Air War Heats Up Again

Monday, 4th March 2013 at 03:42am

Just when one airline disgracefully exited the stage, another airline entered the scene - and this has been the biggest aviation news in India most recently.

While the demise of Kingfisher Airlines still lingers on the minds of Indian people, especially air travelers, a new airline has emerged, probably to salvage what Kingfisher has left in its wake. No, it's not the latter's huge debt but the big opportunity that the Indian market has presented to the new investor from Malaysia - Tony Fenandes.

Tony Fernandes owns AirAsia Bhd., Asia's largest and most successful budget carrier in recent memory. Without batting an eye, he bought a cash-trapped Malaysian airline which was buried in huge debt, for 1 ringgit (about 26 cents in US dollar). Surprisingly enough, he made the airline profitable over a year after his takeover which stunned the local industry and even the global aviation world for his adroitness. Today, AirAsia still lords it over the budget airline business in the region having already expanded to four countries setting up local subsidiaries.

The recent entry of AirAsia into Indian aviation industry with the joint venture to form AirAsia India, the no-frills airline leader is further cementing its lead. In February 19, 2013, AirAsia India became the 5th subsidiary in AirAsia's portfolio of subsidiaries outside its home turf, Malaysia.

The resulting joint venture between AirAsia and Tata Group is the first in Indian aviation history where a foreign company has a stake in a local airline. In September last year, the government amended its decades-old law that banned foreign companies to own even a single stake in its local airlines.

The lifting of the ban, however, came too late to resuscitate Kingfisher Airlines as it began seeing trouble in December 2011, barely one year before the amendment could take place. By the time the law was amended, Kingfisher planes were already grounded and barely a month later, its license was suspended, unable to fly again.

The demise of Kingfisher seemed to be a boon to rival airlines as they suddenly jacked up prices for their tickets, especially on routes served by the troubled airline. However, the resulting airfare increase discouraged air travelers and demand fell as they put off leisure travel.

The entry of AirAsia in India, this time as a stakeholder in an Indian airline, might not be a welcome news to local players where all but one locally-owned airline are piling up losses. Currently, IndiGo, the country's largest budget carrier by market share, is the only Indian airline that makes profits.

AirAsia India will use the southern city of Chennai as its base, taking advantage not only of its close proximity to Southeast Asian region but also its extensive connections across India.

By: Pete Lee.