Mounting losses may delay AirAsia India’s IPO take-off

K Giriprakash Bengaluru | Updated on December 05, 2018

Airline lags on all parameters; may miss FY19 break-even target

It is a little-known secret that AirAsia India is the fastest growing airline in the country. But its latest quarterly results show that the carrier’s good run may not be sustainable for long.

The airline’s mounting losses also indicate that its plans for an IPO and its foray into international operations could be pushed further. For the July-September quarter, AirAsia India’s net losses widened to ₹308.21 crore. For the same period, the previous year, its losses were at ₹16.39 crore. On a sequential basis, the net loss for the second quarter was ₹61.8 crore, data on its website reveal.

Given the market turbulence, which has also hit other carriers, it may take much longer for the airline to break even against the earlier target of FY19, a presentation made to the investors says.

No hike in fares

On almost all parameters, the airline has seen a considerable lag: the average fare during the third quarter has seen a decline of 15 per cent and the revenue per passenger too has declined 13 per cent. However, there has been an increase of 36 per cent in the number of passengers it carried compared with the same period last year.

This shows that it has been unable to charge a higher fare because of the tough competitive environment even though the number of passengers it flies has gone up. The airline needs to fix this issue first before looking at the other ones. A detailed questionnaire sent to AirAsia India went unanswered.

The airline’s capacity grew 61 per cent in the third quarter but it came at a cost as revenue per average seat kilometre (ASK) dropped 28 per cent. The costs per ASK, too, grew 13 per cent at the same time.

New appointments

The airline — jointly owned by Tata Sons and Air Asia Berhad — has been under investigation for various reasons including charges of breaking rules to obtain a flying licence. It recently made several changes to the top management, bringing in an old Tata hand Sunil Bhaskaran, who was Vice-President, Corporate Affairs at Tata Steel, as its new CEO and MD. He is joined by Sanjay Kumar as the COO who was with IndiGo as its Chief Commercial Officer till June this year.

While this has come as a bit of silver lining, the airline needs a new management to run the operations, CAPA, a specialist aviation advisory, says. “The two major promoters will need to take some tough decisions with respect to restructuring. A new business case supported by a fresh management team and long-term funding is critical to turning the airline around,” CAPA said in a report.

Network mirroring

Another issue which AirAsia India’s new leadership team will have to deal with is network mirroring.

In a detailed note, aviation analyst Devesh Agarwal and air travel intelligence company OAG have pointed out that some of the airlines have been trying to edge AirAsia India out of competition. Network mirroring is a practice wherein an airline with a huge fleet starts dumping excess capacity on a new route already served by another airline.

“This is hurting AirAsia India twice over. It is selling seats at lower fares but is yet unable to fill flights compared to competitors who are offering higher fares and getting higher loads,” Agarwal said. The airline’s load factor has declined 76 per cent in the third quarter from 85 per cent during the same period last year.

However, OAG believes that AirAsia India is not daunted by the competition. “While IndiGo has more than doubled the number of routes and capacity operated, AirAsia India has grown by a factor closer to eight, making it the fastest growing airline in India’s domestic market,” OAG’s Becca Rowland wrote in her report.

Published on December 05, 2018

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