It is a fulfillment of the inevitable that was initiated within weeks of the $128 billion salt-to-software conglomerate Tata group re-acquiring national flag carrier Air India from the government in January this year. In a filing with the Malaysian stock exchange, Bursa Malaysia, Capital A Berhad – formerly AirAsia Group Berhad – said that it had agreed to sell its 16.33 per cent stake in AirAsia India to Air India for $18.83 million, which is a little over Rs 155.6 crore.
In a statement released to the media, group CEO of AirAsia Aviation Group (AAGL), Bo Lingam said, “Covid has allowed us to re-examine our priorities, and we felt that it was best suited for AirAsia to develop an ASEAN-only business.”
Bo added that the experience and knowledge gained by them from running a carrier in the Indian domestic skies would be utilised to grow the ASEAN-India market in logistics and passenger services.
Low-cost carrier (LCC) AirAsia India is currently the country’s fifth-largest airline with a 5.9 per cent market share. The carrier had reported a load factor of 77 per cent in September, according to data from the aviation regulator, the Directorate General of Civil Aviation (DGCA). Commencing operations in June 2014, AAGL was the first to launch an airline subsidiary in India.
A test for Air India management
Without wasting any time, Air India has promptly constituted a working group to integrate the airline fully with its low-cost subsidiary Air India Express. The group is co-led by CEO & managing director of AirAsia India, Sunil Bhaskaran and CEO of Air India Express, Aloke Singh, and reports to a committee chaired by managing director & CEO, Campbell Wilson.
Broadly hinting at the future, an elated Wilson said, “We are excited to initiate the creation of a single Air India Group low-cost carrier. This is a key step in the rationalisation and transformation of the group.”
Calling it a positive for AAGL as well as a major milestone in taking the proposed merger of Tata group carriers, an industry insider requesting anonymity told BT that would also put Air India management’s administration skills to the test.
“This would involve both hard skills in combining the systems and processes and soft skills in combining employees, especially pilots. Some pilots may still be reeling from the previous merger of Indian Airlines into Air India, which had left many in the former carrier dissatisfied,” the insider pointed out.
Also, since commencing operations in the world’s fourth-largest market in June 2014, AirAsia has never reported a profit. In FY2022, despite total income increasing to Rs 1,914 crore from Rs 1,483 crore in FY2021, the LCC’s expenses ballooned to Rs 4,092 crore from Rs 3,015 crore and losses to Rs 2,179 crore from Rs 1,532 crore in YoY comparison.
A positive development
Despite the obvious challenges, the development has several positives as well.
“The tasks that will be front and centre are those required to align the operating procedures and to bring the two airlines under one operating certificate,” maintained managing partner at the aviation advisory AT-TV, Satyendra Pandey. “Although a full integration is still several months away, however, with all regulatory clearances in place and with the buyout of the remaining stake, the Tata group can work towards aligning schedules, pricing and policies,” he added.
Moreover, the AirAsia India network, which is fully domestic, and the Air India Express network, which is largely international and focused on the Middle East, are expected to complement each other.
Reiterating the emergence of a duopoly eventually emerging in the Indian skies, Jagannarayan Padmanabhan, Director & Practice Leader for Transport & Logistics at CRISIL Infrastructure Advisory, declared, “It will be critical to build scale and to channelise scarce capital most productively. Coming together of Air India and Air Asia will lead to a sharper focus in the LCC market for the group.” Coming within days of Singapore Airlines hinting at a potential integration of Vistara with Air India, the development shows the national flag carrier’s turnaround strategy through its Vihaa.AI programme is well on track thus far.
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