Akasa Air: Orange Hues In A Grey Sky
→ Akasa’s entry, the first new scheduled airline to take flight during the Modi government, could bring mixed tidings for Indian aviation.
On Aug. 7, Akasa Air, the first scheduled airline to take to the skies since the Narendra Modi-led union government came into power in 2014, will launch operations with two Boeing 737 Max 8 aircraft on two routes.
The new airline takes flight in an industry that has only witnessed bad news for a while now. Indian aviation witnessed the grounding of Jet Airways in 2019 and a further battering of the entire industry due to the Covid-19 pandemic. As a result, the Rakesh Jhunjhunwala-funded Akasa Air has already grabbed quite a bit of attention by launching operations amidst global aviation finding its way out of the doldrums.
If it has managed to grab eyeballs before launch, Akasa would like to do the same after taking off, by attempting to grow faster than any of its rivals. Assuming the airline manages to pull off its growth plan and reaches the proposed size of 18 aircraft by March 2023, this will be a record of sorts among Indian airlines. SpiceJet, AirAsia India, and Vistara took 5, 4 and 3 years respectively to reach the same size after launch. Only IndiGo managed it in around 18 months.
Also creating a buzz around Akasa’s operations has been its founding leadership team that includes former IndiGo President Aditya Ghosh, a few former Jet Airways senior executives including its former CEO Vinay Dube and his family, along with a bunch of professionals with some experience across rival airlines. The airline’s website lists six co-founders. Is that one too many? We saw how much trouble IndiGo had with just two.
Akasa currently has 400 employees and intends to add around 175 to its rolls every month to reach a total staff count of 2,000 by March 2023, if all goes as planned. This of course is the best news for employees in a sector wracked with layoffs and pay cuts.
The airline is reasonably well capitalised and it will earn some income through the sale-and-leaseback of its 72 aircraft order over five years.
But that’s where the positives could end. At the cost of sounding like a party pooper, we need to consider the not-so-happy situations that Akasa finds itself in.
Where Things Could Get Choppy
It has been at least 18 months from the time the airline was conceived to this month's launch, and the macro environment has changed a fair bit.
Although there was much talk that the pandemic could put some airlines in India out of business, none of the incumbents has downed shutters. If the Akasa founders were banking on one or two of the smaller players bowing out and making some space for their entry, they would no doubt be disappointed. The space Akasa is entering is crowded and many incumbents remain operational, even if some appear to be holding on by their fingernails.
Second, the sector was in dire straits when the airline started scouting out for aircraft and industry sources say that Akasa could not get full advantage of the intense rivalry between Airbus and Boeing since the former had no aircraft to offer. Airbus’ delivery books and schedules would have meant the airline would have had to delay its launch a fair bit so it had to settle for Boeing. With its present set of internal problems, Boeing is not the manufacturer of choice for any of the carriers and many of its existing customers are suffering the consequences of the aircraft maker’s troubles.
Good deals happen when two rivals fight intensely for the same business. This didn’t happen.
The Ukraine war and the consequent rise in aviation turbine fuel prices have knocked out whatever upside that airlines might have been hoping for, in a post-pandemic traffic surge. Oil prices rose but ATF prices skyrocketed such that the differential between crude and ATF prices went through the roof. The airlines are today in a situation where for every Rs 100 they charge fliers, Rs 75 is going to the oil companies. Add the airport charges and the airlines are left with very little for other expenses. In other words, losses for any new entrant from operations are likely to tot up even quicker than they did for Vistara or Air Asia India.
Moreover, Indian carriers also suffer from herd mentality and this makes making money on any existing sector a huge challenge. Let me explain with an example. On the Bengaluru-Kochi sector—one of the routes picked by Akasa to launch with—there are already seven direct daily connections offered by IndiGo. On many days this plethora of choices is even wider with AirAsia India offering another four to five direct flights on the sector. Therefore, for any new entrant to carve a niche for itself and make some money will likely be a formidable challenge.
Doing this might mean some initial losses in a virgin sector but in the long run, it means having the first mover advantage. I confess that I have a vested interest in this suggestion since I recently took the train one way from Goa to visit Trivandrum, so impractical was the connection through Bengaluru!
Having raised all these orange and red flags, like any flyer I welcome the new kid in the skies with open arms. The more, the merrier and then some more is the best news for the Indian passenger. Akasa hopefully followed soon by the new revamped Tata airline all promise happy tidings for Indian skies. If a few go broke along the way, we’ll try not to miss them too much.
Anjuli Bhargava is a journalist, with reportage and commentary on India’s aviation space for over 25 years.
The views expressed here are those of the author and do not necessarily represent the views of BQ Prime or its editorial team.