If AirAsia is to exit India, does it rely on template of AirAsia Japan 1.0?

Making money in India from Aviation has been an internal challenge as the industry goes through frequency bust cycles! Amidst this, there has been much speculation about AirAsia India – in which the TATA group holds 51% stake while the rest is held by Malaysian low cost carrier AirAsia. The airline has been mired in controversy from the moment it announced its joint venture in India and this may not be the future which AirAsia would have looked at! 

From making tall claims about profitability to having cases filed by enforcement bodies in the country, the airline probably has been an example of what could go wrong in India skies.

Deja Vu for AirAsia 

The AirAsia group recently shut its Japanese unit. This was the airlines second attempt in Japan, having seen an equally hasty exit the first time around. While the current entity in Japan went belly up, the erstwhile one saw AirAsia group exit from its Joint Venture with ANA – one of the largest airlines in Japan. Will that act as a template for negotiations between TATA and AirAsia?

The Similarities

AirAsia group was a minority stakeholder in AirAsia Japan 1.0 similar to how it holds 49% stake in AirAsia India. The group’s 49% share was bought out by ANA in 2013. ANA is a full service carrier and also operated a low cost carrier in addition to partnering with AirAsia. The TATA group has a Joint Venture with Singapore Airlines which operates as Vistara!

The ANA group largely blamed the failure on ignoring the nuances, cultural differences and market understanding. Something which has its parallels in India – where the airline opened flights for sale with hand baggage only fares in line with its global operations. The regulator DGCA had to step in to ensure that water is served for free and hand luggage only can be another fare type and not the exclusive one!

The Differences

While the airline group has done well handling regulations in Thailand, Indonesia and Philippines – the ASEAN markets where it has subsidiaries, entry into India led to a challenge like no other with court cases challenging effective control and controversy being its second name!

AirAsia Japan had a strength of four aircraft when it proceeded for a breakup with ANA. On the contrary, AirAsia India is 30 aircraft strong with a few more lined up over the next few months. While the aircraft which belonged to AirAsia Japan were transferred to Indonesia, most aircraft were leased by AirAsia’s own leasing firm – which was sold to raise cash in 2018! This also means that the aircraft which AirAsia India has belongs to a multitude of lessors. They include a mix of two aircraft which were delivered new when the airline began operations and then subsequent additions from other AirAsia subsidiaries as well as open market transactions.

The Brand Name?

AirAsia is a brand and a licence agreement allows its subsidiary to use the brand name. TATA could use the brand name for the time that the brand licence fee would be paid or negotiated under the exit clauses. In the case of AirAsia Japan, the AirAsia branding continued only for a few months with the airline being rebranded as Vanilla Air. The ANA group added aircraft for Vanilla Air – which came in the new livery. 

While the TATA’s would have to look for a new name, the airline will also have to spend on rebranding and livery change – an expensive proposition! In the past, Indian aviation has seen merger of Air Sahara with Jet Airways – where the Air Sahara Air Operating Permit continued and Jet Airways rebranded the airline as Jetlite, continuing its operations till the very last flight under the “S2” code. 

In case of Kingfisher’s reverse merger with Air Deccan, there was a single Air Operating Permit and while the DN code was replaced by IT code for all flights, there were many aircraft operating in the Air Deccan livery for a while the rebranding to Kingfisher Red was complete across the fleet. 

In both instances, there was not an end date on the use of brand or livery – which will be the case if AirAsia quits the AirAsia India JV. 

Regulatory Changes

A new brand name as well as registered name would mean it has to not only work on the regulatory front but also work with lessors and process the documentation. From the Ministry of Corporate Affairs to the regulator Directorate General of Civil Aviation and every lessor – the airline will have to diligently look to update the records! While there are no bottlenecks and a very usual process, the costs associated could well be unnecessary in current times! 

Tail Note

Malaysia AirAsia (IATA: AK) has been very strong in Indian skies utilizing as much bilateral quota as it can while competing with Malaysian Airlines and Malindo – the other Malaysian carriers which fly to India. Will the group attempt a second innings in India? Probably not, going by how the second innings played out in Japan! 

Interestingly would be to see what name the TATA’s come up with and who if at all is a partner to take up AirAsia stake or will it be a 100% TATA owned airline.

Published
October 13, 2020