How would you feel if the onboard announcements go like
this, “Ladies & Gentlemen fasten your seatbelts. Okay don’t..ummm…
unfortunately we can’t take off. Very
dense Red tape.”
If as a flier you are disheartened, imagine, what would be
the plight of shareholders of Air Asia who have invested in Air Asia Bhd. They would
surely be shattered and suffering from anxiety attacks.
About Air Asia
Air Asia is an airline from Malaysia, one of the fastest
growing, it looked at India as the next frontier. The brand entered India with
equity holdings of about 49% by Tony Fernandes, CEO of Air Asia Bhd, 41% by
Tata Sons & the remaining by Telestra Tradeplace owned by Delhi based Arun
Bhatia. With hopes flying high and a dynamic CEO in Mithu Chandilya, Air Asia
was ready to soar in the Indian skies. But fate had other plans, and even after
more than 2 years in service the company has only 6 aircrafts and a hold of
only 2% of the domestic passenger market.
What went wrong?
Aviation sector in India has a rule called 5/20 which
implies that any airline operating in India needs to operate in the domestic
territory for atleast 5 years, have a fleet of 20 aircrafts and then only can
operate internationally. This rule is now under the scanner and soon there will
be some modifications to it, especially after a plethora of objections being raised
by other Aviation companies. This served as a major cause of Red tapism &
has impeded the growth of airlines like Air Asia & Vistara and prevented them
from making money via lucrative international routes. The new rule that could
come in place is the DFC or Domestic Flying Credit which requires an airline to
accumulate 300 DFC points in domestic circuit before flying in international
routes.
As if this wasn’t enough there have been noises from the Air
Asia board about ongoing fights between Tony Fernandes, Arun Bhatia & Tata
Sons, which has created huge rifts within the organization & has led to
many senior executives quitting. A big cause of the company failing has been
very little infusion of cash during its inception in India, a mere Rs. 30
crore. Losses are close to Rs. 65 crore.
Tata in another venture has tied up with Singapore Airlines &
launched Vistara in India with Rs. 100 crore. Rs. 30 crore pooled in by
shareholders apparently is very little, the cash pool has dried and with
mounting losses funds are available only via advance sale of tickets. This is
truly a dire situation, especially for an aviation company!
What’s the solution
Each shareholder would need to cough up more funds, but
while Tony Fernandes is busy with Air Asia Malaysia, Tata Sons with Vistara
& Arun Bhatia being nothing but a rabble rouser, there doesn’t seem to be
any silver lining at the end of the dark cloud. This could be just another
Kingfisher and we may not be able to enjoy the good inflight services of Air
Asia any more.
- Monica Mor
Sr. Faculty, INLEAD
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