The odds are stacked against Jhunjhunwala’s airline

It’s a wonder how perfectly successful and intelligent businessmen have suicidal tendencies.

Published: 01st August 2021 09:06 AM  |   Last Updated: 02nd August 2021 03:41 PM   |  A+A-

Illustration: Soumyadip sinha

Express News Service

It’s a wonder how perfectly successful and intelligent businessmen have suicidal tendencies. We are talking of those who get the 7-year itch, and launch mid-career into Bollywood and airlines. Almost two decades ago, Kishore Biyani, who knew nothing of Bollywood, invested quite a few crores in making flops and launching an actor called Diya Mirza. Fortunately, he came quickly to his senses. 

Then there are those who went starry-eyed after airlines. Look at Vijay Mallya. He sacrificed a perfectly good business in liquor to burn himself setting up a disastrous airline and pretending to be Richard Branson. The glitz of posing beside cool airhostesses and celebrity actors gets the better of these otherwise sensible investors. 

And now it is hotshot stock market broker, Rakesh Jhunjhunwala, who’s caught the bug. India’s Warren Buffet, believed to be worth $4.6 billion, is setting up an ultra-low-cost carrier (ULCC), to be called Akasa Air, with an initial investment of $35 million (about Rs 260 crore) and 70 planes. The no-objection certificate (NoC) from the Union aviation ministry is on its way, he boasted in an interview to Bloomberg. 

“For the culture of a company to be frugal you’ve to start off fresh. I’m very, very bullish on India’s aviation sector in terms of demand,” he told Bloomberg. There is also the advantage today of easy availability of aircraft at rock bottom lease rentals. 

The stockbroker-investor is betting on an under-penetrated market, where only a fraction of the population travels by air. If tickets can be brought close to railway fares, a whole new world of demand opens up. But then remember the slogan: ‘Everyone can Fly’ coined by Captain G.R. Gopinath of Air Deccan. Tickets at `1. Simplify. The low-fare airline made a promising start in 2003, flew to No.3 by 2006, but bowed out by 2008.

A frozen market
Seeing what’s stacked against him, this is one bet Jhujhunwala should be avoiding. The Covid-19 pandemic and high cost of aviation fuel has knocked the bottom off the industry. This is what a McKinsey report, released on April 21, this year, says: “In 2020, industry revenues totaled $328 billion, around 40% of the previous year’s. In nominal terms, that’s the same as in 2000. The sector is expected to be smaller for years to come; we project traffic won’t return to 2019 levels before 2024.”

Global aviation data firm Cirium at the end of 2020 said the impact of worldwide travel restrictions had reduced traffic to levels last seen in 1999. Cirium also reported, in October 2020, that despite strong government support and internal restructuring, as many as 43 airlines had folded up in the first 9 months of the year. 

The best of India’s aviation players, IndiGo, after a decade of robust performance, has now returned 6 consecutive quarters of losses. InterGlobal, that owns IndiGo, reported a widening of net loss at Rs 3,174 crore for the June ‘21 quarter, as the 2nd Covid wave suppressed air traffic.

Bad report card
A little less than 30 years ago, in the euphoria of liberalisation, India opened its skies to private airlines.  As many as 9 private airicked off into the new business, but the report card is not something you can take home. Private airlines, though they expanded the market exponentially, have been failures in India. With the exception of IndiGo. 

The first of the operators that got a scheduled airlines status in 1994, East-West Airlines, was incorporated with shady sources of funding. It crashed out in 1996 soon after its MD, Thakiyudeen Wahid, was shot dead near his Mumbai office in November 1995. Others too launched with fanfare, some of them with free liquor thrown in - Damania Airways, ModiLuft, NEPC Airlines and Air Sahara. In a few years, most of them were history. 

Jet Airways launched as a full-service airline in 1995. It grew rapidly, was the first to fly international, and garnered a 23% share of passenger traffic by 2016. It must be said Jet was once seen as ‘aspirational’ - the airline’s business class the hoi polloi wanted to be seen flying. Naresh Goyal, its founder-promoter, deftly walked the political minefield, and managed to keep competition at bay. However, economics got the better of him. The airline went bankrupt, and by April 2019, stopped flying.

The only airline that has bucked the trend with its low-cost model is IndiGo. Launched in 2006 by Rahul Bhatia and Rakesh Gangwal, the airline did not rely on ticket sales alone, and used a revenue model of booking, selling and then leasing large fleets of aircraft. With a passenger share of nearly 60% of Indian skies, and a fleet of over 250 aircraft, IndiGo has grown to become one of Asia’s largest low-cost carriers. 

But there is no magic in low-cost. Others like SpiceJet and GoAir which have tried to replicate the model are struggling. In fact, there is little distinction now between the full-service airlines Air India and Air Vistara, and the low-cost ones, as the former are forced to sell discounted tickets to drive traffic. Indian aviation history and the current freeze on travel is against Mr Jhunjhunwala. We wish him luck.

India Matters


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