Asian budget airline king faces tough test in India

Asian budget airline king Tony Fernandes may face his toughest fight yet in India’s hyper-competitive aviation market where existing players are struggling to make a profit, analysts say.

The former music industry executive, who resurrected near-defunct Malaysia-based AirAsia in 2001 and turned it into one of the industry’s biggest success stories, said last week he wants his planned new Indian carrier to take off in October.

In a whistle-stop Indian visit, the 49-year-old Malaysian, a household name in much of Asia, declared he wanted to create a new market for cheap air travel in the country of 1.2 billion — much as he has done in Southeast Asia.

“No driver who has ever driven me in India has ever been on a plane — I want to change that,” Fernandes, sporting his trademark red AirAsia cap, told reporters in New Delhi, promising “the lowest possible fares”.

“Flying is not just for the rich, it should be for everyone,” the Formula One racing team owner said.

“We transformed the lives of Malaysians and Indonesians as well. Now maids are going home for the weekends. We want to do the same thing here.”

But analysts warned Fernandes could be in for a turbulent ride in India’s skies where low-cost carriers already dominate with a near 65-percent market share.

Most of India’s half-dozen airlines are heavily in debt and loss-making. One of them — Kingfisher — has been grounded by the regulator and is on the verge of bankruptcy.

“He’s going to face cut-throat competition he hasn’t encountered before,” said Kapil Kaul, head of India operations for the Centre for Asia Pacific Aviation, a consultancy.

“Indian airlines have the highest appetite to lose money of anywhere and they will be ruthless in dropping fares to match competition,” Kaul told AFP.

“These guys are very aggressive and battle-hardened,” he said.

Among the rivals are budget carriers SpiceJet, Go Air, Jet Airways’ JetKonnect and India’s biggest airline IndiGo, a privately held success story famed for placing the largest ever plane order in 2011.

Aside from the fierce competition Fernandes faces other challenges, among them the fact that India is an expensive place to run an airline.

Carriers pay at least 60 percent more for fuel than in Bangkok, Dubai, Kuala Lumpur or Singapore because of high state taxes, India’s civil aviation ministry says, while airport charges are also high.

Fernandes said he did not underestimate the difficulties of launching the carrier, which will be 49 percent-owned by AirAsia.

India’s giant tea-to-steel Tata group, which set up the country’s first airline in the 1930s, will own 30 percent and entrepreneur Arun Bhatia’s Telstra Tradeplace controls the remainder.

“We’re coming in with our eyes open,” he said, then added in his familiar style, “They don’t know Tony Fernandes.”

The prize would be a strong presence in a domestic market forecast by industry body IATA to be among the world’s top five in passenger numbers by 2016.

He plans to follow his simple no-frills business model and aggressively grow his Indian venture, starting out with three to four Airbus A-320s and adding 10 a year, relying on a single aircraft model to cut repair costs.

His emphasis will be on “careful route planning, operational efficiency, low frills, quick aircraft turnaround and high aircraft utilisation”, Amber Dubey, aerospace head at global consultancy KPMG, told AFP.

AirAsia will also avoid the popular but expensive routes of Delhi and Mumbai which have high airport charges and are more saturated, operating instead from the cheaper southern city of Chennai.

But despite Fernandes’ upbeat tone, there are questions about whether he has bitten off more than he chew — especially in the wake of recent difficulties that have brought him a little closer to earth.

“I’m not so sure he is going to be able to fill up big jets flying into smaller cities — usually those routes are covered by (small) turboprops,” Mahantesh Sabarad, a vice president at India’s Fortune Financial Services, told AFP.

AirAsia reported a 39-percent dive in first-quarter profits in May and Fernandes’ ownership of Queens Park Rangers football club in the English Premier League saw the team relegated despite his huge investments.

Last year, Fernandes also ceased unprofitable London and Paris routes served by his long-haul unit AirAsia X, marking the first retreat for his fast-growing network.

On Wednesday AirAsia X made its debut on the Kuala Lumpur stock exchange, rising 1.27 percent after raising $308.6 million from its initial public offering in June.

Earlier this month, Fernandes landed in hot water after he compared a short-lived tie-up with Japan’s All Nippon Airways to “going to bed” with a “sexy woman” but finding it a “horrible experience” that required a quick divorce. –AFP