Low-cost airline AirAsia India, in which the Tata Group’s holding company owns substantial stake, has said it is sticking to its target of achieving overall profits in October as it has already started posting operating profits.
A report by the Centre for Asia Pacific Aviation (CAPA) had earlier said that the airline had posted losses of ₹26 crore for the first 18 days of its operations. But AirAsia India’s CEO Mittu Chandilya disagreed with the report, calling it “inaccurate”.
“We are very much within our targeted range of achieving (overall) profits. Our promotional seats have takers and are bringing in volumes,” Chandilya told
Chandilya said that the large majority of the airline group’s reported quarterly net loss was attributed to the necessary start-up costs involved in getting approvals and permit licences from national regulators, like the DGCA in India. So viewing or projecting AirAsia India’s quarterly net loss of 13.8 million Malaysian Ringgit (roughly ₹26 crore) in isolation, Chandilya said, “would be a misrepresentation of the financial performance of AirAsia India and, consequently, of AirAsia.”
However, Kapil Kaul, CAPA’s CEO for South Asia, said there has been no misrepresentation of facts. “Our analysis is based on the annual report of AirAsia. Therefore, there is no question of misinterpreting it.” He also said the airline is expected to make losses for the entire year as it spools up and faces intense competition from incumbent operators. “AirAsia’s success is vital for the airline industry in India but right now it is operating in a very tough environment,” Kaul said.
An analyst with a financial consultancy firm agreed with CAPA’s assessment stating that it will be difficult for the airline to achieve profits that meet its target. “Lowest fares might increase load factor but in the Indian scenario, it does not translate into profits,” he said. He pointed out that to an extent, Air Asia India will benefit from getting feeder traffic from its parent AirAsia’s international operations pouring into the country through its five gateways here.
Keeping fares lowTo turn profitable, AirAsia India should lock into its low-fare strategy for the next five years. “The cost structure in India is quite different from that of other South Asian countries. Look at IndiGo. They stuck to their strategy unlike a few others who kept changing them several times,” the analyst, who cannot be named because of his company policy, said.
The airline expects to add five brand new A320s by the end of this calendar year. It already has one A320, which flies to three destinations.
Two more will be added by early September. Chandilya also pointed out that most of the airline’s flights have load factors of over 80 per cent. It would, however, take time to gain market share since it operates only one aircraft.
“Even in the period where we were supposed to have low load factors, we were second highest in the country. We manage five departures a day and are achieving more passengers on each aircraft compared to our competitors.”
AirAsia India is a three-way joint venture between AirAsia Berhad which holds 49 per cent, Tata Sons, which owns 30 per cent, and the rest with Telestra Tradeplace.
The airline had earlier said that it will have a unit cost of ₹1.25 available seat kilometre (one seat available for sale, flown one km) and a passenger load factor breakeven of 52 per cent.
A lower cost per available seat kilometre (CASK) means an airline has better chances of posting profits as it needs to charge less to break even.
Dealing with competitionThe airline has also been able to maintain its targeted turnaround time for aircraft of about 25 minutes, the airline official said. Chandilya, 34, who earlier worked with global executive search firm Egon Zehnder, agreed that some of the competitors have either launched or are planning to launch their flights on those routes where AirAsia was the first to start operations. “It was predictable that the virgin routes as well as initial routes we launched would be picked up by some of our competitors to replicate and deploy their capacity there. Frankly, it is good strategy on their part, however predictable.”
He, however, said that it will take some more time for those routes to turn profitable for the airline.
“These routes take time to mature but our load factor targets are being met and revenue is in line with our expectations,” he pointed out.