AirAsia - some thoughts, new routes, and who they're really competing against

It now seems rather obvious that BLR will be Air Asia's hub, much as they are headquartered in MAA as of now. They aren't yet profitable (and I'm not sure how long they'll take to get there). They have a single aircraft today, but expect to put it to use on a 14-hour rotation, something that's never been done in India so far. The maximum reported utilisation of an aircraft in India is around the 11-hour point. And for low-fare airlines (and indeed for all airlines), they can only make money when the aircraft isn't on the ground, but flying somewhere with revenue-paying passengers.

AirAsia, which started operations on 12 June 2014, is now looking at a second aircraft. As of now, they fly BLR-MAA and v/v, BLR-GOI and v/v, and BLR-COK and v/v.

The second aircraft will fly BLR-IXC (Chandigarh) [that alone should get reader Varun all excited!], and BLR-JAI (Jaipur). These are expected to be effective 5 September 2014, after the second aircraft is delivered in August 2014.

Both of these are rather untapped segments. There's only one direct flight on BLR-JAI - Indigo's 6E441 - which is a daily service, and which turns around and returns on JAI-BLR as 6E442. Jaipur is increasingly becoming a rather favourite tourist destination for many, which explains its popularity (Hilton has recently opened up the Hilton Jaipur, and there's a great SPG property - the ITC Rajputana - there as well). On the BLR-IXC route, there's no direct flight yet, though I'm not sure if there's a large market for this sector or the return leg.

What's obvious here is that all the cities that AirAsia is flying to, barring MAA, are tier 2 cities. However, it is worth noting that there are no AirAsia flights between two tier-2 cities. They all connect to BLR. Indigo is known to do this too, considering how many flights they offer to JAI and other tier-2 cities (Ahmedabad, Chandigarh, Goa, Jammu, and Indore to name a few). So it would seem like AirAsia is competing quite directly with Indigo.

But let's hold that thought for a minute. Who else flies almost exclusively to tier-2 destinations? Interestingly, the answer is Air Costa. While they're not as large a compete as Indigo is to AirAsia, they fly almost exclusively to tier-2 cities (MAA and BLR excluded).

http://www.aircosta.in/ebooking/Static/Route-map.aspx

Air Costa started out with 2 Embraer 170s, scaled up with two more Embraer 190s, and aims to have Ten E-170s and E-190s by the end of 2014 and a total of 25 aircraft by 2018. Also, Air Costa's strategy is a bit different. They don't do as many return flights as one might think. They mostly fly what are called three-way routes, ie from point A, to B, then to C, instead of A to B and B to A.

There's also the 6 new airlines that the government has recently approved, in addition to the Tata-SIA joint venture. I wrote about two of these earlier. Admittedly, only three of them are planning national operations, but together, all of these will form part of AirAsia's competition. I'd like to see how AirAsia (or indeed, any of the other airlines) plans to address this surge of airline operators in India.

My final assessments are these:

• not all the approvals will materialise in the airlines actually commencing operations
• of the ones that do, we will necessarily see some of them shutting down sooner than later, since the pricing pressures in the industry are too high for sustained profitability, and
• there's also a strong likelihood of consolidation, with some of the larger airlines acquiring smaller ones, particularly the ones with regional operations alone. 

The game's afoot! Now, sit back, relax and watch what unfolds!