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Jhunjhunwala’s airline plans could turn out to be a master stroke

K Giriprakash Bengaluru | Updated on July 30, 2021

Rakesh Jhunjhunwala   -  PAUL NORONHA

The industry desperately needs an airline that can succeed against all odds

If Big Bull Rakesh Jhunjhunwala owned a listed entity, the company’s stocks would have certainly taken a beating at the bourses following his announcement this week that he will launch an airline, Akasa (Sky) Air.

Plans to launch an airline during perhaps the worst phase of the industry can at best be viewed as an act of bravado. But not everyone is taking the development lightly.

“He has pulled a rabbit out of the hat,” an airline analyst told BusinessLine. As more details emerged about his plans to launch an airline, it clearly showed that Jhunjhuwala, as everyone expects him to be, was hedging his bets for the long term.

Investment plans

Jhunjhunwala, as already known, plans to invest $35 million and induct 70 aircraft in his fleet over a period of four years.

It works out to around 17-18 aircraft every year or probably the airline might induct about half a dozen in the first year ramping up to 70 in the next three years.

He has, according to reports, roped in industry veterans, Aditya Ghosh and Vinay Dube, to run the airline.

In an interview to a television channel, Jhunjhunwala said he will incentivise and empower the leadership team which is quite a departure from family-run airlines, which is more of a norm in the Indian airline sector with one exception. While this part of the planned structure is more like ticking all the right boxes, what might turn out to be difficult to achieve will be the financial viability of an ultra-low-cost airline, which the founders are betting on.

“There is no difference between ultra low cost and low cost especially in the Indian context as costs are the same. The landing fee, the airport charges are the same for everyone,” said AK Sachdev, former COO of GoAir. “Even with regard to fares, almost everything has been unbundled. So there is hardly any scope to bring the fares down further,” said Sachdev.

An ultra-low-cost airline needs not only tight cost control at every level but also the government and private airports buying into such a model.

It means far lower charges, lower user fees (user development fee) charged to the passengers and almost everything at discounted rates for it to succeed.

More investments

“There is no doubt that a market for such an airline exists. Whether all the stakeholders are invested in it is the issue,” said MG Mohan Kumar, former CFO of Air Deccan, which pioneered the low-cost model in India. Mohan Kumar pointed out that having an ultra-low-cost model is not good enough. The airline owners need to keep investing in the airline. Jhunjhunwala will need to keep a close watch on the cost and will need to carve out a large part of his time to monitor the operations even though on a daily basis, it will be the professionals who will run the airline.

“One needs to be extremely passionate about the venture. The owners should not take their eyes off and then keep investing. A lot of things have to come together for an airline to be viable,” Mohan Kumar said.

Easier said than done, but Jhunjhunwala comes with no baggage and will probably bring a fresh perspective to an industry that desperately needs an airline that can succeed against all odds.

Published on July 29, 2021

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