AirAsia India hopeful of profit in first year of operations

Sep 29 2013, 08:42 IST
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SummaryAirAsia India is a three-way JV in which AirAsia holds 49% stake.

The first board meeting of AirAsia India concluded with the tripartite joint venture’s largest shareholder AirAsia expressing confidence that India’s newest low-cost carrier will be profitable from the first year itself. AirAsia India is a three-way JV in which AirAsia holds 49% stake, Tata Sons hold 30% and Arun Bhatia holds the remaining 21% stake.

“First AirAsia India board meeting. Superb cooperation between partners,” tweeted Tony Fernandes, the group CEO of AirAsia Berhad after the meeting. “I’m confident we will make profits in the first year and change aviation.”

Fernandes went on to clear the air about AirAsia’s view on the Tata Sons’ latest announcement of opening a full service airline in India with Singapore Airlines as partner. “I have and continue to have no issues on SIA and Tata joint venture,” Fernandes tweeted. “No differences on Ginger and Taj Hotels. These are two very separate businesses.”

The board meeting was attended by chairman S Ramadorai, Bharat Vasani and R Venkataramanan from Tata Sons; Arun Bhatia, the 21% shareholder in the venture, and AirAsia’s Tony Fernandes and Kamarudin bin Meranun. AirAsia India’s CEO Mittu Chandilya also attended.

Chandilya expressed similar optimism after the board meeting and tweeted, “Just finished a great board meeting as expected. Buzzing with ideas and raring to go ahead.”

However, AirAsia India’s confidence about posting profits in the first year of operations comes at a time when the domestic airline industry in India continues to grapple with high losses due to soaring jet fuel prices, airport charges and large debt piles. Currently, IndiGo is the only profit making airline in the country and last week reported a R787-crore profit for 2012-13. This was while SpiceJet reported a loss of R191 crore, Jet Airways a loss of R485 crore and Air India a loss of R5,196 crore in 2012-13.

Analysts have already raised questions on AirAsia’s ability to manage its subsidiaries. “AirAsia management could potentially be spreading itself too thin as they try to grow numerous joint venture airlines at the same time. Only Thai AirAsia, Indonesia AirAsia, and AirAsia Malaysia are profitable,” wrote Connie Png, an analyst with US-based brokerage firm JP Morgan, earlier this year.

Since then, the AirAsia Japan JV with All Nippon Airways has collapsed, as it failed to turn around and post profits. Eventually, the Japanese partner, ANA, bought out AirAsia’s stake. Png also pointed towards declining demands because of sharp fare hikes, predatory

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