Transport Airlines

AirAsia Receives Green Light to Launch Low-Cost Indian Venture

May 08, 2014 3:00 am

Skift Take

India became one of the most sought-after markets for airlines following new government rules that allow foreign carriers to invest in local operations. The new ventures are targeting the millions of Indian travelers that currently travel by train.

— Samantha Shankman

Free Report: The Changing Business of Extended-Stay Hotels

Bazuki Muhammad  / Reuters

Azran Osman-Rani, chief executive officer of long-haul carrier AirAsia X, smiles during the launch of the company's prospectus in Kuala Lumpur June 10, 2013. Bazuki Muhammad / Reuters


AirAsia Bhd., the region’s biggest budget airline, received an operating license for its Indian venture as competition intensifies in one of the world’s fastest growing air-travel markets.

AirAsia Chief Executive Officer Tony Fernandes announced receipt of the permit today on his Twitter Inc. account. Prabhat Kumar, head of India’s Directorate General of Civil Aviation, didn’t respond to three calls to his mobile phone for comment.

AirAsia has waited more than a year for an operating license after winning an initial nod in March 2013 to form a venture that includes India’s Tata Group, underscoring concerns that bureaucratic delays are hampering the country’s economic growth. AirAsia had aimed to start flying in the South Asian nation by last December as well as offer some free tickets.

“Competition is going to intensify now,” said Rashesh Shah, an aviation analyst with ICICI Securities Ltd. “We need to see what their plans are and what kind of routes they choose over the next couple of years. It’s a new airline, so they will try to offer lucrative fares. A price war can’t be ruled out.”

AirAsia India will be based in the southern city of Chennai, and the budget carrier will fly Airbus A320 aircraft mainly to smaller cities. Fernandes has said he is aiming to attract passengers from the about 1 million people who take trains every day in India.

Foreign Investment

AirAsia and Singapore Airlines Ltd. have both tied up with India’s Tata Group for separate ventures while Abu Dhabi’s Etihad Airways PJSC has bought a stake in Jet Airways (India) Ltd. after the government eased investment rules in 2012. They are seeking to tap the potential of a 1.2 billion-person population.

Sepang, Malaysia-based AirAsia will give away a few seats for free when it starts flying, Fernandes said last year. He’s said prices will be the “No. 1 differentiator” in India.

Shares of AirAsia rose 1.8 percent to 2.24 ringgit in Kuala Lumpur today, before Fernandes said that he’d received the operating license.

India’s Ministry of Civil Aviation gave AirAsia a so-called “No Objection Certificate” in September. That followed an earlier Foreign Investment Promotion Board approval.

Procedural delays have hampered investment projects in India, whose economy is estimated to have expanded 4.9 percent in the year ended March, a pace that’s close to a decade low. Reviving the expansion is a key issue in the nation’s general election, which concludes May 16.

To contact the reporters on this story: Anurag Kotoky in New Delhi at akotoky@bloomberg.net; Sunil Jagtiani in New Delhi at sjagtiani@bloomberg.net To contact the editors responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net Sunil Jagtiani, Dick Schumacher.

Tags:

Next Up

More on Skift

U.S. Outbound Tourism Snapshot for July 2014
Business Travelers Unsure if ‘Bleisure’ Travel Is Allowed, But Doing It Anyway
Skyscanner Acquires Mobile Developer in Bid to Improve Hotel Booking
Free Webinar: How To Effectively Personalize Marketing Across Travel Sectors