India's aviation industry is all set to embrace a new wave in airline travel as India’s Warren Buffet, Rakesh Jhunjhunwala has made his plans to launch an Ultra-Low-Cost Carrier, Akasa.
The aviation industry in India is in fact an untapped market with only a few companies making all of the profit. It also has to be read along with the multiple events where companies like Kingfisher and Jet Airways had to suspend their operations as they run on a loss.
The pandemic has not spared this industry as air travel is still struggling to make an actual comeback out of the larger travel restrictions that were imposed on it.
Companies like Indigo which is India's largest airline has already confirmed that their losses have been wider than they expected. This is despite operating services across India as soon as the restrictions were lifted.
The fact that the industry is an unexplored arena and yet a very risky platform makes the new initiative of Mr. Jhunjhunwala more unpredictable and yet attractive. It cannot be denied that this investment is going to alter their airline industry for good. This article will analyse all sides of this ambitious plan.
The Plan of Rakesh Jhunjhunwala
Will Air Travel Become Economical?
Better Air Carriers
Concerns about Akasa Airlines
FAQ
The Plan of Rakesh Jhunjhunwala
The successful investor Rakesh Jhunjhunwala has clarified his plans on investing $35 million in Akasa airlines where he would own 40% of carriers, which means 70 aircraft within a span of four years.
Akasa airlines will be an ultra-low-cost carrier that is lead by a very enviable team that one could imagine. It includes former CEOs of successful airline companies like Indigo, Delta airlines et cetera.
Their focus will be more on air carriers that can accommodate 180 passengers. In the face of exclusive expensive fare wars and the high cost of maintenance and operations, Rakesh Jhunjhunwala's initiatives will be a game-changer.
If materialised properly Akasa airlines could be the golden feather in the fastest-growing aviation market in the world.
Will Air Travel Become Economical?
Rakesh Jhunjhunwala with his confident proposal has made it clear that his intention is to capture the mass market. The ULCC or ultra-low-cost carrier will democratise the hitherto expensive transportation method.
The initiatives by earlier companies like Air Deccan has significantly helped in bringing down the ticket fares of aeroplanes. It is expected that Aakasa airlines’ initiatives will further bring down the prices.
This will also align with the UDAN scheme of the Government of India which aims at making air travel affordable. However, it will heavily depend upon the slots that they will get in airports.
The fact that even vendors and lessors are also in a very battered state after the pandemic, will enable the airline company to renegotiate its terms and costs so as to raise fresh funds and trim costs which will help them to afford lower ticket fares.
Megha Rani
Better Air Carriers
Akasa Airlines will alter the market of plane makers into a very competitive sector as the industry is trying to wriggle out of the hands of immense losses that it had to incur as the pandemic struck them hard.
It is anticipated that there will be heavy competition between plane makers like Boeing and Airbus. As far as Boeing is concerned, it is indeed a valuable opportunity for them to make a comeback to the Indian industry since the only operator for their 737 aircraft in India is SpiceJet.
As per the statistics, Indian carriers owns more than 900 planes of which more than 700 are owned by Airbus and only 100 by Boeing. The latter is also losing its position in the wide-body aircraft market as well. This means that the plane makers will be ready to give competitive rates if Akasha wants to lease an aircraft from them.
These rates are expected to be better than the pre-Covid rates according to Nithin Sarin who is a managing partner at a law firm that functions as an advisory to airlines and lessors. Such a competition is highly beneficial as far as the air travellers are concerned since it will assure them quality travelling at affordable prices.
Manav Makhija
Concerns about Akasa Airlines
The vision of Rakesh Jhunjhunwala through Akasa Airlines will be a hard nut to crack. Out of all the industries it can be said without any doubt that the aviation industry is one of the riskiest and unpredictable markets.
Lack of The First Comers Benefit
In India, 50% of the low-cost air carrier market is held by just one player – Indigo. When a new airline with an ambitious mission like Akasa is entering the market, it not only have to compete with the wide network of Indigo but also their potential.
Akasa should calculate the ways in which Indigo can scale up its game as they attempt to do the same. At least initially it will be very difficult for Akasa Airlines to get attractive time slots in important metro airports like Delhi, Mumbai, Bangalore etc. which will have a direct impact on its revenue.
The Contrast of High Cost and Low Price
One of the trademarks of Akasa Airline as proposed by Jhunjhunwala is its low ticket fare. However, the reason why air travel is expensive is widely known. During the pandemic, turbine fuel charges have further increased along with other Covid related uncertainties.
The ground handling charges and labour cost also constitutes a large part of the operational cost of an airline. The former holds 75 per cent of the whole of the non-fixed cost that an airline operation should incur.
Amidst other expenses like airport fees, taxes, luggage et cetera the aim to democratise airline travel might cost a fortune for Akasa airlines. Here, high cost is contrasted with low price, which if handled carelessly can even lead to the failure of the entire endeavour.
Rising Competition
Apart from the first comer advantage that it lacks, the timeline of its entry into the airline industry is also marked by the rise of other companies who had lost their strategic position in between.
Along with Jhunjhunwala, the Kalrock Capital-Murari Lal Jalan consortium is all set to revive Jet Airways which had suspended its operation earlier. They have also got approval from the National Company Law Tribunal as well.
At the same time, Air India is also likely to find a buyer which will further alter the nature of competition in the sector in itself. GoAir can also be an important competitor if it successfully gains investor interest during its listing.
Conclusion
Even with its risks and unpredictability, the foundation set by Rakesh Jhunjhunwala through Akasa airlines is revolutionary without any doubt. The changes it can bring to air travel by democratising prices can be phenomenal.
They have a very efficient and talented team to fall back on, which further increases the probability of a successful materialisation of their idea. There is absolutely no doubt about the anxiety that the loss of Kingfisher Airlines, Jet Airways and SpiceJet brings to the table.
However, it will be rather interesting to learn the ways in which Akasa Airlines with heavy support from a brilliant investor like Rakesh Jhunjhunwala will make his dream of ULCC come true for the good of all!
FAQ
Who is the founder of Akasa Airline?
Akasa Airline is a ultra low-cost carrier backed by Rakesh Jhunjhunwala.
Who are the competitors of Akasa Airline?
Jet Airways, Air India and Indigo are some of the competitors of Akasa Airline.
Author: Anagha S
Source : https://startuptalky.com/akasa-airline-case-study/
Date : 2021-08-03T13:09:50.000Z