AirAsia wins DGCA permit to start airline, increasing competition

By Devidutta Tripathy

NEW DELHI (Reuters) - AirAsia's low-cost Indian joint venture airline has won an operating permit, paving the way for the carrier to launch services and increasing competition in a market where most airlines are losing money.

The Directorate General of Civil Aviation (DGCA) issued the air operator permit, the last approval required to launch an airline, to AirAsia India on Wednesday, a senior government official said. AirAsia India Chief Executive Mittu Chandilya confirmed the company had received the permit.

"I can't wait for us to start flying," he told television channels. "We are working on being the lowest cost (airline)."

It was not immediately known when AirAsia India, a three-way venture between the Malaysia-based low-cost airline, the Tata Group and investment firm Telestra Tradeplace, would start services.

Earlier plans to start the airline in the last quarter of 2013 were delayed, pending the air operator permit.

An airlines industry body, and a politician of main opposition Bharatiya Janata party, which is the favourite to form a government after a general election ending this month, had opposed AirAsia's entry into the Indian market.

AirAsia India has said it will offer one of the lowest fares to lure travellers and will rapidly expand its fleet by adding 10 Airbus A320 planes a year. But the entry of a new competitor is not good news for an industry where all carriers except market leader IndiGo are losing money.

High fuel prices, taxes and fees have squeezed existing Indian airlines. The sector lost a combined $1.3 billion in the financial year to March, according to estimates by aviation consultancy Centre for Asia Pacific Aviation (CAPA).

"Domestic airlines continue to be very precariously placed and AirAsia's entry will further challenge the existing airlines," said Kapil Kaul, South Asia CEO at CAPA.

The arrival of new carriers like AirAsia may lead to a price war and will further hurt passenger yields, Kaul said.

Singapore Airlines' joint venture with the Tata Group to start a full-service airline in India is awaiting an operating permit.

India has five operational national carriers and one regional airline. Competition had eased after the grounding of cash-and-debt-strapped Kingfisher Airlines in October 2012.

In 2012, the Indian government relaxed rules allowing foreign carriers to buy up to 49 percent in an Indian airline. Abu Dhabi's Etihad last year bought 24 percent of Jet Airways, the No.2 carrier by domestic market share.

(Editing by Mark Potter)