AirAsia Indian Local Subsidiary Sets to Take Off

Thursday, 28th March 2013 at 04:42am

India's domestic aviation industry will soon get another challenger in the already saturated market with the entry of Malaysia-based AirAsia Bhd.

AirAsia's honcho, Tony Fernandes, successfully inked a deal with India's largest business conglomerate, Tata Group, to set up a local subsidiary of its fast-growing business empire that includes, among others, hotels, insurance and mobile communications.

The new joint venture follows the lifting by the Indian government in September 2012 of a ceiling cap of 24% on foreign shares of any local airline business. The amended FDI policy now allows foreign airline investors to own up to 49% stake of a local carrier.

The new policy was meant to encourage foreign investors to inject much-needed cash to the ailing aviation industry in the country where most of the airline companies are reeling from mounting losses and huge debts.

This paves the way for AirAsia to test the waters of the local market by setting up a local airline subsidiary with its Indian partner, Tata group. This will bring AirAsia's total subsidiaries to six including its long-haul arm, AirAsia X.

India is said to be one of the world's fastest growing aviation market with its domestic market alone, grew five times over in the last ten years, following decades of stagnation, thanks in large part to Air India's near monopoly in commercial airline business.

However, the ever increasing fuel prices as well as stiff airport taxes and other charges send most Indian airline operators into indebtedness. Together, they accumulated a total of $2 billion in losses in 2012. One carrier, Kingfisher Airlines, wasn't able to pull itself out of the sinkhole, making it the first casualty of India's troubled commercial aviation industry. As a result, domestic airfares rose due to short supply, though air travel demand stagnated.

The Indian subsidiary would enable AirAsia to penetrate the country's domestic travel market and take advantage of its local partner's influence in the local economy, including the air travel market where Tata once founded the country's first airline. Tata founded the country's first airline, Tata Airline, in the 1930s until its nationalization in 1953, ending its brief foray into the aviation business.

AirAsia's entry in the country's sagging aviation industry would somehow extend the agony of the local players who have tightened their belt already. Nobody knows exactly, at least for now, what lies ahead of the industry as AirAsia is still mum about its plan in the country except that it will commence operations towards the end of the year.

AirAsia started as a debt-laden state-owned entity when Tony Fernandes bought and resuscitated it to become what is now Asia's first, largest and fast-growing low-cost carrier. It has five local subsidiaries in as many countries: AirAsia Japan, AirAsia Malaysia, AirAsia Philippines, Indonesia AirAsia, Thai AirAsia.

Together, it has a combined fleet of 120 aircraft and has a route network of 88 destinations in 25 countries.

By: Pete Lee.