Too many people in the airline business have an ego

By Ankush Chibber

India’s perception of low-cost carriers has been badly damaged and bruised by failed promises, said AirAsia Group CEO Tony Fernandes in an exclusive interaction with Entrepreneur magazine.

Not one to mince any words, Fernandes said that “too many people in the airline business have an ego the size of an A380.”

“If we need to be successful in the Indian market, we need to be innovative. We have to do things that have not been done before,” he said.

AirAsia Berhad has received an approval from the Foreign Investment Promotion Board (FIPB) to invest into a proposed Indian joint venture airline together with Tata Sons Ltd and Arun Bhatia of Telestra Tradeplace Pvt Ltd.

The joint venture, where AirAsia would invest 49 percent, Tata Sons would invest 30 percent and Bhatia would invest the remaining 21 percent, would operate from Chennai, focusing on providing Tier II and Tier III city connectivity to travellers.

Starting out in the third quarter of 2014, AirAsia will begin operations to Tier II cities from Chennai and it is expected that it will come into direct competition from SpiceJet, which currently flies to eight such cities in the South.

Fernandes, however, thinks that he can tackle the competition. “We are the best in the LCC business. We have the lowest costs in the world. And our margins are still as high as 17 percent. We are our only competition,” he says.

Amber Dubey, Partner and Head-Aviation at KPMG India, said that the domestic incumbents would need to prepare their war plans well if they have to combat AirAsia.

“These guys are tough. They have survived and expanded despite strong competition in South East Asia. Indian carriers will need to be really prepared. In the end, it’s all good for the end users-the passengers,” he said.

However, a section of aviation industry experts feel it’s not going to be all hunky dory for AirAsia, and that it will have to adjust to Indian conditions.

Samyukth Sridharan, President and Chief Operating Officer at Cleartrip, and also the former Chief Commercial Officer for SpiceJet, said, at the very least, AirAsia would have to tweak its model. “For example, AirAsia does not work with online travel agencies (OTAs) as a way to keep costs low. But in India, 30 percent of bookings come from OTAs. They will have to adapt.”

Earlier this week, Jet Airways also concluded a long-awaited deal to sell a 24 percent stake to Abu Dhabi’s Etihad Airways for $379 million.

[Read more about AirAsia and Tony Fernandes’ plans for India’s domestic skies in the May issue of Entrepreneur.]
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