Home / Opinion / Views /  Aviation world is watching Akasa with fingers crossed

Billionaire Rakesh Jhunjhunwala has become the latest in a long line of wealthy individuals who have tried to flaunt their achievements on the tails of expensive airplanes. India is the world’s fastest growing aviation market but the airline sector is globally a notoriously difficult business to stay afloat in.

Jhunjhunwala-promoted Akasa Air is taking wing in extraordinary times. The global aviation industry was decimated by two years of the pandemic, with many airlines shutting shop and those that remained racking up huge losses. India was no different. According to government data, airlines racked up a combined loss of a whopping 19,564 crore in 2020-21.

That looked like changing this year. Domestic airlines carried 57.2 million passengers in the January-June 2022 period as against the 34.3 million passengers carried in the same period last year, translating to an annualized growth rate of 66 per cent. But the volumes do not necessarily translate into profits. With Russia’s invasion of Ukraine sending global energy prices, particularly of aviation turbine fuel, soaring, the hugely competitive market saw margins being sliced wafer thin—or worse.

Union Civil Aviation Minister Jyotiraditya Scindia pointed out in a recent interview to news agency PTI, "It has been eight long years since an airline has been launched in India. In the last almost two decades, all we have heard is how difficult it has been for airlines to function, multiple issues they have internally faced and we have seen seven airlines being shut down (over this period)."

Scindia sees the launch of Akasa, along with the re-birth of Jet Airways and the re-launch of a rejuvenated Air India under Tata ownership, as pointers of a sea change in the fortunes of the sector.

Scindia expects the total number of passengers carried to rise to 400 million by 2027, compared to the 60 million carried in 2013-14, when the BJP first came into power. Despite global and local slowdown in the pace of overall economic growth, air traffic in India has maintained a healthy growth, with the number of aircraft set to nearly double from the current 700 to around 1,200 by 2027, according to Civil Aviation Ministry projections.

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That is the reason that the entire aviation world is looking at India in general, and Akasa Air in particular. Especially US planemaker Boeing. Akasa’s order of 72 Boeing 737 Max 8 airliners has been a virtual lifeline for its struggling 737 Max 8 programme after aviation regulators worldwide grounded the 737 MAX in 2019 after two successive crashes resulted in the deaths of 346 people. The suspension was the longest grounding of an aircraft type in aviation history.

This not only almost finished many airlines which had placed bets on the highly fuel-efficient 737 Max 8s but had also severely impacted Boeing and opened the floodgates for Airbus’s rival A320 Neo to dominate the short-haul skies. So, at a list price of $9 billion (although Jhunjhunwala’s bound to have squeezed massive discounts off Boeing), Akasa’s 72-planes order at the Dubai airshow last year would have been a lifesaver for Boeing.

The industry will also be looking at how well Akasa’s brand of ultra-low-cost no-frills flying works in what is a very price-sensitive market. While the market is dominated by low-cost carrier Indigo, which ferries one out of two domestic passengers in India, the Tata’s with Air India and Vistara, as well as the reborn Jet Airways, are placing contrarian bets on the return of full-service carriers.

In the end though, long-term survival in the turbulent market has been dictated by the depth of the promoters’ pockets. From Air Deccan to Kingfisher to Sahara to Paramount to Jet Airways to the three previous avatars of Spicejet, the inability of their promoters—for one reason or the other, some not directly connected to the airlines’ fortunes—to fund their losses has eventually led to their demise.

Jhunjhunwala has deep pockets. As of the end of last month, his portfolio wealth was estimated at 30,614.43 crore. But then, he has so far been an investor, not directly operated a business. And he is notoriously averse to booking losses on investments—indeed, his magic touch in picking out stock market winners has earned him the sobriquet of the Warren Buffet of India. Akasa’s eventual fortunes may well depend on how much Jhunjhunwala is prepared to let that reputation be dented.

Elsewhere in Mint

In Opinion, Dani Rodrik writes on a new economic-policy paradigm that could supersede neoliberalism. Anoop Singh explains six monthly indicators of recession. Debjani Ghosh argues why India is strategically positioned to be the innovation nerve centre of the world. Long Story tells how rivals are closing in on India's No. 2 carmaker.

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