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Aviation Sector Heats Up With Competition as Akasa Air, Jet Airways Prepare for Take-Off

Aviation Sector Heats Up With Competition as Akasa Air, Jet Airways Prepare for Take-Off

Competition in the Indian skies is set to become even more cut-throat as Akasa Air and Jet Airways prepare for launch of their commercial services

Image Courtesy: Akasa Air Image Courtesy: Akasa Air

An intense battle for market share in the world’s third-largest domestic aviation market is brewing. Competition is set to intensify as the market gets ready to welcome two more players—low-cost carrier (LCC) Akasa Air, which is set to commence operations in July; and the re-launch of Jet Airways later this year.

Recently, Rakesh Jhunjhunwala-promoted Akasa released the first look of its Boeing 737 MAX aircraft. With the lowest seat-mile cost for a single-aisle airplane and high dispatch reliability, the Boeing 737 MAX may provide Akasa with a competitive edge.

“Today, passengers seek environmentally friendly options to travel, and Akasa is proud to be an environmentally friendly airline with the youngest and greenest fleet in global aviation,” Co-founder and CEO Vinay Dube tells Business Today.

The airline’s scheduled launch in June was postponed by a month due to a delay in the delivery of its first aircraft, which will happen by mid-June. Akasa says this won’t affect its plans to induct 18 aircraft by March 2023. Next on Dube’s agenda is to obtain the Air Operator’s Certificate (AOC) after fulfilling all regulatory requirements laid down by aviation regulator Directorate General of Civil Aviation (DGCA).

Akasa has partnered with US-based reservation systems provider Navitaire to implement its tech-enabled strategy. “While pricing is important, it is not the only differentiator. Compared to current industry standards, we plan to adopt a more progressive approach in our use of technology and data analytics. That starts from the way a customer books a ticket, the payment experience, or in how we service our customers during and after their travel with us,” says Dube.

The return of Jet

The other airline set to join the fray is old warhorse Jet. On May 20, the full-service carrier received its revalidated AOC from the DGCA, ending months of speculation over its fate. This enables Jet to resume commercial operations under its new owners, the Kalrock-Jalan consortium (which comprises the UK-based investment firm Kalrock Capital and UAE-based businessman Murari Lal Jalan).

“Since receiving the AOC, we have ramped up efforts to restart commercial operations in the July-September quarter,” says Sanjiv Kapoor, CEO of Jet Airways. “We are focussed on some foundational blocks to meet the ambitious targets we have set, in line with our vision of building a people-focussed airline.” The foundational blocks that Kapoor mentions include people, aircraft, software and systems, and airport infrastructure.

As a full-service airline, Jet ruled the Indian skies till the early years of the past decade before competition from LCCs led to its collapse. Instances of defunct airlines like Jet getting a fresh lease of life are rare in commercial aviation. Thus, its comeback also validates the effectiveness of India’s Insolvency and Bankruptcy Code, say experts.

Jet, which has relocated its headquarters from Mumbai to Gurugram, is expected to announce a major fleet acquisition plan in the coming days. A leading Boeing customer earlier, it has been in talks with Airbus, too. “We will be a ‘smart’ full-service carrier with a two-class cabin configuration—a business class designed to global standards, and an economy class that offers digital-age customers what they value most,” says Kapoor.

But there is still a major challenge ahead. The All-India Jet Airways’ Officers and Staff Association has termed the airline’s resolution plan approved by the National Company Law Tribunal (NCLT) as absurd and poorly planned. In response, Kapoor maintains that Jet’s new management will abide by the terms of discharge of old liabilities as directed by the NCLT. “At present, we are more than 200 of us at Jet Airways, of which more than two-thirds are former Jet staff. For every position that is open, if there is a former Jet employee who is equally qualified and talented as any other candidate, we will prefer to hire the former Jet employee,” he says.

Under the resolution plan, the consortium intends to repay financial creditors a total of Rs 1,183 crore over a five-year period through a Rs 600-crore investment, sale of Jet’s non-aviation assets and cash flows. Meanwhile, appellate body National Company Law Appellate Tribunal (NCLAT) has said that the implementation of the consortium’s resolution plan for the airline will be contingent on the outcome of its order on a bunch of appeals challenging it. It will begin its hearing from July 5.

Intense competition

Analysts point out that Akasa and Jet are entering an intensely competitive environment with low margins on ticket sales due to high aviation turbine fuel (ATF) prices and currency headwinds. “The business models and capitalisation levels of Akasa and Jet are yet to be disclosed. Once this is clear, competitors will have a better idea on measures to implement to retain existing business,” says Satyendra Pandey, Managing Partner at aviation services firm AT-TV.

“With the entry of two more players, near-term price wars amongst players cannot be ruled out. Having said that, this would only support air traffic growth in India over the mid-to-long term,” says Karan Khanna, Aviation Analyst at Ambit Capital.

Further, the entry of two airlines will possibly drive up costs for talent, technology and capturing travel demand. “While both will only command a market share of 1-2 per cent in the near term, the price-sensitive nature of the market and razor-thin margins mean every rupee has to be fought for,” says AT-TV’s Pandey. Agrees Khanna: “With increased competitive intensity, higher profitability would remain a question even if ATF prices cool down. Historically, we have seen IndiGo focussing on market share over profitability, which should benefit it in the long term.”

The fact that existing market leaders such as IndiGo and Air India are grappling with challenges of scale and legacy may work to Akasa and Jet’s advantage. But they cannot take this as a foregone conclusion and will need to chart their flight plans carefully.

 

@manishpant22

Published on: Jun 10, 2022, 1:41 PM IST
Posted by: Arnav Das Sharma, Jun 10, 2022, 1:35 PM IST