LET’S SAY YOU plan to fly from New Delhi to Mumbai for a holiday before December. Currently, you can choose among all six pan-India carriers that fly that route, with all of their cheapest tickets at around ₹2,500. The closeness of the price range isn’t a surprise considering the cut-throat competition in the aviation industry, especially after airlines were grounded for months due to the Covid-19 pandemic.
By this time next year, there will hopefully be two more options— Akasa Air and Jet Airways 2.0. And if things go as per plan, Air India could go to a private entity, which would be raring to go. After the lull of the past 18-odd months, suddenly there’s action happening in the sector. The most astute investor of current times, Rakesh Jhunjhunwala, too, has taken the plunge, betting on one fact—the world’s second-most populous country is hugely under-penetrated in air travel. Munch this—just about 8 per cent of India’s population fly.
But why has Jhunjhunwala, who is often referred to as India’s Warren Buffett, ventured into a sector that has more case studies of failure than success? The catastrophic collapses of Kingfisher Airlines and Jet Airways, and their impact on the industry in the past decade, have taken significant sheen off the aviation business. It is truly a survival of the fittest balance sheet in India’s notoriously price-sensitive market, where the race to the top is via rock-bottom prices. A route Akasa plans to take by being an ultralow-cost carrier (ULCC).
“Jhunjhunwala goes deep into the business before putting in his money. That he’s a successful investor cannot be disputed. The question is whether he has done a similar study in aviation before investing. The fact is that the Indian aviation industry has proved to be a graveyard for many carriers,” says Jitender Bhargava, former executive director of the government-owned carrier, Air India.
The billionaire investor’s predilection for aviation dates back to 2015 when he invested in InterGlobe Aviation, which runs IndiGo. Over the years, irrespective of good or bad results, he grilled the management in investor calls, a sign that he was keenly interested in the sector. Now, he has directly entered it. And he’s bringing company. His team includes, among others, former IndiGo President Aditya Ghosh and former Jet Airways CEO Vinay Dube, who will be CEO of Akasa Air and director of the holding company, SNV Aviation Private Limited. Jhunjhunwala will reportedly invest $35 million (nearly ₹260 crore) for a 40 per cent stake in Akasa.
You could argue about the ace investor’s timing. Indian airlines and airports incurred losses worth ₹22,400 crore in FY21 amid the pandemic, according to official data. Even IndiGo—the market leader with a 57 per cent share, according to the Directorate General of Civil Aviation (DGCA), India’s civil aviation regulator—reported its biggest-ever loss, of ₹3,180.2 crore, for the April-June quarter. However, the fact is that Akasa’s launch is several months away, and the environment might change for the better by then. Plus, India’s air traffic is growing steadily each year and, as per trade body International Air Transport Association, the country is set to overtake the UK to become the world’s third-largest aviation market by 2025.
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