 "AirAsia expects to break-even in four months after launch")
The DGCA’s approval is, however, subject to the decision of the high court here, which is scheduled on July 11 to hear Bharatiya Janata Party leader Subramanian Swamy’s petition against the grant of a permit to the airline. It also agreed on Thursday to hear a plea by the Federation of Indian Airlines, challenging the grant of flying licence to AirAsia India, with a bench of Chief Justice G Rohini and judge Rajiv Sahai Endlaw posting the matter for hearing on Friday, PTI reported.
AirAsia India chief executive Mittu Chandilya said, “We will break even in four months. My partners will expect no less of me.” The target is ambitious, given the Centre for Asia Pacific Aviation (Capa) estimates Air India, Jet and SpiceJet to post combined losses of $1.2 billion for FY14, owing to weak economic conditions and high operating costs in the Indian aviation sector.
While IndiGo’s profits are expected to fall short of the Rs 787 crore reported in 2012-13, SpiceJet posted losses of Rs 682 crore for the first three quarters of 2013-14. Jet Airways’ cumulative losses for the period stand at Rs 1,514 crore. In 2013-14, Air India’s loss, according to company sources, widened to Rs 5,400 crore from Rs 5,198 crore in 2012-13.
AirAsia India plans to start operations out of its hub in Chennai, with a fleet of three aircraft. It will add seven planes to its fleet within the first year of operations. Though the airline will focus on tier-II/III routes, the company’s chief, Tony Fernandes, on Wednesday said Delhi and Mumbai could also be added to its network in the future.
Experts, however, say these targets might be difficult to meet. Kapil Kaul, chief executive of Capa, said, “Aircraft utilisation of 16 hours will only be possible if international routes are added to the domestic operations, after the 5/20 rule is abolished. Otherwise, it isn’t feasible otherwise. But (I) look forward to being surprised.”
He added a turnaround time of 20 minutes at metros wasn’t realistic, especially as Delhi would be included in the network. “Overall, AirAsia will need a high level of operational capability to achieve targets below 16 hours/20 minutes. Our recent assessment shows utilisation of more than 12 hours is possible only in the domestic sector. If 16 hours/20 minutes is consistently achieved in the domestic sector, AirAsia will set a new benchmark and it will be an excellent achievement,” he said.
The airline has plans to adopt a disruptive pricing strategy. Its fares will be the same as first-class railway fares, or at least 35 per cent cheaper than what lo-cost carriers offer currently.
“We will be disruptive in pricing. My competitor is not the other airlines operating in this country. My benchmark is the first-class fare offered by the railways. Yes, the kicker for me is low fares. But quality of service, safety standards, reliability and on-time performance are very important hygiene factors,” said Chandilya.
Senior airline executives, however, say the average network rate for low-cost carriers is Rs 4,000-4,500 (net of all taxes). If AirAsia is to offer 35 per cent cheaper fares, it has to price tickets at an average of Rs 3,000 (net of taxes).
“The fuel cost on a flight with 150 passengers comes to Rs 2,000-2,500 per passenger, for a 90-105-minute flight. And, fuel accounts for half the cost. So, if they sell at this average cost, they will be making losses,” said an aviation sector veteran.
Chandilya is, however, confident: “I will be really disappointed if they (competition) just allow us to walk in. I know what I will deliver. I have never failed in any task I have set on myself. Let them bring their best arsenal and we will still defeat them. I am very confident on that.”
Separately, the airline is considering setting up a training facility for its employees, after a year of operations.