India's famed investor Rakesh Jhunjhunwala has announced his plans to enter the aviation sector with his low-cost airline Akasa. Jhunjhunwala has said that he will launch an ultra-low-cost carrier or ULCC which means that he plans to capture the mass market.
India is an under-penetrated market when it comes to aviation. Just a fraction of the population currently travels by air. Airlines like IndiGo are already talking about taking away the market from railways by offering competitive fares.
With the ULCC model, Jhunjhunwala is expected to bring down the fares even lower and make flying affordable to a larger population base. His plans are also in line with the government's ambitious UDAN or 'Ude Desh ka Aam Naagrik' scheme that aims to make flying affordable.
But it's not going to be easy for Jhunjhunwala as the aviation sector is currently going through its worst phase due to Covid uncertainties and high aviation turbine fuel charges. Additionally, the success of a new airline will depend hugely on the kind of airport slots that it gets.
Currently, most of the attractive slots at metro airports like Delhi, Mumbai and Bengaluru are being allotted to incumbent airlines like IndiGo, Air India and SpiceJet.
Jhunjhunwala is not alone in taking a fresh bet into the aviation sector. Kalrock Capital-Murari Lal Jalan consortium has got the National Company Law Tribunal approval to resurrect grounded Jet Airways, whereas Air India is expected to find a new buyer which will intensify the competition in the sector.
Experts say that damp sentiments in the global aviation market would help Jhunjhunwala in getting planes on lease at attractive rates.
Industry trackers have struggled to make sense of the ultra-low-cost carrier model that Jhunjhunwala has spoken of. "When Ryanair and Sprint entered their respective markets in Europe and US, there was no option for the flyer except a full-service airline. In that sense, it was a clear opportunity or just latent demand that existed," says one person, who did not want to be named.
India, to his mind, is a remarkably different situation where one player (IndiGo), a low-cost carrier has over 50% of the market. "A new entrant will not just need to fight IndiGo's network but also their ability to take on the competition with the same route and also scale it up. Competition is too formidable to deal with."
The other advantage for the likes of Ryanair is that they do not fly into important airports. That means lower parking slots or in some cases, even a subsidy from a small town to the airline for servicing that particular destination. Take the case of India where there is neither the concept of a low-cost airline airport nor any great room to cut back on costs.
As another industry veteran puts it, "Indians want the lowest fare and still want what a full-service carrier offer."
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