Indian Carriers Flout AirAsia's Profit Claim

Tuesday, 13th May 2014 at 08:45am

The existing airlines in India flout AirAsia's claim as merely a marketing ploy to gain its foothold in the country which is already crowded with unprofitable players.

The claim by AirAsia's profitability prompted SpiceJet COO, Sanjik Kapur, to tweet derisively insinuating that it's too good to be true. Other airline officials couldn't agree more.

One airline executive remarked that the claim of offering fares as much as 35 % lower than most other airlines is simply impossible, if not outright untrue. He added that it could happen in only two conditions: First, all existing airlines make huge profits and trim down those figures with lower yields; Second, their (low-cost carriers) cost structures are already high that trimming costs down by 35% will still fall to admissible level.

According to industry experts, the current fares offered by Indian carriers are already low enough, and if they make want to dive down to equal or lower than what AirAsia will offer, the country's aviation industry will collapse. If that happens, AirAsia India might be the only survivor as it will get support from its mother unit. Basically, what AirAsia will bring to India is not business, but a harbinger to the demise of the aviation industry.

Based on the data available from Centre for Asia Pacific Aviation, the Indian airline industry accumulated a total loss of US$8.6 billion in the last seven years ending March 31, 2013. Its total debt reached US$12.6 during the same period. The same data also showed that the working capital of most full-service carriers alone comprised almost half the total debt. In contrast, low-cost carriers' debt only amounted to $750 million, most of which are attributed to aircraft acquisition.

An airline official claimed that the domestic market posted a modest growth of less than 5% during the previous fiscal year ending 2014. With the entry of AirAsia India and the impending entry of SIA-Tata Airlines, the growth can't be sustained and it will possibly send another airline company folding up.

While most officials of existing airlines doubt AirAsia's plan of offering tickets 35% cheaper than what most Indian carriers currently offer, AirAsia India's Mittu Chandilya seemed unperturbed by all those issues and just laughed it off.

He boasted that they will be able to make profits even if they offer cheaper tickets.

By: Pete Lee.