Low costs, quick ramp up to be gameplan of Rakesh Jhunjhunwala's Akasa

Reduced lease rents, easy availability of pilots and expected buoyancy in air traffic will help the airline as it aims to begin operations next summer

Akasa, the proposed airline backed by ace investor Rakesh Jhunjhunwala, can use the start-up advantage to design a low-cost structure and have an edge over its financially weaker rivals, say industry sources.

Reduced lease rents, easy availability of pilots and expected buoyancy in air traffic will also help the airline as it aims to begin operations next summer. Industry sources expect Akasa to induct 20 planes within a few months of launch which could help it earn valuable sale and lease back income and achieve a certain scale to take on competition.

Akasa, which has been promoted by Jet Airways’ former chief executive officer Vinay Dube, is being planned as an ultra low cost airline. Jhunjhunwala has committed to invest around Rs 260 crore in the airline which will have seventy planes in four years.

“Low cost airlines other than IndiGo are in severe financial stress with accumulated losses and legacy cost structure. A start up airline like Akasa will have an edge over them,” said aviation consultant Vishok Mansingh.

Domestic airlines are expected to post a combined loss of $4.1 billion in FY22 similar to that in FY21, according to aviation consultancy CAPA. IndiGo posted a net loss of Rs 5806 crore in FY21 while SpiceJet made a loss of Rs 998 crore in the same fiscal. While SpiceJet is on a slippery slope, it can’t just be wished away given promoter Ajay Singh’s determination and track record in reviving it, say experts.

Yet, according to Kapil Kaul, South Asia CEO of CAPA, the building blocks to create a successful airline are in place in Akasa. “Rakesh Jhunjhunwala has excellent credentials and a proven track record in spotting right opportunities, Vinay is very experienced and knowledgeable and Aditya Ghosh’s presence will add tremendous value.”

Also Kaul said that $ 50 million startup capital plus aircraft sale and lease back gains will give the airline $ 300-350 million capital which is critical to make the venture work. He said Akasa can design a lower cost structure by focusing on direct sale channels, improving pilot and fleet utilisation, lower its staff costs linking compensation to productivity and rely on more digital tools on the front and back-end.

“The plan for Akasa was conceived during the second half of 2020 and the team has built a route network covering 30 airports with a 70 aircraft fleet. What was seen across the world was that the cost of acquiring aircraft, hiring crew had significantly come down which would allow a startup airline to match the unit costs of IndiGo,” said a person familiar with Akasa’s plans.

Low cost and vast fleet allows IndiGo to match competitors on routes and prices and Akasa will be aiming for a quick ramp up of fleet in initial few months, sources said.

Availability of pilots and reduction in aircraft lease rents will also help in expansion. According to industry estimates there are 300-400 trained pilots in India without a job. These include former Jet Airways pilots and also those whose contracts were terminated by West Asian airlines after the outbreak of Covid-19.

Cirium, an aviation data and analytical solutions provider, estimates around 1,350 commercial jet deliveries in 2022 which would include 1,060 Airbus A320s and Boeing 737 planes. “Among those we estimate around 200 will be delivered directly to operating lessors and at present we estimate that potentially as many as half (100 or so) are not yet contracted for lease to an airline. Hence if these startups were to consider new aircraft there may be some near-term availability of new aircraft,” said Rob Morris, global head of consultancy of Cirium.

“For dry leases, although the rates for single-aisle aircraft do seem to have bottomed out for now, in real terms they remain significantly below pre-pandemic. The sale and lease back market is currently competitive from a supply perspective and thus airlines are often able to secure lower lease rents. Startups will carry significantly higher risk premia than established well capitalised or supported airlines and thus likely will find themselves unable to secure such low lease rates,” Morris added.

Since 2016, as the government announced the UDAN scheme which intends to promote connectivity in hinterlands with waiver of charges and tax breaks, at least 10 entrepreneurs have started new airlines but fizzled out within a year.

This includes the likes of Captain Gopinath of Air Deccan fame, Sanjay Mandavia who started Flybig in 2020 but is now struggling to keep it afloat.

Sources said that investors including Jhunjhunwala had multiple meetings with the Akasa team during which it was stressed that the new airline should have enough capital to bear losses for at least for the first three or four years. “How much sound your business plan is, it takes time for an airline to develop routes, mature those routes, have dominance in some and spin money out of some. Unless there is an appetite to bear the bleeding for a few years, breaking even is difficult. We are lucky that marquee investors have trusted our plan,” said a person involved with Akasa.

• Akasa is promoted by Jet Airways' former CEO Vinay Dube

• Rakesh Jhunjhunwala to invest Rs 260 crore for 40 per cent stake. He has already invested Rs 15 crore in the airline

• Key executives on board include Anand Srinivasan (chief information officer), Praveen Iyer (chief commercial officer), Bhavin Joshi (senior vice president-finance and leasing) and Neelu Khatri (vice president – government affairs).

• The key executives have been allotted 63-125 company shares each  in form of sweat equity

• Plans to have 70 planes in four years and run on ultra low cost model