Transfin.
HomeNewsGuidesReadsPodcastsVideosTech
  1. Reads
  2. Deep Dives

All About Rakesh Jhunjhunwala-Backed Akasa Air: India's Newest Airline

Editor, TRANSFIN.
Sep 13, 2021 12:21 PM 4 min read

Come summer 2022, a new airline could be gracing India’s skies.

Akasa Air, an ultra low-cost-carrier (ULCC) is slated to begin operations in a few months' time. Co-founded by "Big Bull" Rakesh Jhunjhunwala and former Jet Airways CEO Vinay Dube, Akasa secured an NOC from the Ministry of Civil Aviation (MoCA) and the Directorate General of Civil Aviation (DGCA) last month.

Anatomy of an Airline

Akasa is Dube’s brainchild. When he resigned as the CEO of GoAir (now Go First) last year, he had intentions to start his own airline. But thanks to COVID-19, he had no takers.

That changed in May when Jhunjhunwala came onboard, promising a hefty investment of ₹247.5cr ($35m), to be released in phases. The next early backer was Madhav Bhatkuly, the Founder of investment fund New Horizon, with ₹6.24cr ($848,776). Jhunjhunwala’s entry was a PR coup, given his clout on Dalal Street. Bhatkuly’s funding also turned heads - the Dubai-based investor has an impressive record of identifying big companies at an early stage (think Axis Bank, Godrej Consumer, Sun Pharma and Apollo Hospitals).

With the minimum paid-up capital (₹50cr ($6.8m)) in its kitty, Akasa filed for the requisite regulatory approvals. Meanwhile, it opened talks with Boeing for an order of 70x737 MAX jets and went on a hiring spree

Akasa’s core team reads like a who’s-who of Indian aviation. Besides Dube (who has held positions at Jet, GoAir, Delta and American Airlines), the list includes Aditya Ghosh (ex-IndiGo President), Praveen Iyer (earlier with Jet and GoAir), Belson Coutinho (a former VP at Jet), and Ankur Goel (former head of IndiGo’s treasury and investor relations).

 

The Art of the Deal

August was a notable month for the team. First came the NOC from Indian authorities, essentially green-lighting their venture. Then came news that the two-and-a-half-year-long ban on the 737 MAX would be lifted by the DGCA. That’s a great development for an airline whose entire fleet will consist of these jets.

Purchasing an aircraft fleet is naturally the most costly endeavour when it comes to launching an airline. How a company goes about this process could impact its margins and operations for years to come.

For instance, in 2005, IndiGo signed the biggest deal in Indian aviation when it bought 100xA320 jets from Airbus. During negotiations, the carrier reportedly capitalised on Airbus's eagerness to break into the burgeoning Indian market (fuelled by desperation to steal market share away from its arch rival, Boeing). IndiGo was thus able to secure relatively favourable terms, which allowed it to operate for years with a low cost base and enabled it to disrupt the sector with its cheap ticket prices. Today, it is the largest domestic airline both by passengers carried and fleet size.

Akasa might have similar leverage working in its favour. For starters, Boeing’s star in India has dulled over the past decade, as Airbus has taken over the market, buoyed by IndiGo’s rapid ascent. Furthermore, the two high-profile accidents in 2018-19 involving the Lion Air flight travelling from Jakarta and the Ethiopian Airlines flight from Addis Ababa led to the global grounding of the airline's flagship 737 MAX jets and stained the company's name (and rightly so).

But now, with the MAX ban lifted and Jet Airways (the only Indian airline with these planes in its fleet) poised to make a comeback, Boeing sees an opportunity to reverse its fortunes in the country. Hitching its wagon (or jet?) to a new airline with illustrious backers might be a promising way to take off.

 

Too Many LCC Cooks...?

If things go by the book and Akasa begins operations in mid-2022, the airline would be entering a crowded, competitive and cash-strapped market.

The past two years have been particularly painful for the Indian aviation industry. First, there was the prolonged economic slowdown, during which demand plateaued. Then, the pandemic struck, during which demand altogether collapsed. The lack of direct fiscal support led to a burning crisis, further aggravated by lenders’ reluctance to continue placing bets on the ailing sector.

It didn’t help that the Indian aviation industry was already one of the world’s most competitive ones, with razor-thin margins and a risky reliance on factors beyond its control (fuel prices, vaccination roll-out and macroeconomic health, for instance).

Currently, all major players are facing their share of difficulties. SpiceJet is crumbling under a pile of liabilities. Go First continues to struggle through debt, even as it prepares for a public listing. IndiGo, despite enjoying the cushion of a high cash balance, also had to implement salary cuts, rework vendor contracts and refrain from issuing dividends. Air India’s woes are a household topic of discussion. Vistara and AirAsia India are doing relatively better, but only because they can bank on the Tatas’ warchest.

 

The Perks of Being an Ultra

In such a crowded and unpredictable market, how does Akasa plan to distinguish itself? By being a ULCC. Basically, IndiGo and SpieceJet’s business model, but ultra.

LCCs aka budget airlines try to offer low ticket fares vis-a-vis full-service carriers by limiting their expenses (less leg room, more seats, no in-flight food etc.). ULCCs go one step further by restricting checked-in baggage or cabin baggage and charging for any services like in-flight food or entertainment. This enables them to offer cheaper fares whilst paving a faster path to profitability.

 

Dynamic Days Ahead

Going forward, with the anticipated re-entry of Jet Airways, the privatisation of Air India, Go First heading to the bourses, and the arrival of a new ULCC player, the aviation sector seems slated for some exciting days ahead. Which seems long due: After the agonising doldrums of the past two years, the sector deserves some excitement to look forward to.

What remains to be seen, however, is how quickly demand will climb up and whether the existing players will be able to improve their margins, cut losses, and confront the increased competition with Akasa Air’s debut. If not, a major consolidation may be on the cards.

FIN.
 

Interested in more such fun facts and trivia to nudge you towards stimulating conversations? Subscribe to TRANSFIN. E-O-D to keep them coming!