AirAsia to Undergo Acid Test in India

Saturday, 20th July 2013 at 01:52am

AirAsia may have been successful in its foray into regional markets with its respective local subsidiaries doing well but its toughest battle is yet to come.

The Malaysia-based budget behemoth is about to test the water in India, the world's second most populous country. India's local aviation market, though, pales in comparison to other large economies such as China and Japan but the market is thought to have been tough to crack. Simply because there are too many airlines competing for a share in a small market.

AirAsia India will find it as soon as it starts to operate sometime this year.

Tony Fernandes struck a deal early this year with Tata Group of India to set up a local subsidiary of his widely successful budget carrier. The joint venture led to the creation of AirAsia India which is touted as the most able challenger to the well-established local low-cost carriers.

India's local aviation market has been beset with problems including stagnant, if not dwindling, demand in air travel across the country, thanks in part to the ever increasing airfare. As a result, airlines have piled up losses upon losses prompting the government to interfere through the amendment of its decades-old policy on FDI in the local aviation sector.

The newly-amended policy now allows foreign companies to own up to a maximum of 49% of a local airline. This has given way to the recent entry of at least two foreign carriers in the Indian aviation sector.

AirAsia is the first airline to make its way into the local market through a joint venture with Tata Group, India's largest business conglomerate.

The airline was originally scheduled to commence operations this month but has been postponed lately due to delayed issuance of the license from the regulator.

The big question asked by many people was how could AirAsia fare in a market already struggling to stay afloat in turbulent waters?

Local airlines are buffered by all sorts of troubles, from high operating costs due to high-fuel prices and airport fees to low demand in air travel.

Indian skies are already dominated by budget airlines netting a combined 65% share of the total market. The entry of AirAsia India adds up to the list of low-cost carriers operating in India.

But Tony Fernandes seems unfazed by this scenario as he already tried the same when he acquired the heavily-indebted AirAsia from the Malaysian government and turned it around to become what it is now - a giant airline company and one of the world's largest low-cost carriers.

When AirAsia India starts flying sometime this year, it will have to contend head-to-head with IndiGo, the country's largest budget carrier. Other local players in the domestic market arena include Air India, SpiceJet, Jet Airways, JetKonnect and GoAir.

By: Pete Lee.