You heard it right! Ace investor Rakesh Jhunjhunwala has ventured into airlines to form an ultra-low-cost airline named ‘Akasa’. In this article, we take a look at what this means for the industry and the prospects of the business. Keep Reading to find out!
What game plan does Jhunjhunwala have for his airline?
The Big Bull has started off by perfecting a very important aspect for his new venture i.e. getting his team right! Rakesh Jhunjhunwala will start his airline with Vinay Dube, former CEO of Jet Airways.
Also in the team will be airline industry veteran, ex-IndiGo President Aditya Ghosh. While Dube is expected to be the CEO of the company, Ghosh is expected to be on the board as Jhunjhunwala’s nominee.
Rakesh Jhunjhunwala will hold a 40% stake in the airline company and the airline is planned to launch by April 2022. A total of $35 million, for now, is being put behind by the Bull and a plan to have a fleet of 70 planes over the next four years is being worked on.
At a time when the industry is reeling under astronomical figures of losses due to the pandemic, the airline industry is facing a huge existential crisis.
This venture may come as a surprise to many and also as a threat to the existing players. The distinguishing factor about this airline is the fact that it is an ultra-low-cost carrier(ULCC).
Another noteworthy to be looked into is the revival of Jet Airways under the new owner-Kalrock-Jalan Consortium- after protracted quasi-judicial proceedings.
This is the first time in the country’s aviation space that an airline is set to be revived after shutting down. None of the carriers in the past, including Kingfisher Airlines, could get an investor to restart operations.
How healthy are the metal birds in Indian Sky?
The government included the distressed sector in the Emergency Credit Line Guarantee Scheme, a move that is expected to provide relief for the loss-making airline companies on the back of deep losses reported in 2020-21 (April-March) because of COVID-19. With vaccination rollout gaining momentum, market participants expect the sector to bounce back.
Competitors
Its biggest competitor, IndiGo, currently holds the largest market share. Indigo is preferred by every second person boarding a flight followed by state-owned Air India, SpiceJet, GoAir, Vistara, and AirAsia India.
In the current situation where the existing players have been bleeding cash for 15 months and have fewer options for recapitalization, the airline might go all-in for capturing the market share aggressively in the initial days. The revived Jet Airways might pose as another competitor to look out for.
Even though Akasa is supposed to be a low-cost one, another situational competitor would be the government’s rules regarding the capping of ticket fares.
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How does this business model work?
In the ULCC airline business model, the emphasis is on keeping operating costs even lower than typical budget airlines like IndiGo and SpiceJet.
Doing away with certain amenities that are usually associated with the full-service airline experience — seat selection, food, and beverages, etc., is one way to do it to ensure profitability.
Glamorous from the outside, it is a commoditized business for most players. For every unoccupied seat on a plane, an airline takes a hit on its profitability.
To ensure this does not happen, the ticket fares are kept low to attract more and more passengers. With such a big population, there are a lot of people to target who are increasingly preferring air travel over a train journey. Time over money!
In Closing: Is Akasa taking off at the right time?
We are well aware of the one-liner in the stock markets – enter at a low and exit at a high. However, in this context, the civil aviation industry has touched great depths with every wave of new COVID cases and pre-COVID levels of airline traffic can only be expected no earlier than FY24.
With this in mind and gaining momentum in vaccination rollout, market participation in the sector is expected to bounce back(1.3cr flew per month in Dec 2019 and only 30 lakh in June 2021) by the year-end.
The Big Bull might have stepped into the industry at the right time. Let us know what you think about the Big Bulls entry into the sector in the comments below. Happy Reading!
