bullish about the tier-II/III market that he is even prepared to give Mumbai and Delhi a miss to adhere to his low-cost structure. “Mumbai and Delhi are clearly high-cost airports that won’t be our major focus,” he said. “Delhi has a low-cost terminal, but slot congestion is a problem there. Our business plan is not predicated in these two airports.”
Meanwhile, AirAsia will be investing Rs 80 crore to start off with, according its FIPB proposal. Tata Sons will invest Rs 48.58 crore while Telestra will invest Rs 34 crore. The airline will also be using its own brand name ‘AirAsia’.
“Further funding of the JV company will be undertaken on the basis of business needs,” AirAsia’s FIPB proposal states. The airline will start off with 3-4 aircraft and have a staff of 300.
Fernandes said that an Indian management team has already been picked. “We have already picked the management team and I was very impressed. We will announce the CEO in two-three weeks,” he said.
“Chennai is the obvious place to start off with since we already operate from there and also we know that region better,” he said.
For the moment, AirAsia’s plans are endorsed by analysts and consultants who say the carrier will be able to replicate its success in India.
“We think this is negative for the Indian carriers, especially SpiceJet given its major presence in Chennai and tier II/III cities exposure,” said Corrine Png, analyst at foreign brokerage firm JP Morgan. “With traffic under pressure, it would be challenging to sustain higher yields and the entry of new players could put pressure on pricing.”
Consultants say AirAsia has its plan well thought-out. “They are going to be entering with a low investment, not taking the baggage of any debt or existing brand name and they are targeting an untapped marketl; it’s a brilliant model,” said a consultant at a global audit and consultancy firm on condition of anonymity as the person is involved in negotiations for other airlines. “It is the best way to enter this market.”
However, Aviation consultancy firm Centre for Asia Pacific Aviation said AirAsia may have found the right partner but the market remains challenging. “The potential long-term growth opportunities in India, particularly in Asia’s fourth-largest domestic market, also continue to be of interest to Fernandes. But the market remains very competitive – even after the suspension of services at Kingfisher – and unprofitable,” CAPA said.