"The competition will greet AirAsia with tactical fares intended to erode any price advantage that they may seek to offer and with the intention of presenting the 30% differential as a myth. The current airlines can be expected to respond aggressively to AirAsia's entry"
Ending months-long speculation, AirAsia India has announced it would start its service from June 12, bookings for which will start from today. On Thursday, Tony Fernandes, the group CEO, tweeted, "Very very proud to announce AirAsia India open for sale tomorrow. Wow. First flight June 12th. See you all in India on the 12th." While the AirAsia chief did not mention about the sector the airline will be flying first, market experts said it may start with Bangalore-Goa route.
The low-cost carrier, a joint venture between between Malaysia-based AirAsia Bhd, Tata Sons and Telestra Tradeplace's Arun Bhatia, had received a flying permit from the Directorate General of Civil Aviation (DGCA), the last regulatory hurdle, on May 7. According to a city-based travel agent Rajesh Rateria of Cirrus Travels, a Mumbai-based travel agent, "The airline is definitely going to make ripples in southern India, though it will not be touching Mumbai at present.
While speculations are on about Bangalore-Goa, it is likely to announce some routes connecting Chennai since that would be the hub. The low-cost carrier has been studying the Indian market for almost a year now, and hopefully it will come out with a very good strategy to tap more customers and new markets."
AirAsia had announced Chennai as its base with plans to focus on routes to non?metro airports with limited competition.
However, aviation industry consultant Centre for Asia Pacific Aviation (Capa) in a report on Thursday, said, "We expect that the first hub will be switched to Bangalore which is an attractive market. It is a large, cosmopolitan city, with a strong corporate traffic base, and a young, tech?savvy demographic that is well aligned with AirAsia's positioning."
The private airport operator is more likely to be willing to work together with AirAsia and accommodate its requirements than the AAI at Chennai, it said, adding with a major terminal expansion completed in December 2013 the airport has both spare terminal and runway capacity.
Having received the air operators' permit (AOP) this month, AirAsia India, however, missed the opportunity to take advantage of the peak summer season. Experts said launching during monsoon in July and August is not ideal both for commercial and operational reasons.
"Well, they will not be able to advantage since June is the last month of this peak season but possibly the carrier is looking at attracting more of corporate travellers," Rateria said.
Capa in its report said, "This tactical surprise may have caught the competition off guard as they were expecting a later date. AirAsia must have concluded that having had a longer than scheduled pre?ops period and with an aircraft sitting idle on the ground they were ready to go."
However, the market is likely to see a fierce price war as the AirAsia India CEO Mittu Chandilya has earlier hinted that its tickets will be cheaper by 30%.
"The competition will greet AirAsia with tactical fares intended to erode any price advantage that they may seek to offer and with the intention of presenting the 30% differential as a myth. The current airlines can be expected to respond aggressively to AirAsia's entry," the Capa report said.
An aviation consultant said, "The market is going to be fiercely competitive. But how things shape up will depend largely on which markets AirAsia India will be targeting."
The intense competition which is expected to greet AirAsia's entry will also place great pressure on some of the incumbent carriers which are struggling and whose holding power may be tested. "India's carriers combined have cash on hand of around just $500 million on annual industry revenue of close to $10 billion. Some carriers are in a precarious state, with cash balances equivalent to less than one day's revenue," said the Capa report.
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