Akasa#39;s first month of operations has been full of surprises

Akasa Air completes one month in Indian skies today. The last 30 days have been full of surprises for the airline, not all of them pleasant. Just a week after the first flight came the news of the sudden demise of largest shareholder and maverick investor Rakesh Jhunjhunwala. He was never meant to be involved in day-to-day operations, but in Jhunjhunwala the airline had a big name to rely upon.

Apart from this sad event, the airline got a taste of changing regulations, cut-throat competition and more in its first month of operations.

Separately, Akasa Air indicated that it may place an aircraft order in the next 18 months that will be significantly larger than its first order of 72 aircraft.

Changing regulations and hyper competition

Akasa Air was planned during the COVID-19 outbreak. Since then, the government has introduced floor caps and ceiling caps for fares. While the capacity cap went away, pricing caps continued until a surprise announcement just three days after Akasa Air started flying.

The removal of caps was expected to lead to a slide in air fares and it did. Price wars are good for consumers but an acute war is very bad for the industry. In this case, selective routes, including all those in which Akasa Air operates, are seeing a fare war, where fares are less than half of what they were during the capped fares regime.

IndiGo, the country’s largest carrier, added flights on all the routes Akasa Air started. Any increase in capacity at such short notice needs higher market stimulation to attract traffic and that can only be done by dropping fares. Add to that the relatively lean season and it becomes a double whammy for the airline.

In a fare capped regime, the airline would have had assured ticket prices in the 15-day window leading to the flight, which no longer exists. On certain dates, flights between Mumbai and Ahmedabad are available for just over a thousand rupees. Take away the taxes and the airline will get just about Rs 500 or Rs 600 from passengers who buy this fare.

Systems compromise

Two-and-a-half weeks into the launch, the airline was impacted by a systems issue, which led to some user information, such as name, gender, email address and phone number, possibly being viewed by unauthorised individuals.

This was on the back of a not-so-good day of opening reservations for the airline, when the website crashed and the menu created confusion.

Strong entry

The problems notwithstanding, Akasa Air has made a strong entry. Four of its aircraft have landed in the country and one more is expected soon. This is the fastest induction for a new airline. The rules mandate airlines to operate five aircraft in a span of one year of operations. AirAsia India took 10 months to induct its fifth aircraft while Vistara had nine aircraft at the end of its first year.

Akasa Air wants to add one aircraft every two weeks, but a lot of that would depend on the supply chain issues plaguing aeroplane manufacturers. Issues with engines, seats and the overall supply chain have delayed deliveries of aircraft for both Airbus and Boeing. In the case of the Boeing 737 MAX, while there are white tails available — aircraft that have not been taken up by airlines and hence available immediately — it still needs seat changes, among other things, before delivery.

Unlike other airlines though, Akasa Air has entered on a strong footing, with more than one frequency on most markets that it is entering. Cornering capacity share leads to getting market share. But the airline will have to keep an eye on the cost at which all this comes.

Best time to expand 

The month of August saw airlines deploy only an average of 70 percent of approved schedules on domestic routes. For years, there has been a constant clamour that a new airline cannot function in India because the metros are without slots and even Tier I cities are struggling to expand and allow airlines to park planes. But the pandemic has changed that. Most airports are investing in expansion and an average of 30 percent of slots is available. This makes it the best time to expand in India.

At least two airlines, Go FIRST and SpiceJet, are facing financial headwinds. Akasa Air is yet to accumulate losses and currently has its coffers full. The initial planned cash burn will help the airline push the weaker players out of the market, and that seems to be the game plan. Akasa Air seems to have anticipated a price war, but while it will be hit hard, there are players in the market that will be hit harder and do not have the capacity to hold on. Will the plan work? Time will tell. Akasa is just a month into operations; a year down the line the story may be very different.