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AirAsia to offer fares as low as Rs1,000; may skip MumbaiDelhi routeAnindya Upadhyay, ET Bureau Mar 7, 2013, 06.40AM IST
NEW DELHI: AirAsia may avoid flying on the MumbaiDelhiroute and focus on smaller cities and the southern metros ina unique strategy to keep costs low and capture a largerslice of the fastgrowing flying population in the rest of thecountry.
The Tony Fernandesrun budget carrier, which rattled theaviation ministry and some of the country's establishedcarriers by announcing an airline venture with the TataGroup last month, will focus on Chennai, Hyderabad,Bangalore and northern cities like Jaipur, Ahmedabad, topairline officials have said.
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The decision is surprising as Mumbai and Delhi are the most lucrative flying routes with all domestic airlineshaving a presence. But flying to these airports is also expensive as landing and other charges are at least25% higher than other airports. The cities also don't have lowcost airports. "We are going after a panIndialicence and not a regional one," Suresh Nair, AirAsia regional manager — India, Sri Lanka and Bangladesh,said, explaining the group strategy.
"Avoiding Delhi and Mumbai doesn't make us a regional carrier because India is much beyond that. If we fly,say, ChennaiAhmedabad or ChennaiJaipur, that would mean national operations. We would fly wherever wecan to keep cost of operations low," he added.
The move is in sync with AirAsia's disruptive strategy and its desire to grab a bigger market share ofpassenger traffic outside the two big cities. A section of the travel fraternity still thinks that AirAsia would beable to offer competitive fares not only by adopting certain practices unique to them and but also those notyet tried in India.
Having a domestic network helps cope with expensive airports but the costs involved in operating from Delhiand Mumbai will still be quite high for a budget carrier. Keyur Joshi, COO of Nasdaqlisted travel portalmakemytrip.com expects the company to avoid some of the major cities, not just Delhi and Mumbai. "Iexpect them to avoid Delhi, Mumbai, Bangalore and Hyderabad to keep costs low. Indian airlines have notbeen able to negotiate with airport operators to resolve that. AirAsia may also prefer to add more frequencieson a route rather than going after many routes, something not yet tried in India," he added.
In a conference call with reporters on February 21, Tony Fernandes said the airline will avoid Delhi andMumbai. "We will avoid certain airports like Delhi and Mumbai because of high charges and also becausethese airports are slot constrained. We will stimulate the market first with lowcost structure and later as theairports are being developed, we would also look at these newer markets. India is a huge country and we areconfident that we will succeed," Fernandes had said.
It is not yet clear whether AirAsia will completely avoid these two cities, as in not ferry passengers fromother destinations to the two top metros. Nair said the routes have not been finalised and can't yet make acomment. While AirAsia is entering the domestic market for the first time, it has been flying between severalIndian cities and southeast Asian countries.
The experience so far has not been very good. The airline plans to pull out of flying between Delhi andBangkok and rival IndiGo has responded aggressively by doubling services on the same route. High airportcharges forced it to withdraw services between Kuala Lumpur and Hyderabad in 2010 while its longhaul armAirAsia X pulled out of Delhi and Mumbai in January last year for the same reason.
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"We don't know why airlines don't come together on these issues. Every rupee makes a difference. We alsoknow that costs of a couple of airlines are very low but they are not offering that price to customers," Nairsaid.
AirAsia may also offer fares as low as Rs 1,000 to lure passengers when it begins operations in India though asuccessful replication of its Southeast Asian model may be difficult due to the country's highcost structure.The Malaysian budget airline will start fares at Rs 999 for flyers wanting to book months in advance and hopesto make early booking a regular habit.
"We average out the fare that we need through 10 revenue buckets. The idea is to stimulate the market withlow fares till a certain percentage of seats are filled and then go to the highest levels," Nair added. But theairline could find it difficult to replicate its model due to India's highcost structure, experts said. India does nothave lowcost terminals like Malaysia or the UK and the fuel tax structure does not favour widebodied aircraftsuch as the A320s that AirAsia plans to fly.
"In India, you can't charge extra for baggage and seat preference," said Manish Chheda, MD of managementconsultancy firm Auctus Advisors. Industry experts say in 2012, AirAsia's cost per available seatkilometre(ASKM) was 3.18 US cents or Rs 2.20. This includes airport charges and fuel, which constitutes 40% of thetotal cost.
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