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Why the Tata-Air India deal is trouble for Rakesh Jhunjhunwala’s Akasa

The odds are stacked against a new player and when the transfer of Air India is complete, the market will be divided between two major players: IndiGo, which controls half the market, and the Tata group, which will command a quarter of the market.

October 12, 2021 / 09:21 AM IST

Akasa, the startup airline that’s been in the news a lot, is yet to make any moves beyond the public acceptance by maverick investor Rakesh Jhunjhunwala about his investments. Very few carriers make you sit up and notice them even before their engines start. Over a decade and half ago, when IndiGo ordered 100 aircraft at the Paris air show, many had written it off before its first flight.

Akasa, which got its No Objection Certificate (NOC) on October 11, will be noticed right from the announcement, as was Vistara or AirAsia India. While aviation is all about being in the news for the right reasons, more often than not, aviation in India is in the news for losses and how brutal the market is.

Profits are elusive

If Akasa has to look around for similarities, it should look at the trajectory AirAsia India took. Another maverick, Tony Fernandes, was making bold statements and his appointed CEO was confident of achieving break-even within the first year of operations. As fate would have it, they had to vacate their first route between Bengaluru and Chennai due to intense competition. The airline hasn’t had a breakeven year yet, with AirAsia Bhd no longer infusing funds and the Tata group now owning 84 percent with the likelihood of a 100 percent stake by March next year.

Vistara, the last major entrant in Indian skies, has also alluded to profits. The ultra-premium carrier has seen multiple changes to its aircraft configuration and now has all-economy-class aircraft in its fleet. If that isn't all, the airline had also started a special fare class with Buy on Board as an option.

Close

Airlines across the board have racked up losses, with the likes of Jet Airways, where most of the Akasa team was in the past, biting the dust. While Jet Airways was home for a longer duration for many in the Akasa team, CEO Vinay Dube had a short stint with the brief to be the airline’s turnaround man. Jet Airways, however, was grounded in April 2019. Dube then moved to Go Air (now Go First) only to have an unceremonious exit post the lockdown.

Where does Akasa fit?

Akasa is said to be an Ultra-Low Cost Carrier (ULCC). The management team that is driving the airline has not spent many years in an LCC or a ULCC. Yet the hopes are high, thanks partly to Jhunjhunwala’s name being associated with the carrier.

With slots running out fast across the country and the Tata Group, with four carriers, definitely looking at integrating and strengthening its presence in the major metros and Tier I cities, the going will be tough for Akasa. While half the market was fragmented until last month, when the transfer of Air India is complete, the market will be divided between two major players: IndiGo, which controls half the market, and Tata group, which will command a quarter of the market.

It also won’t be easy to push weaker players like AirAsia India anymore and by the time Akasa takes to the air, Go First would have a plan in place with the funds raised from its planned IPO. SpiceJet, too, is expected to tide over its funding crisis, at least partially, thanks to hiving off its cargo subsidiary.

What after the NOC?

Vistara was formed in October 2013 and received its first aircraft in September 2014. The airline commenced operations in January 2015. The journey could be smoother for Akasa, as the government tries to focus on the ease of doing business.

The airline is yet to announce its fleet type. While pilots are available in abundance, the situation is fast changing as countries open up, including the likes of New Zealand, Australia and Singapore, which are pushing for a plan to live with COVID-19 instead of focusing on a zero Covid strategy. This has meant that airlines have started offering jobs to pilots who were laid off and are opening up new vacancies.

Availability of pilots may also depend on the fleet type that the airline selects. The notice period of one year in India for captains would mean that the airline will have to plan ahead of time to ensure that it has steady manpower in place or rely on expensive expats.

The airline now moves to a stage where it will await an Air Operating Permit (AOP) from the DGCA, which will be issued when the regulator is satisfied with every aspect of operations and safety. That will involve checking and certifying various manuals and ensuring that mandatory positions are filled up by the airline. Just before the AOP is issued, the airline will have to hold proving flights with DGCA officials on board.

With the NOC in place, the first hurdle has been crossed, and the real race is about to begin.
Ameya Joshi runs the aviation analysis website Network Thoughts.
first published: Oct 12, 2021 09:21 am

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