Finding elbow room in competitive skies

Akasa Air, the first scheduled airline to start operations in India in more than five years, is entering a crowded space, reports Anjuli Bhargava from India.

August 1st 2022

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Firstly, the good news. Read More » Following the collapse of India’s beloved private airline, Jet Airways, and more than two years of the global pandemic, India’s airline sector finally has something to celebrate.

On August 7, Akasa Air, the first scheduled airline to take to the skies since Mori’s BJP government came to power, will launch operations on two routes with 737MAX 8s. No matter the perspective, it is very welcome news.

Akasa Air has ordered 72 MAXs and intends to be operating a minimum of 18 aircraft by March 31 next year. In other words, the new carrier will add more than one plane a month to its fleet in the next seven months. Assuming the airline achieves its growth targets, this will be a record of sorts for almost all airlines in India. SpiceJet, AirAsia India and Vistara took five, four and three years, respectively, to achieve the same fleet size post their launches. Only IndiGo has managed the same feat in a similar time frame.

At press time, Akasa had 400 employees. If all goes to plan, it intends to build its team by 175 new hires a month and reach a target of 2,000 staff by March 2023. This is the best news of all for a sector decimated by redundancies and pay cuts.

Expectations of Akasa are high for several reasons. The airline has a strong leadership team that includes some Jet Airways senior executives. Among them is ex-Jet Airways CEO, Vinay Dube, who headed the carrier in the worst of its crisis and then its collapse. It is reported to have a nine member founding team, including former IndiGo CEO, Aditya Ghosh, and several individuals from rival airlines.

Akasa also has the advantage of being a clean slate carrier unencumbered by the baggage its local rivals carry. India’s airlines reported combined losses of Rs 17,000 crore in fiscal 2021 and Rs 20,000 crore in the 2022 year. In fiscal 2023, they are forecast to be higher.

In contrast, Akasa is reasonably well capitalized and also will earn income in the next five years from the sale and lease back of the 72 aircraft it has ordered.

But if anyone thinks it will be a cakewalk for the newbie, they should think again. It has been at least 18 months from the airline’s conception to its launch and the macro environment has changed a fair bit in that time.

Although there has been much talk of failure, no India carrier has closed its doors on account of the pandemic. If Akasa’s founders were banking on one or two of the smaller players shutting down thereby making space for a new airline in the market, no doubt they are disappointed.

Firstly, the sector was in dire straits when Akasa started scouting for aircraft. Industry sources said they could not take full advantage of the intense rivalry between Airbus and Boeing when negotiating fleet orders as the former had few aircraft available.

Secondly, the war in Ukraine and consequent rise in aviation turbine fuel (ATF) prices has knocked out whatever upside the airlines would accrue from a post-pandemic air traffic surge, especially as the rupee continues to decline in value.

Within India, the differential between crude oil and ATF prices has gone through the roof in recent months. Its airlines are in a situation where every Rs 100 they charge passengers, almost Rs 75 goes to the oil companies. Add airport charges to their operating costs and airlines are left with very little to cover other expenses. In other words, operational losses for any new entrant are likely to tot up even faster than they did when Vistara or Air Asia India were in their launch cycles.

Moreover, Indian carriers suffer from “herd mentality”, which means making money on any existing sector in India is a huge challenge. On the Bengaluru-Kochi route, one of Akasa Air’s launch services, IndiGo offers seven direct daily connections.

On many days, this plethora of choice is even wider with AirAsia India scheduling another four to five direct flights between the two cities. For a new market entrant making a profit will be, to my mind, a formidable challenge.

But if Akasa had ventured into the unexplored territory of Goa-Kochi or Goa-Trivandrum, which do not have direct services, its life would be easier. It might record initial losses on a virgin sector, but in the long run it will have first mover advantage.

Last but not the least, in typical Indian style, Akasa has several backers. Dube is the public face of SNV Aviation, a company registered in November 2020 as the holder of majority equity in the new airline. Rakesh Jhunjhunwala, the primary investor with a 40% shareholding, died on August 14, media reports.

But the airline’s spokesperson has confirmed the carrier has several other co-founders, which sounds like too many. We have all seen how IndiGo has gone with just two leaders disagreeing with each other!

Despite these orange and red flags, the arrival of Akasa in India is welcomed as more the merrier and then more by India’s air travellers. Hopefully, its entry into the skies will be followed by a revamped Air India under Tata leadership, promising more happy tidings for the industry and its customers.

Akasa Air first flight lifts off from Mumbai Akasa Air commenced commercial operations with a Mumbai- Ahmedabad service on August 7. Akasa Air co-founder and CEO, Vinay Dube, said the launch was a testament to India’s economic transformation and the country’s rapidly progressing civil aviation landscape. Initially, Akasa Air is operating weekly between Mumbai and Ahmedabad, but will expand to Kochi, Bengaluru and Chennai in the final quarter of 2022. With two 737 MAXs arriving each month India’s newest airline plans a strong pan-India presence focused on tier two and three city connectivity with major Indian metropolises. The airline’s firm order 72 737 MAXs will be powered by CFM LEAP-1B engines.