Unhappy AirAsia promoters put pressure on management to deliver

As the low-fare carrier AirAsia India moves from one missed milestone to another, the management headed by CEO Mittu Chandilya faces immense pressure to deliver, sources in the know told dna.

"There is a lot of introspection being done on why the airline has not been able to reach its milestones in time," said a source, who spoke on condition of anonymity.

Tata Sons, which is one of three partners of the joint venture airline, is apparently not happy with the airline's performance till now, especially with network planning, said sources, adding that the promoters are reviewing their strategy.

Regional budget airline AirAsia India, an alliance between Malaysia's AirAsia Berhad, Tata Sons Ltd and Telstra Tradeplace Pvt Ltd, launched its services in June last year.

According to the latest Directorate General of Civil Aviation (DGCA) numbers, after eight months of operations in the Indian skies, the low-fare airline cornered a 1.2% market share, flying 72,000 passengers, in February.

The airline, which is following the strategy of flying on regional routes, recently pulled back its Chennai-Bangalore flight as it was commercially unviable. It has also not been able to meet its timeline for breaking even and fleet expansion as per its original schedule.

Immediately after it was launched, AirAsia India had announced that it would be adding one aircraft every month and break even by December 2014. Both have been revised with its breakeven now expected in June when the sixth aircraft is likely to join its fleet. The airline has reached a fleet size of four aircraft in nine months.

"Our plan was to have six aircraft operational by December 2014, and achieve breakeven quickly. But our fleet expansion has seen some delay due to other issues. It is impossible for any airline to achieve breakeven with three aircraft," said a senior company official.

Aviation experts said an airline normally takes around 18 months to achieve breakeven. Some analysts believe that AirAsia had gone wrong on its network planning.

"In hindsight, staying out of Delhi and Mumbai was perhaps a strategic mistake," said an analyst. The airline is likely to add Delhi to its map by April-end when its recently acquired fourth aircraft goes operational.
AirAsia India's spokesperson claimed that the company has already hit gross profit (GP) in December, which was within six months of starting operations.

"So, we know now what works and what does not. Despite being in India for two years now and operational for 10 months we have seen so many dynamics in the industry and Indian market from what other airlines have gone through, to regulations that have changed, policies being reworked, fuel prices moving all over the place and plans for more LCC (low cost carrier) airports being planned and others being privatised," said the spokesperson.

The spokesperson denied that the AirAsia model is not working in the country, but added that the regulatory restrictions had restricted them from unleashing the full force of the LCC model.

"For instance, we charge for all check-in baggage in other airport operator's certificate (AOCs) but have not been allowed to do this in India. Further, restrictions such as Route Dispersal Guidelines (RDG) require us to operate to certain non-scalable stations and complicates our network. Further, network copying in India is a common and often irrational phenomenon -- another anomaly to India. Overall, we find the Indian aviation environment over-regulated with the regulator excercising a disproportionate amount of control on commercial aspects of airline operations," she said.

According to her, the other challenges that the airline faced were high value-added tax (VAT) on aviation turbine fuel – unique to India – the 5/20 rule (which permits only airline with five years of experience and 20 aircraft to fly overseas), network copying, aggressive poaching of their operations staff by competitors and infrastructure constraints.

"I would like to point out that given our strategy has always been to connect Tier 2/3 cities, it is disappointing that we have not been able to achieve this with the intended scale due to infrastructure constraints at these airports. Some runways do not permit aircraft of our size to land while others are defence or constrained airports, where limited slots are available and operating hours limited. Also, no matter how much we try and make a route work, things do not always pan out the way we intended, some degree of trial and error does exist. We are happy with almost all our routes. We can and will make BLR-MAA (Bangalore-Chennai) work in the near future. But at present, the opportunity cost of operating the route is high," she said.