South to be focus area for AirAsia

When his airline bagged the Skytrax award for the best low-cost airline in July last year, AirAsia’s CEO Tony Fernandes attributed the success to his “great staff with great discipline”. He said, “We fight hard to give low fares, yet provide great service.”

Fernandes and his team’s determination and skills will be put to test once again when AirAsia begins operations in India later this year. A profitable airline with origins in Malaysia, it has now expanded operations to four other countries - Thailand, Japan, the Philippines and Indonesia. India will be the sixth country where it will have a base. Last year, it flew 33.8 million passengers.

AirAsia will begin its operations from Chennai and South India will be its focus area. “No other Indian carrier has Chennai as its primary hub. AirAsia will be the first airline in that sense. Also, the airline will focus on tier-II and III cities in South India. There are cities beyond Bangalore and Hyderabad and people travel to Chennai in buses or trains. We will tap that market,” said an official involved in the India launch. (TROUBLED HISTORY: PRIVATE FIRMS IN INDIAN AVIATION)

Obviously, low fares will be the airline’s biggest draw. However, there could be other differentiators. For instance, unlike other low-cost airlines in India, AirAsia runs BIG, a loyalty programme that allows members to earn points and redeem them at merchant establishments or hotels, or use them to purchase air tickets. It is not known whether AirAsia will bring its loyalty programme to India immediately. If it does, it will help increase its loads and increase ancillary income. “We also offer hot meals on board our planes and have leather seats,” said the official.

The airline did not respond to an email questionnaire.

However, not every one is impressed. “There is not much difference between AirAsia and Indian low cost airlines SpiceJet or IndiGo,” says the head of an online portal. “Operationally, it is a good airline and it invests heavily in brand building. It will also change the dynamics of pricing in India. While there is room for another airline in India after Kingfisher’s collapse, it can’t be said for sure if it will be successful from day one. In competitive markets like the Philippines and Indonesia, it has struggled till now,” he added.

AirAsia will not secure the same cost advantage it gets in its home market. The airline operates at low cost terminals in Kuala Lumpur and Bangkok, limits distribution cost (by selling 85 per cent seats on its website), uses self service kiosks for check-in and avails of tax-free aviation turbine fuel. This has enabled AirAsia to keep its operating costs low and its cost per available seat kilometre (unit cost) is the lowest amongst all airlines. In India, it will not get the same advantages and may have to tweak its business model to be profitable.

“When full service airlines are struggling to make money despite their higher fares, it becomes very difficult for a budget airline to make money as costs are almost the same as a full-service carrier, but they have to be price-sensitive. From a budget airline's perspective, India is a high-cost, low-income market,” said Richa Goyal Sikri, director of STIC Travel Group.