AIR ASIA-LOW COST AIRLINE ENTRY TO INDIA

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CONTENTS

1. INTRODUCTION
2. AVIATION INDUSTRY IN INDIA
3. AIR ASIA ENTRY TO INDIA.
4. AIR ASIA-MARKETING STRATEGY
5. AIR ASIA INDIA-CHALLENGES

6. SWOT ANALYSIS OF AIR ASIA INDIA

7. CONCLUSION
8. EXHIBITS
9. REFERENCES

1. INTRODUCTION:
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AirAsia group is an airline company that provides low value airline service and operates intensive
networks each domestically and internationally. AirAsia is the 1st low price transportation service
provider in Asia and is currently presently the biggest low fare, essential airline in Asia. AirAsia
has been voted as the World’s Best Low price Airline in 2009 and 2010 . It is also one amongst
the biggest airlines in entire Asia in terms of passengers carried0.

Air Asia was established by a Malaysian conglomerate in 1993, and they started their operation
by 1996 in Malaysia. By 2000 the airline was in significant debt. At this time Tony Fernandes of
Tune Air Sdn. Bhd purchased the airlines in December 2001, for the value of RM1.Tony conjointly
took up the entire debt of the airlines. By innovative concepts and selling of the new management
under the leadership of Tony Fernandes, the airline came into a profitable business by 2002 and
launched new routes within the same year.

By 2003,Air Asia opened its second hub at Senai International Airport, Johor Bahru.From the
new hub the airline started its first international flight to Bangkok. After that the only place AirAsia
was heading for is up, as the Thai and Indonesian subsidiaries were set up as well as the
commencement of flights to Indonesia, Macau, China, Philippines, Vietnam and Cambodia in
2005. AirAsia now flies to all ASEAN countries, a great portion of Asian countries that include
India, Iran, Sri Lanka and Bangladesh; as well as to the United Kingdom, France, Japan, Korea
and Australia via AirAsiaX.

2. AVIATION INDUSTRY IN INDIA:

“The world is focused on Indian aviation – from manufacturers, tourism boards, airlines and global
businesses to individual travelers, shippers and businessmen. If we can find common purpose
among all stakeholders in Indian aviation, a bright future is at hand” said Mr. Tony Tyler, Director
General and CEO, International Air Transport Association (IATA)5.

Currently the airline industry in India is having an exponential growth rate. Indian civil aviation
industry size is around US$ 16 billion, which makes the country the ninth-largest civil aviation
market in the world. The country aims to become the third-largest aviation market by 2020 and
the largest by 2030. Around 8 million passengers travelled in domestic routed during September
2016 which was 23% higher when compared to the previous year. Domestic passenger traffic
expanded at a compound annual growth rate (CAGR) of 11.8 per cent over FY06–152. It is

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expected to touch 209 million by FY17(Exhibit 1). By 2020, passenger traffic at Indian airports
is expected to increase to 421 million. International passenger traffic posted a CAGR of 9.5 per
cent over FY06-15 and is set to touch 60 million by FY17. A new regional connectivity scheme
announced by Indian government,UDAN (Ude Desh ka Aam Nagrik) will make airline travelling
more affordable to common man.. Factors such as low-cost carriers (LCCs), modern airports,
Foreign Direct Investment (FDI) in domestic airlines, advanced information technology (IT)
interventions and growing emphasis on regional connectivity helps in expansion of the industry.
The aviation infrastructure development is one of the major area under the 12th five year plan
(2012-15).As a major step for development of airport infrastructure government has invited private
companies ford developing air ports under private public partnership (PPP) model.This has lead
to the development of 6 major airports in the country. The Airports Authority of India (AAI) aims
to bring around 250 airports under operation across the country by 20206.
Even though factors such as low-cost carriers (LCCs), modern airports, Foreign Direct Investment
(FDI) in domestic airlines, advanced information technology (IT) interventions and growing
emphasis on regional connectivity helps in expansion of the industry there are some factors which
is like volatility in fuel prices combined with highest tax on aviation fuel and other national policy
related issues continue to challenge the sector’s growth. The recent increase of FDI up to 49% in
civil aviation might also not result in substantial increase in investment since it has been imposed
on the aggregate of FDI and FII.

As per Centre for Asia Pacific Aviation (CAPA),Indian domestic air traffic is expected to cross
100 million passengers by FY2017, compared to 81 million passengers in 2015. India is among
the five fastest-growing aviation markets globally with 275 million new passengers. The airlines
operating in India are projected to record a collective operating profit of Rs 8,100 crore (US$ 1.29
billion) in fiscal year 2016, according to Crisil Ltd. The huge potential has now forced global
aircraft-makers to woo Indian companies to buy more planes. According to Boeing and Airbus,
the world’s two largest such firms, India is expected to order more than 1,600 aircraft over the next
20 years.

“India’s growth can help offset the slowdown in other parts of the world,” Dinesh Keskar, senior
vice-president, Boeing, told Reuters on March 17. India’s largest airline by market share, IndiGo,

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has already finalized orders for 250 aircraft with Airbus, touted as the world’s largest-ever order
by the number of planes. SpiceJet, another low-cost airline, is also in talks to buy some 100 aircraft.

Till the early 1990s, India’s civil aviation industry had largely remained a state-run affair. Then
the government decided to open up the skies for private participation.

“In 2005, there were just four main carriers—Air India, Indian Airlines, Jet Airways and Air
Sahara, all operating full-service models—plus several small airlines. By 2015, there were seven
national air carriers namely—IndiGo, Jet Airways, Air India, SpiceJet, GoAir, Vistara and AirAsia
India. In addition, regional carriers such as Air Costa, Air Pegasus and Trujet provide the much
needed regional connectivity,” the report said.

But it hasn’t been an easy flight. Over the past two decades, 17 airlines have shut down—the most
significant one being Kingfisher Airlines. Companies lost a staggering Rs60,000 crore during this
period.

During January-August 2016, domestic air passenger traffic rose 23.14 per cent to 64.47 million
from 52.36 million during the same period in 2015. Passenger traffic during FY 2015-16 increased
at a rate of 21.3 per cent to 85.57 million from 70.54 million in the FY 2014-15.
In July 2016, total aircraft movements at all Indian airports stood at 168,400, which was 14.3 per
cent higher than July 2015. International aircraft movements increased by 8.2 per cent to 32,830
in July 2016 from 30,330 in July 2015. Domestic aircraft movements increased by 15.8 per cent
to 135,570 in July 2016 from 117,050 in July 2015.

Much of that is largely due to the high cost of air turbine fuel (ATF), which is almost 60-70% more
expensive in India than the global average. “Since international ATF prices are low, at times an
all-expense paid trip flight to Thailand or Malaysia turns out cheaper than flying within India.
India’s skewed pricing policy on ATF has actually done more damage to Indian trade and tourism
than good,” the report said.

India’s aviation industry is largely untapped with huge growth opportunities, considering that air
transport is still expensive for majority of the country’s population, of which nearly 40 per cent is
the upwardly mobile middle class.

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The industry stakeholders should engage and collaborate with policy makers to implement
efficient and rational decisions that would boost India’s civil aviation industry. With the right
policies and relentless focus on quality, cost and passenger interest, India would be well placed to
achieve its vision of becoming the third-largest aviation market by 2020 and the largest by 2030

3. AIR ASIA ENTRY TO INDIA.

In February 2013,Governement of India announced that they have decided to allow foreign direct
investment (FDI)of up to 49% in airlines .,which became a huge turning point in Indian aviation
industry. Air Asia Berhad applied to the Indian Foreign Investment Promotion Board (FIPB)
seeking approval for starting its operations in India.Air Asia on March 2013 announced that they
are planning for a joint venture with Tata Sons and Telestra Trade.They also informed that there
will be two non -executive directors in the board from Tata Sons.An official for the Tata group
said the its contribution to the joint venture would be merely as a "financial investor." "It is very
clear that they (Air Asia) would be running the operations," the Tata official said. The airliner
planned to operate with the world's lowest unit cost of ₹1.25 (1.9¢ US) per available seat Kilometre
and a passenger break-even load factor of 52%. It also planned to hedge 100% of its fuel
requirements for the first three years and to achieve an aircraft turnaround time of 25 minutes2.

AirAsia India was established on 28th March 2013 and it became the first international airline
company to startup a subsidiary in India. AirAsia India was planned to headquartered in Chennai,
Before starting the operations, Tony Fernandes announced that he would like Ratan Tata to be the
chairman of the airline;but the latter refused, and he later consented to being the chief advisor to
the AirAsia India management board.Mr Mittu Chandilya was appointed as the company’s CEO
on 15th May 2013. Mr S. Ramadorai, the non-executive vice-chairman of Tata Consultancy
Services, was appointed as the chairman of the airline on 17th June 2013. The company started
recruiting staffs within one month after the formation. A flight was conducted From Chennai to
Kochi and Bangalore to Kolkata on 1 and 2 May 2014 as a procedure to obtain Air operator Permit
and 7 May 2014, the DGCA issued an Air Operator Permit to the company on 7th May 2014. Air
Asia shifted its base from Chennai to Bangalore on 30th may 2014 .The first flight of Air Asia was
operated from Bangalore to Goa on 12th June 2014.Air asia decided to Make delhi as its Northern

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Hub and they started their operations at Indira Gandhi International Airport, Delhi as its hub for
North Indian operations.

AirAsia planned to begin operations to various tier 2 and tier 3 cities with Chennai International
Airport as its main operating base .According to KPMG, the introduction of AirAsia was expected
to cause another price war, ultimately leading to an increase in air traffic and some consolidation
in the Indian aviation sector. AirAsia initially invested an amount of US$50 million and in
preparation for its operations in India, it struck deals with online and offline travel agents. On 3
March 2013, the FIPB officially permitted AirAsia to rent or lease aircraft and to carry cargo on
its scheduled flights. The airline then applied for permission to schedule aircraft and transport
passengers, which the FIPB accepted on 6 March

In August 2015, Tata Sons increased its stake to 40.06% from 30% earlier by injecting fresh equity
while Telestra's share was reduced to 10% from 20%. As of February 2016, AirAsia India is the
fourth largest low cost carrier in India, far behind IndiGo, SpiceJet and GoAir, with a market share
of 2.2%.(Exhibit 4)

4. AIR ASIA-MARKETING STRATEGY:

Air Asia aim is to be the low cost airline in every market it gets in. For achieveing this goal, the
company follows some some strategies such as lean cost structure, different ways of promotion,
keeping safety, satisfying guests, and developing human resources.(Exhibit 2)

The company always keeps its operations simple and efficient to keep the costs low, for example
by simple and efficient online ticket booking. As the goal of the airline is to provide cheap air
transport they are not providing food and drinks on the plane for the passengers. Their mode is
selling foods and beverages separately so customers who require can buy and eat or drink
according to their need.This strategy is also gaining profit to the company as they are selling foods
at a higher price price8.

They also try to keep the expenses low by recruiting only less number of staffs when compared to
ther airlines. The company recruits only experienced hard working people who can handle multiple
tasks. For example Air Asia does not hire cleaners to clean used planes that stop in airports. Instead,

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the .stewardess or stewards of the planes have to clean the used planeBy this method they are
lowering their expense and also utilizing the human resource to the maximum9.

Air Asia gives much important to the safety of the passengers and they usually maintains the
safety of the airplanes by complying with the highest International Aviation Safety Standards and
practices. To guarantee the safety of the airplane, all Air Asia ‘s airplanes machines are taken care
by GE Engine Service .

Internet marketing plays a vital part in the Air Asia business and has proved to be critical to the
success of the business. As a low – cost operation, controlling the cost of doing business is clearly
highly important to the airlines’ ability to be competitive by offering low fares. The Internet
provides the most cost – effective distribution channel available.

AirAsia’s promotions are very well received by the consumer for example its “Free Seat
Promotion” and “Mega Sale Promotion”. In order for AirAsia to maintain its profitability and
ensure its stays in line with cost leadership business model, AirAsia has to offer more routes and
products in its portfolio. Association of Asia Pacific Airlines stated that demand for air travel is
projected to grow 5% annually, with the Asia Pacific region expanding at an even faster pace of
6% per annum over the next twenty years . Air Asia should also strongly focus on its offering via
web booking as 77% of its revenue derives via internet. To further proof this, during AirAsia’s
Mind Blowing Fare, 538,000 tickets were sold in 24 hours and a record setting 36,871ticket per
hour.

Social media is a very powerful tool, in a recent survey by TNS, Malaysians have the most number
of friends in social networking websites and spends 9 hours a weekly.

AirAsia should continue to carry its promotions and focus even more on online marketing and
selling. Social media’s are mostly free and AirAsia should leverage on these platforms to market
its product and also use it a medium to collect feedback. However, AirAsia should also be mindful
as negative comments and bad customer experience will also be posted on the same platform and
it is visible to everybody. AirAsia has to be tactful in handling these situations. Air Asia, partnered
with Expedia, which can provide value added services to their customers, by easing travelers to
book accommodation and ground arrangements.

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 5. AIR ASIA INDIA-CHALLENGES:

When analyzing the second quarter of Financial year 2014-15, Air Asia made a loss of around INR
28.8 crore. The second quarter was taken because this was the first quarter after airline started its
operations.By this time the airline added one additional aircraft, which started its operation by 5th
September, 2014. The airline operations was only focused on southern and northern regions of the
country. In the south, AirAsia India flies to Goa, Chennai and Kochi, out of Bangalore. In the
north, the airline flies to Jaipur and Chandigarh.

Average daily aircraft utilisation during this time was of 11:50hrs (or 11.83hrs).Air asia remained
as a true point to point carrier in Q2 FY’15 instead of flying in three routes and they focused mainly
in Tier II cities for their operation.Scheduled to fly 2880 seats per day, deploying approximately
2,200,000 available seat kilometers (ASK) on a daily basis.(Exhibit 5)

By 2016 ,company’s chief executive officer Mitu Chandilya has decided to quit the airline.This
was because he was not happy with the micromanagement of the Air Asia India by its Malaysian
Parent company.Before his contract for 3 year was completed by March 2016 he informed the
management his unwillingness to continue after the contract terminates.Air Asia India was
completetly controlled by its parent company Air Asia and they only took decisions on important
issues like network planning and financial management.During this time the company was under
performing with a loss of around 61.1 crores.The airline was sharing only 2% of the Indian
avaiation market6.(Exhibit 3 &4)

Similarly, Arun Bhatia of Telestra Tradeplace was also not happy with parent companies control
over Indian subsidary’s activity.Bhatia pointed out that Air Asia BhD was violating Indian law of
effective control on an avaiation company.As per
Indian rules foreign airlines can own up to 49% in domestic airlines but effective
management control must remain with the Indian partner. Meanwhile Tatas also started a joint
venture with Singapore Airlines for a full-service airline in India, Vistara.This also disappointed
Bhatia and he stated it publically for not keeping him in the loop while investing in a second
airlines.This issues created a battle in Air Asia India,between Bhatia and partners the Tata group
and AirAsia7.

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 6. SWOT ANALYSIS OF AIR ASIA INDIA

Strength A well-established regional brand with a long experience as a low

cost airline and it is successful at utilization efficiency
The larger LCC in Asia with 122 aircrafts

It holds operational freedom and full control in the joint venture

It has operations in a good number of destinations and hubs in many

airports internationally
It has subsidiaries in other countries in Asia-Pacific which serves its
operations
Air Asia is a strong promoter and has a successful history in
marketing communications
It has the advantage of the first LCC airline to expand out of its
market and the first mover into the Indian market
A business model depends on economies of scale where volume
matters over yield

Weakness Not too many routes especially in comparison to Indian market

leaders

Intense competition from other rivals especially Spice Jet, air Go and

Indigo

Opportunities Many LCCs are moving towards hybrid model, such as Indigo and
Go Air where they provide low cost flights and also full service
flights, this means those airlines are moving up the value chain and
leaving a space for an ultra-low cost business model to be occupied.
(CAPA)

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 Long haul flights on Indian LCC has been proved to be
underperformance such as Indigo when it exited Delhi/Mumbai
Singapore routes, this is an advantage for Air Asia as it became
experienced in long haul flights through Air Asia x with more aircraft
utilization.
As Air Asia has hubs in Kuala Lampur, Bangkok and Jakarta, Air
Asia India can aggressively expand on short haul international routes
from points such as Chennai and Cochin in south India and offer one
stop service to various destinations across Asia.
Chennai is the capital of Tamil Nadu and has large movement thru
Southeast Asia and Gulf countries, it has a big potential to be a robust

LCC hub which connects the ASEAN, South Asia and the Middle
East
The other two foreign entries into the market: Etihad-Abu Dhabi with

Jet Airways and TATA-SIA will focus on using Abu Dhabi and

Singapore airports as hubs and will provide full premium service and
align their strategies with their partners, this is an opportunity for Air
Asia to operate as a new long haul nonstop competitive LCC flights
using India.
Three billion unserved potential travellers in poor connectivity
locations, Air Asia can create the demand in this market.

Threats he rising on fuel costs and government taxes and airports surcharges

New other foreign or local Entrants into the market especially after
the new FDI policy

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Based on the analysis, we can notice that the factors in the marketing environment and the
opportunities and strengths of AirAsia nominates and recommends the decision of entering the
market. First, AirAsia will offer its service in locations underserved by other Indian LCC airlines,
it will gain new customers base by providing (ultra-low costs) which are not provided by other
airlines, it will also use a secondary airport which reduces high airport surcharges in New Delhi
and Mumbai airports, it will avoid high congestion and therefore improve efficiency utilization
and with its long experience in managing the lowest costs and efficient supply chain, AirAsia is
likely to successfully deal with the costs of fuel and other supplies. The future opportunities for
expanding its fleet size and offering long haul services as mentioned earlier is promising giving
that AirAsia has international hubs. The partnership with TATA group will ease its governmental
procedures and provide aid in dealing with local market suppliers. Airasia has a high potential of
being the market leader in India giving its experience in its business model and marketing
communications. However, AirAsia entry will increase the competition in the market intensively
and must consider exceptionally firm marketing strategies to meet its expansion objective.

Recommendations/suggestions
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Based on this analysis, our recommendation focuses on three main areas:

1) A Blending of Brands: AirAsia has established a great name and reputation, and should continue
to add to its success by integrating the AirAsia X brand. This can be achieved by the “X”
representing premium choices on long-haul flights. This will this ease brand confusion by having
only one Air Asia brand with extra (X) options, and will present a strong united front.

2) Implement long-Haul Flights Strategically: AirAsia has the ability to provide long-haul flight
at lower costs than other airlines, and therefore Air Asia should expand its long-haul flights.
However, they need to expand in this direction very strategically as to not disrupt their low cost
strategy. This can be achieved by providing flights to places with similar culture and way of life,
and to places of similar geographic conditions.

3) Remain one of the “Cost Leaders”: Because one of Air Asia’s main competitive advantages is
being able to provide flights at low costs, there should be a high priority placed on keeping unit
costs low while expanding. This can be achieved by maintaining their already existing “cost
conscious” policies and decision making. Air asia should also frame policies to tackle their
competitors, because they are having tough competition with aircrafts like indigo and spice jet.

7. CONCLUSION

The entry of Air asia entry into the Indian market as a domestic and future international low cost
carrier is a great but promising challenge. AirAsia India is still a young airline, and perhaps the
foreign investment, and three stakeholders may have slowed things in the airline. The
environmental and situational analysis shows a horizon of opportunities for AirAsia to grow in
Indian aviation market. However, the competition is fierce and increasing by time and the newly
formed joint venture should be prepared with aggressive market positioning plans and market
communications strategy. India is a sub-continent with a highly diverse culture which
differentiates it from Southeast Asian countries where AirAsia has experience in. It is a tough
mission for Airasia to create the brand identity and loyalty. Executives should carefully study the
Indian market and understand Individual behaviours, wants and needs and act upon results. By

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following precise strategies, AirAsia can achieve customer value and satisfaction and therefore
obtain its competitive advantage. AirAsia should stick to its vision to run long-hauls because the
company has the capacity to offer these flights at lower costs than competitors. An amalgamation
of the AirAsia and AirAsia X brands will reduce brand confusion. However, it is important to
expand strategically to keep their LCC strategy strong.

Further hampering growth is crew shortage due to poaching and the lure of irresistible offers from
middle-east carriers, which has affected many flights for the airline for a good portion of
November. DGCA regulations are also to blame for flight crew shortage / handicap. India may
have been a shocker, reflecting either on the depth of market study or the unpreparedness for the
volatility in the DGCA, and opposition from competition.

The forward loads for the airline reportedly appear good and the airline seems focused on building
a footprint in the Indian domestic market with the introduction of new routes and frequency
increases. With a significant portion of costs out of India at attractive rates, the airline may soar
into profitability once the critical masses in terms of fleet size, destinations, and network
frequencies are reached. If the airline grows fast enough, it can leverage the backing of the AirAsia
group to reach a scale of operations that will threaten established low cost carriers in the country.
However, the depth of management at the local level, to handle this growth, is key.

Recently,AirAsia India’s Malaysian partner have asked the Government of India to exempt
the Indian subsidiary from the 0/20 foreign flying rule. The exemption request was made by
Malaysian Business Council to Prime Minister Narendra Modi. According to the foreign flying
norm, which was revised in June last year, any Indian carrier needs to operate a fleet of 20 aircraft
in the country to become eligible to fly abroad. The airline can fly international from the 21st
aircraft14.

“If the exemption from 0/20 is guaranteed, we will start international flights in three months.
The Malaysian carriers have exhausted bilateral entitlements and cannot add any more
flights to India. Indian carriers, however, do not at all fly to Malaysia. Exemption to Air Asia
India would help increase connectivity between India and Malaysia,” Datuk Kamaruddin
Meranun, executive chairman AirAsia Berhad told reporters.

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8. EXHIBITS

Exhibit 1

Exhibit 2

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 Exhibit 3

Exhibit 4

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Exhibit 5

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 9. REFERENCES
1) http://theflyingengineer.com/views/airasia-india-q2fy15-performance-and-outlook/
2) http://www.mbaskool.com/brandguide/airlines/531-air-asia.html
3) http://www.business-standard.com/article/companies/can-tata-sons-steer-airasia-india-out-
of-turbulence-116032901215_1.html
4) http://economictimes.indiatimes.com/industry/transportation/airlines-/-aviation/airasia-
india-doubles-quarterly-loss-to-rs-38-2-crore/articleshow/51163010.cms
5) https://www.ibef.org/industry/indian-aviation.aspx
6) http://www.firstpost.com/politics/rot-in-airasia-india-runs-deep-to-survive-it-needs-funds-
focus-2623372.html
7) https://home.kpmg.com/in/en/home/media/press-releases/2016/03/aviation-report-
march.html
8) http://www.thehindubusinessline.com/economy/logistics/airasia-indias-internal-battles-
dent-performance/article9288586.ece
9) http://www.rediff.com/business/report/how-airasia-india-plans-to-generate-revenue-on-its-
own/20170303.htm
10) http://economictimes.indiatimes.com/industry/transportation/airlines-/-aviation/airasia-
india-achieves-gross-profit-breakeven-in-april/articleshow/54340905.cms
11) http://www.dnaindia.com/money/report-indigo-leads-with-384-market-share-jet-airways-
air-india-follow-in-march-2204915
12) http://www.financialexpress.com/industry/india-aviation-sector-growth-passenger-traffic-
indigo-air-india-jetairways-spicejet-domestic-market-share/351873/
13) https://indiaaviationforum.blogspot.in/2016/03/february-2016-performances-of-indian.html
14) http://economictimes.indiatimes.com/industry/transportation/airlines-/ aviation/airasia-
india-seeks-exemtion-from-foreign-flying-norms/articleshow/57989474.cms

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