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How AirAsia’s India dream came crashing down as Tata Sons ups stake

Tata Sons will increase its stake in AirAsia India from 51 percent to 83.67 percent, reducing AirAsia Group’s shareholding to just 16.33percent.

December 30, 2020 / 02:51 PM IST
Source: Reuters

Source: Reuters

AirAsia Group entered India with much fanfare, the first off the block under the new FDI rules that allowed up to 49 percent stake by a foreign airline. The launch party saw bikers head to the Bengaluru airport, with the top management of the airline in an open deck bus. The year was 2014 and the airline was in the middle of a marketing blitzkrieg, which in the hindsight looks more like propaganda.

Tata Sons, the joint venture partners and majority shareholders, would up its stake in AirAsia India from 51 percent to 83.67 percent, reducing AirAsia Group’s shareholding to 16.33 percent, the lowest among all its entities across the world—from the Philippines to Indonesia.

Wrong turns from the word go

AirAsia Group was no stranger to the Indian market. Even before the subsidiary took shape, the airline had been present in India, flying from its home market of Kuala Lumpur and Thai subsidiary offering flights from Bangkok. 

Its chequered history has seen the airline launch flights, terminate them and re-launch, including to some important markets like Mumbai and New Delhi. With a subsidiary in India, AirAsia India got a foothold to further feed into its home market as well as open up new markets like the Gulf region, which has more traffic from India. It would also help the ASEAN network connect to the Gulf via the Indian subsidiary.

Close

Also read: From AirAsia India to Air Ginger? The many options and questions that face Tata Sons

The airline wanted to base itself in Chennai, an airport served twice daily from Kuala Lumpur by Malaysia AirAsia. However, the plan soon changed and the airline shifted base to Bengaluru. It also expected to break even within months while offering 25-30 percent lower fares than the competition.

The airline was to replicate the successful template from its parent in Malaysia but fell on the wrong side of the law even before its launch. The Directorate General of Civil Aviation (DGCA) warned it to not offer all fares without baggage and a mandate to serve drinking water for free. These practices were not the norm for the group.

Rivals soon matched fares and upped the game by adding capacity and frequency on routes operated by AirAsia India. The competition got so intense that the airline, which made claims of breaking even within months, was forced to pull out from one of its first routes— Bengaluru-Chennai-Bengaluru. 

All this when the airline claimed it was booked for the next few months. While one would have expected IndiGo to be the culprit, the competition on the route had come from Jet Airways, which had a strong loyalty programme and deployed multiple frequencies on the ATR, which had a lower cost per trip than the Airbus A320 that AirAsia India operated.

When conditions looked tough, the airline had a list of problems to lay the blame on. These included the famous 5/20 rule, high prices and tax on Aviation Turbine Fuel (ATF), route dispersal guidelines, intense competition and irrational fares. None of these had changed since the airline entered the Indian market—the airline knew what it was getting into. 

Also read: Tatas need Air India. Can they revive it and their aviation fortunes?

Did the airline misread the market?

While globally, low-cost carriers (LCCs) have a point-to-point philosophy, India—a predominantly LCC market— has long moved away from this. All LCCs started offering through flights along with connections but when AirAsia India joined the party, it wanted to replicate its point-to-point strategy. One such example was the airline’s flights from Delhi to Imphal via Guwahati. Essentially a route to cater to the Route Dispersal Guidelines, the airline only sold Guwahati-Imphal-Guwahati and not Delhi-Imphal via Guwahati, something which all airlines did. It took a while for the airline to start selling a flight via Guwahati and adjust to the Indian scenario.

Likewise, the airline did end up at both Delhi (much earlier) and Mumbai after claiming that the costs were high and prohibitive. While Bengaluru is emerging as a very large market, there is no denying that Delhi and Mumbai remain the prime markets and cannot be ignored.

The airline has never had a chief executive officer with experience of the airline industry. At other CXO positions, industry veterans have had sporadic stints so far. While GoAir is largely considered the leader in shuffling the top deck, AirAsia India could come in a close second.

Tailpiece

The airline’s issues were compounded with multiple court cases—right from the eligibility to invest under the FDI norms to accusations of effective control and allegations of routing money for unlawful activities. The court cases have either been dismissed or are in various stages of trials.

Have the Tatas bid for Air India? Will the Tata group merge AirAsia India with Air India Express if it wins the bid for Air India? Two wrongs don’t make a right and time will tell what happens to AirAsia India. Tatas have the experience of having multiple brands in hospitality, from the high-end to the budget category, and that experience could come in handy as the group manages multiple airlines or airline groups in the future.

Ameya Joshi runs the aviation analysis website Network Thoughts.

 
Ameya Joshi runs the aviation analysis website Network Thoughts.
first published: Dec 30, 2020 01:33 pm

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