With AirAsia in the bag, what is Air India's growth strategy for the future?

It was a development in the works ever since salt-to-software conglomerate the Tata group took over national flag carrier Air India in January. In a filing with Malaysian stock exchange Bursa Malaysia in early November, AirAsia’s holding company Capital A Berhad—formerly AirAsia Group Berhad—said it had agreed to sell its 16.33 per cent stake in AirAsia India to Air India for $18.83 million.

“Covid-19 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 Lingam, Group CEO of AirAsia Aviation Group Ltd (AAGL), said.

Low-cost carrier (LCC) AirAsia India is currently the country’s fifth-largest airline with a 5.9 per cent market share and it has a fleet of 28 aircraft with 196 daily departures to 18 destinations.

Terming the news as positive for AAGL, an industry insider who declined to be identified says it will allow AirAsia to focus on their core ASEAN markets and, by and large, recoup its investment. “Despite its successes elsewhere or maybe because of them, it failed in India,” he says.

Since commencing operations in June 2014, the LCC has never reported a profit. In FY22, total income rose to Rs 1,914 crore from Rs 1,483 crore in FY21, while expenses ballooned to Rs 4,092 crore from Rs 3,015 crore, leading to losses of Rs 2,179 crore from Rs 1,532 crore in FY21.

Meanwhile, Air India has constituted a working group to integrate AirAsia India with its low-cost subsidiary Air India Express. The group is co-led by Sunil Bhaskaran, CEO & MD, AirAsia India and Aloke Singh, CEO, Air India Express, and reports to a committee chaired by Air India MD & CEO, Campbell Wilson. “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,” Wilson said.

Satyendra Pandey, Managing Partner of aviation advisory AT-TV, agrees. “The AirAsia India network, which is fully domestic, and the Air India Express network, which is largely international and focussed on the Middle-East, fit together well,” he says. “It will be critical to build scale and channelise scarce capital in the most productive manner. The coming together of Air India and AirAsia India will lead to a sharper focus in the LCC market for the group,” says Jagannarayan Padmanabhan, Director & Practice Leader for Transport & Logistics at CRISIL Infrastructure Advisory.

Coming within days of Singapore Airlines hinting at a potential integration of Vistara with Air India, the development shows that Air India’s turnaround strategy is well on track. 

@manishpant22