AirAsia aims for a full flight in India

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Smoking Aces
Call it tsunami marketing. That's how Kathleen Tan, who heads the airline's commercial operations in India, describes their approach. "We do not believe in half measures," she says. AirAsia group's entry into India will be through three separate companies - a strategy never tried by any other airline before. The Government of India clearances weren't easy, but are now finally in place. The Sepang-based parent AirAsia Bhd will start flights from Kuala Lumpur to Hyderabad, Banglore and Chennai in stages this year. This is in addition to Trichy, Kolkata, Kochi and Thiruvananthapuram, which are already connected. Thai AirAsia (a joint venture with Shin Corp) will start with flights from Bangkok to four points in India later this year. This will open up Phuket, Krabi and nine other points in Thailand to passengers from India, who can connect to them from the AirAsia Bangkok hub. The third company, the group's long-haul airline AirAsia X (a venture with the Virgin group) will start flying to Mumbai and Delhi by the middle of the year with bigger A330 planes.

The plan has been carefully laid out and banks on rapid expansion and improved frequencies over the next few years. "When the India flights were announced this week, we started marketing them in India and began promoting them in Singapore, Jakarta, Melbourne and China," she says. She recently met an Indian entrepreneur on the flight from Kolkata to Kuala Lumpur, who says he can now connect to China much more easily. The journey via Delhi, would have taken him two days.

Tan is also leading the move to transactions on the internet, cutting out travel agents from the picture. "We have to be disciplined. I know the agent community in India is very strong, but there is no way we will sell them tickets cheaper than to the passenger," she says. Red tape and government owned airlines and airports are an obstacle in most markets. "But we are like pit bulls. We will keep at it, until we get our way," she adds. Fernandes says he will depend on the culture of innovation in AirAsia. The company has a very flat organisation. No one has any titles. "Unlike most Asian companies, we have controlled anarchy in AirAsia. I'd rather have 6,000 brains working for me than just 10,'' he says.

Beyond Selling Tickets
AirAsia has been able to increase ancillary revenues, much beyond Indian low cost carriers. Revenue coming from hotels (it has its own chain), baggage, food sale and on-board duty free sales, amounted for 20 percent of the airline's sales in the last quarter of 2009. AirAsia has a policy of no fuel surcharge won its tickets, but all checked baggage is charged. In India, passengers can buy this space for bags of up to 15 kg at Rs. 450, with prices going up with the weight. They can also buy blankets and pillows. A Malaysian Nasi Lemak or a smokey barbeque chicken meal is priced at Rs. 150. Meals have to be paid for even in the premium economy section of AirAsia X. The premium seat, with a fully flatbed is available at roughly three times the economy ticket.

The AirAsia group made USD 38 million in ancillary revenue in the quarter ended Sept'09, earning close to USD 10 from every passenger apart from the ticket cost. The plan is to increase this to USD 12 this year. LCCs have triggered an ancillary revenue (merchandising) revolution and a CAPA report expects airlines to earn close to USD 58 billion from selling seat allocation to concert tickets and mobile credits.

At the back end, the airline has looked for new ways to keep ahead. The most recent big move in January was an alliance with rival Australian low cost carrier (LCC) Jetstar, to pool spares and expertise that will result in huge savings for both the airlines. Jetstar is a subsidiary of Australian airline Qantas. LCCs typically operate on their own. This is the first time two growing players in the Asia-Pacific region, one of the fastest growing markets of the world are seeing value in working together. "The relationship is a foundation of much bigger things,'' said Alan Joyce, the Qantas managing director, while announcing the partnership in January this year.

For the moment though, Fernandes knows he has his task cut out in India - and he isn't shying away from it.

By Cuckoo Paul/ Forbes India

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