The world’s fastest-expanding aviation sector, which simultaneously faces several problems, will be home to India’s newest scheduled carrier Akasa Air when it launches on August 7. Rakesh Jhunjhunwala, a multibillionaire investor, is backing the low-cost airline, so it will have to provide a disruptive and unique offering.
Competitive Cost Structure
High standards are placed on the carrier. This was clear when, on July 22, bookings for its inaugural trip, sold out within hours of opening. Vinay Dube, the founder, and CEO claimed that as professionals, they have spent 1.5 years creating a competitive cost structure from day one.
A brief comparison shows that Akasa’s ticket rates are, on average, nearly 22% less expensive than those of its rivals in the Mumbai-Ahmedabad region. Similar to this, its fares are roughly 5% lower in the Bengaluru-Mumbai sector.
How significantly will it be capable of influencing the market, then? According to Satyendra Pandey, Managing Partner of aviation consulting firm AT-TV, Akasa is entering a very competitive market with extremely slim profit margins. Additionally, the top two competitors—Indigo and the airlines of the Tata group—control more than 80% of the market.
About Akasa’s Air and Operations
Considering Akasa’s expertise in financing and management, it is anticipated that it will put up a strong fight in the sectors where it begins operations. Within 18 to 20 months of beginning commercial operations, the airline intends to expand to a fleet of 20 aircraft.
According to AT-TV, Akasa should be able to gain 4% of the market over the following four years. According to Pandey, doing so will enable companies to take advantage of scale-related advantages, amortize expenditures, and set up operations for foreign travel. However, geopolitical factors and demand trends are equally important for success.
According to Karan Khanna, an analyst with Ambit Capital, the airline’s pricing approach is less expensive than other airlines in the time frame they are currently operating, which should help them achieve a higher load factor right away.
In the immediate future, Rohit Tomar, Partner at consulting Caladrius Aero, does not anticipate a significant upheaval as a result of Akasa’s entry. However, he noted that there are many market expectations for higher service quality in the medium term, along with a demand for affordable fares.
It is quite characteristic of a developing industry for air travel for there to be more trips taken per person than there are new competitors. There are currently a sizable number of frequent travelers in the Indian market.
A Market That Is Price Conscious
According to data from aviation regulator the Directorate General of Civil Aviation, domestic airlines carried 57.2 million passengers between January and June 2022 compared to 34.3 million during the same period the previous year, signing up annual growth of more than 66 percent and monthly growth of more than 237 percent (DGCA). And it’s anticipated that the post-Covid-19 rebound will continue.
Additionally, because Indian travelers are extremely cost-conscious, one of the major factors influencing market demand is ticket prices. According to Pandey of AT-TV, without competitive pricing, airlines run the danger of losing customers to other forms of transportation or of people choosing not to go at all. Therefore, he anticipates that as Akasa grows its network, it will price tickets competitively.
Apart from the partial reversal of salary reductions due to the steep rise in jet fuel prices, Ambit’s Khanna claims that the industry’s profitability has been significantly harmed despite an increase in demand.
Additionally, he noted that yields had reached historic highs and that there had been an increase in airfare across all of the current airlines. Passengers may see some relief in airfares due to increasing competition with the introduction of new airlines like Akasa, the rebirth of Jet Airways, and the consolidation of the Tata group-owned carriers Air India, Air India Express, Vistara, and AirAsia India.
Unfortunately, high fuel expenses might be made even worse by rising oil prices and a falling rupee. Today, the cost of operating an airline in India is accounted for by fuel to the tune of 50%.
About the Future Uncertainty
What are some of the difficulties that Akasa will face? Unrestricted capacity, fee wars, and structural difficulties—particularly the high price of jet fuel—are some of the current worries, according to Pandey. Prime slots at metro airports will also provide a barrier in the short term, however, this will improve over time as new airports and more airside capacity are added.
Reliable service delivery will be a continuous issue for an airline entering a market with high passenger volumes, fierce competition, and constrained infrastructure. In such a market, according to Tomar of Caladrius, consistency is crucial, including stability in cost structure, clarity in offerings, and durability in growth.
But Akasa’s biggest advantage might be the advantage of starting over. This also implies that they fight it out alone, taking each battle one at a time, according to Pandey. It is still unclear how this will turn out because far too many people have undervalued the complexity and competitiveness of the Indian market.
In the meantime, an optimistic Dube predicted that India’s demand growth would be astounding over the next 20 years or more. We don’t need to steal another company’s market share or their customers’ traffic.
