Akasa Air- The New Lost-Cost Airline in India

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As the country is trying to emerge from the Covid-19 crisis, the Indian airlines space is preparing for the entry of two airlines — Jet Airways 2.0, and Akasa. Akasa is an upcoming “ultra low-cost carrier”, or ULCC, being launched by stock market investor Rakesh Jhunjhunwala, who will be holding a 40% stake in the airline company.

Jhunjhunwala has reportedly planned to launch the airline by April 2022, and has onboarded aviation industry veterans such as former Jet Airways CEO Vinay Dube and ex-IndiGo President Aditya Ghosh to run the airline. While Dube is expected to be the CEO of the company, Ghosh is expected to be on the board as Jhunjhunwala’s nominee.

According to The Economic Times, Jhunjhunwala will invest ₹247.5 crores ($33.3 million), and is planning to have a fleet of 70 planes over the next four years. The airline expects to be granted a no-objection certificate (NOC) from the Ministry of Civil Aviation over the next few days.

Currently, IndiGo which is run by InterGlobe Aviation Ltd is India’s largest airline with over 54% market share in the domestic passenger market followed by state-owned Air India, SpiceJet, GoAir, Vistara and AirAsia India. GoAir, which has filed papers for its initial public offering, recently rebranded itself to GoFirst and plans to revamp its business model to become a ULCC. The upheaval of the Indian airline industry has largely been on the back of deep losses reported in 2020-21 (April-March) because of Covid19 — a situation that has persisted with the second wave in the new fiscal.

“Massive, perennial losses have created a debt trap which has resulted in most airlines having very limited means of recapitalisation. The Government of India is providing almost no direct support; lenders have by and large closed their doors to airlines, even for restructuring purposes; and lessors will soon have no option but to start applying pressure on defaulting airlines. Simultaneously we are heading into a higher cost environment, while staff morale is declining,” aviation consultancy firm CAPA noted in its India airline outlook for 2021-22.

With the 2019 closure of Jet Airways, a potential disinvestment of Air India, and the weakened position of other existing players, the airlines industry is facing a threat of consolidation of market share with the major players. Additionally, with vaccination rollout gaining momentum, market participants expect the sector to bounce back. In his interview with Bloomberg TV, Jhunjhunwala said: “I’m very bullish on the Indian aviation sector in terms of demand and I think some of the increment players will not recover”.

In the ULCC airline business model, the company focuses on keeping operating costs even lower than typical budget airlines like IndiGo and SpiceJet. In the low-cost model, airlines unbundle certain amenities that are usually associated with the full-service airline experience — like seat selection, food and beverages, etc. In the ultra low-cost model, there is an even further unbundling of services like checked-in baggage, cabin baggage, etc. Traditionally, while LCCs operate with significantly lower fares and only somewhat lower costs than full-service carriers, ULCCs operate with minimal costs to ensure profitability.

Meanwhile, as per a report by The Print, Boeing Co. is in advanced discussions with a newly created Indian budget carrier to sell 737 Max jets, according to people familiar with the matter, a deal which could give the U.S. planemaker a crucial breakthrough in a major market dominated by Airbus SE.

The airline, Akasa, backed by billionaire investor Rakesh Jhunjhunwala, has also held discussions with Airbus for its best-selling A320neo jets, but that model isn’t available for delivery until several years down the track, tilting the equation in Boeing’s favor, the people said, asking not to be identified because the matter is confidential.

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