft cannot make it relevant and competitive, and bolder expansion means more capital burn. I don’t see clarity in AirAsia India as yet," said Kapil Kaul, chief executive (South Asia) at Capa India, an aviation consultancy.

In June, Capa India had noted that the 5/20 rule moving to 0/20 is an unfortunate compromise. It said the relaxation will not help new airlines much, and India will continue a foreign airline- driven, international traffic regime. “Fast-tracking expansion by AirAsia and Vistara will not be feasible given the initial capitalization has exhausted, operations continue to be loss-making and fast-tracking will mean more cash burn," Capa India had said. 

On 26 June 2015, Reuters reported, citing Mittu Chandilya, that AirAsia India had halted its expansion plans awaiting progress on overseas flight rights. The report said that AirAsia India will not lease any more planes until government decides whether to retain or reform the rule.

On 15 June 2016, the Union cabinet cleared the new civil aviation policy, focusing on competition, consumers, connectivity and investment. India aims to grow its domestic passenger traffic nearly four-fold to 300 million by 2022.

“I have joined the company at the most opportune time. We have in India, for the first time, a civil aviation policy. We would have preferred a 0/0 or 0/10 but it is what it is," said Abrol.

In September 2013, after a board meeting of AirAsia India, the airline’s founder-promoter Tony Fernandes tweeted that he was confident that the airline “will make profit from the first year and change aviation". AirAsia’s business model had worked wonders in several countries. 

AirAsia India is yet to make profits.

In October, Chandilya told Tata Review, the Tata Group’s internal publication, that AirAsia India needs to have eight aircraft to be profitable.

Abrol however said the timeline will be prolonged as the airline is required to invest further to reach a fleet size of 20.

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