Big Boys and their Toys — Jhunjhunwala & Akasa Air

The world has been reeling from the impact of the pandemic, with travel shutting down and companies struggling to stay afloat. Last year, Warren Buffet, one of the world's most successful investors, sold it's multibillion-dollar stakes across four US airlines. Since then, Delta is up 168%, American is up 163% and United is up 199%. With fears around the third wave, the future of travel is still uncertain and Buffet still isn't buying airlines.

This week, India's most successful investor, Rakesh Jhunjhunwala, submitted a NOC to the aviation ministry to launch a low cost airline Akasa Air with an initial investment of $35mn and a fleet of 70 planes to be acquired over 4 years. When Vijay Mallya entered the airline business it was the beginning of his eventual downfall, and later perceived as a billionaire going too far to fulfil his ambitions.

However, let's put Rakesh Jhunjhunwala's investment into context… he has a net worth of approx $3bn. For many years he has been spending 25% dividend income on charitable causes. Last year he put Rs 500 cr in his foundation and continues to spend interest income on charitable causes such as malnutrition, infant mortality and other healthcare concerns. The airline investment is not a gamble, but a strategic bet. The eternal bull is clear that India's biggest bull run is just starting.

The timing also may work to his advantage. Indigo, while best placed to recover as the leading airline and with strong cash flows, has posted a net loss of Rs 3,180 cr, and its net worth has now turned negative, declining from ?5,860 crore a year ago. Spicejet posted its fifth consecutive quarterly loss, Rs 1,029 cr last year, and there are doubts about its ability to survive. Jet is fumbling to get back and Go Air is yet to prove investor interest with its listing.

Airline costs have been formidable in the past and continue to suffer high crude oil prices among other variables. With the added strength of a well experienced team comprising former Indigo President Aditya Ghosh and former Jet CEO Vinay Dubey, it may just be time for a new, genuinely low cost airline to make a successful entry into the aviation industry.