AirAsia India declares war on fares

by CHIEF CORRESPONDENT, TOM BALLANTYNE  

April 1st 2014

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AirAsia group chief Tony Fernandes latest venture, AirAsia India, is pushing ahead with plans to launch from next month despite the woeful state of the local industry’s profitability and a rising tide of objections from the country’s airlines. Read More »

AirAsia India joint venture owner, AirAsia, the region’s largest LCC

The Federation of Indian Airlines (FIA), a lobby group for domestic carriers, last month wrote to Indian Prime Minister, Manmohan Singh, in a renewed attempt to block approval of an air operator’s certificate (OAC) for the newcomer. The FIA’s earlier objections to the planned budget airline were rejected by India’s Directorate General of Civil Aviation (DGCA).

India’s airlines, which are losing hundreds of millions of dollars annually, fear the arrival of AirAsia India, to be based in Chennai, will spark more price-cutting in their struggling market, adding red ink to their collective bottom line.

AirAsia India’s chief executive, Mittu Chandilya, is unperturbed by the campaign and told local media he will undercut his rival’s fares by 25% to 30%, and still make money. The budget airline, a US$30 million joint venture between Malaysia’s AirAsia and two Indian groups, the Tata Group and Telestra Tradeplace, received Foreign Investment Promotion Board approval a year ago. It was issued with a no-objection certificate from the civil aviation ministry last September. The carrier is expected to receive it’s AOC this month, in time to launch services in May.

'They [Indian carriers] could match my reduced fares, but whether they can manage costs in the long-term has to be seen. But we can do it '

Mittu Chandilya Chief executive AirAsia India

The FIA’s objections to AirAsia’s joint venture are based on the ownership structure of AirAsia India. In its letter to the Indian prime minister, sent on March 6, the local airline body complained the issue of substantial ownership and effective control was not examined by the DGCA and Foreign Investment Promotion Board when they approved the new airline. The FIA said the conclusions made by the Indian government and the DGCA were “flawed” and “are substantially, if not totally, incorrect”.

Signed by Ujjwal Dey, associate director of the FIA, the letter said the rationale for allowing investment by foreign airlines in India was to bring investment into existing but struggling airlines. “We submit it did not contemplate the introduction of new international airlines with new Indian joint venture partners. By allowing new entrants to invest with new joint venture partners, it defeats the very purpose of the policy itself,” said the FIA.

“The members of the FIA humbly submit that serious questions relating to the ownership structure and effective control of a foreign airline (AirAsia) in an Indian airline are involved, which will have a grave impact on national security.“ The FIA has asked the Delhi High Court to stop AirAsia India from starting operations.

The struggling economic climate at India’s airlines has not deterred AirAsia India. “Other airlines will have to drop fares, and this will benefit passengers. They could match my reduced fares, but whether they can manage costs in the long-term has to be seen. But we can do it,” said Chandilya.

“The industry has been dynamic, and the best time to venture into something is when things are very bad. I firmly believe when you hit rock bottom, the only way is up.”