AirAsia: Asia's Largest Low Cost Airline's Foray into India
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Case Code: BSTR432 Case Length: 14 Pages Period: 2012-2013 Pub Date: 2013 Teaching Note: Not Available |
Price: Rs.400 Organization: AirAsia Berhad Industry: Aviation Countries: India; Malaysia; Asia Themes: Diversification, Geographic Diversification, Entry Strategy, Joint Ventures |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Indian Aviation Industry
The history of the Indian aviation industry can be traced back to the mid-1900s when there were nine airlines in existence including Indian Airlines and Air India . In 1953, through the Air Corporations Act, all private airlines were nationalized. In 1986, private players were allowed to operate as air taxi operators. In 1993, after private players were given permission to operate scheduled services, the Indian aviation market saw the emergence of a number of private carriers including Jet Airways , Sahara Airlines , Modiluft , Damania Airways , and East-West Airlines . However, in 1997, all private players except for Jet and Sahara, ceased operations. In 2001, the ATF (Aviation Turbine Fuel) price was decontrolled which led to a decline in its price...
The Joint Venture
On February 20, 2013, AirAsia announced that it had entered into a joint venture agreement with Tata Sons and Telestra. A few hours before the announcement, Fernandes tweeted, “AirAsia will be making a significant step in our journey of being an ASEAN airline. Very proud day for me.” Some analysts were of the opinion that AirAsia's entry into the Indian aviation market would help it to shield itself from any possible downturn in its international business. “Its domestic and international routes will now complement each other,” said Sharan Lillaney, analyst at Angel Broking.
While AirAsia was an established player in the aviation business, its partners were not directly involved in this business. Telestra, an investment holding company, had a presence in aerospace with a group company called Hindustan Aerosystems Pvt. Ltd, which manufactured and supplied precision components for the industry...
Challenges
AirAsia's entry into the Indian aviation sector drew a lot of attention from the market. While some industry experts welcomed the move, some were apprehensive about the challenges AirAsia would face in the near future.
Some analysts were of the view that although the joint venture had received regulatory approval from the FIPB, it would be difficult to get clearance from the Aviation ministry given its reservations regarding the proposed joint venture. The contention of the Aviation ministry was the lack of clarity in issuing licenses to new airlines. “This announcement is on expected lines and not surprising. However, (I am) surprised with Tatas agreeing to be part of the joint venture without taking a lead role in the consortium This will be an AirAsia-led consortium which might face regulatory challenges. It is not clear if government will clear their licence as there is no clarity on the issue of new licenses. Overall, CAPA welcomes strong and well capitalized airlines as it will be positive for the overall sector,” said Kapil Kaul (Kaul), CEO, South Asia, Center for Asia Pacific Aviation (CAPA)...
Looking Ahead
On March 28, 2013, AirAsia India Pvt Ltd was incorporated. On April 1, 2013, AirAsia applied to the Ministry of Corporate Affairs for registration of AirAsia (India) Pvt. Ltd. as an unlisted company with its headquarters in Mumbai. The airline had submitted documents regarding ‘article of association, memorandum of association, and image of airline logo' on March 11, 2013. According to Fernandez, "AirAsia India Pvt has been formed. One more step. Been studying the Indian market hard. Exciting. We can make a difference."...
Exhibits
Exhibit I: The Webpage of AirAsia
Exhibit II: Financial Highlights of AirAsia (2007-2011)*
Exhibit III: Consolidated Operating Statistics of AirAsia (2007-2011)^
Exhibit IV: FDI Regulations in the Indian Aviation Sector
Exhibit V: Market Share of Domestic Airlines in India (2012)
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