Frost & Sullivan: AirAsia Set To Enter the Indian Low-cost Carrier Space through a Joint Venture

Singapore - AirAsia has recently announced its plan to start a scheduled airline in India as a joint venture with Tata Sons and Telstra Tradeplace. Though the competition is fierce in India, the country’s consumer base of more than 1.2 billion is largely untapped for AirAsia, presenting significant growth potential.

According to Sagar Shahane, Consultant, Asia-Pacific Aerospace & Defence Practice, Frost & Sullivan, the strong GDP growth, a young population, and the expansion of its vibrant middle class is expected to see India achieve some of the fastest growth of any aviation market in the world over the next 20 years. AirAsia wants to be there to take advantage of this growth, adding new destinations to its existing network.

Currently, India has four well-established low-cost carriers (LCCs) – Indigo, SpiceJet, Go Air and Jetlite – that account for nearly 60 percent of the domestic capacity and have the distinct advantage of knowing the consumer much better. Otherwise, the playing field is level since these incumbents and AirAsia will face the same issues, ranging from high aviation fuel prices to high airport charges.

AirAsia will have a chance to mitigate some of these challenges by keeping airports that levy high charges, such as Delhi and Mumbai, out of its network and focussing on low-cost airports. Importantly, AirAsia will be able be leverage its well-established networks in ASEAN countries, especially Malaysia, Indonesia and Thailand, to its advantage. While most Indian LCCs fly international routes, the connectivity AirAsia provides in the region is unmatched.

Once the proposed investment is cleared by the Foreign Investment Promotion Board (FIPB), India’s nodal agency for foreign direct investments, AirAsia is likely to start off by using the feed from its international routes – long-haul business from associate concern AirAsia X – to its domestic network.

Thereafter, its strategy can possibly be to open up routes to tourist hot spots, offering Indian travellers a low-cost option to destinations such as Phuket, Bali and Langkawi, albeit with a stopover. This will eventually invigorate domestic demand on the AirAsia network. On the other hand, the elaborate network plan and feed from domestic operations will most certainly help AirAsia X with international sectors.

“Most India-based airlines are bleeding and as a result, pricing will be an important factor that will decide the future course,” noted Shahane. “The competition will not mind playing a price war, but AirAsia would do well to stay away from giving out bare bone price tickets to gain market share – a strategy that saw Air Deccan running into heavy losses and being bought over by Kingfisher. Instead, AirAsia can leverage its expertise in running airline operations to keep out of price wars and strengthen its distribution network by signing up more trade partners across India.”

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