June 26--NEW DELHI -- Malaysian airline entrepreneur and founder of AirAsia Bhd Tony Fernandes is likely to meet chief ministers of a few states besides key Union ministers early next week to drum up support for his upcoming airline venture AirAsia India with Tata Sons Ltd.
Fernandes is expected to meet the chief ministers of Kerala, Karnataka, Assam and Tamil Nadu during his visit to India starting this weekend. He is also expected to meet finance minister P. Chidambaram, commerce minister Anand Sharma and aviation minister Ajit Singh on Monday and will also go to Mumbai where the airline's head office is located, said a person familiar with the matter who declined to be named.
The government in April cleared AirAsia's proposal to invest Rs.80.98 crore in a domestic passenger airline that it plans to launch jointly with Tata Sons, marking the clearance of the project's first step before seeking a licence to operate.
AirAsia will hold a 49% stake in the Indian venture, while Tata Sons will own 30%, and Arun Bhatia of Telestra Tradeplace Pvt. Ltd the rest.
AirAsia India plans to develop a network across the country starting with Chennai as the hub, with an Airbus A320 fleet that it sees expanding to 36 planes in five years. By the fifth year of operations, it expects to have a dozen planes each based in Chennai, Bangalore and Kolkata.
Kolkata will be the airline's second hub, according to the plan, Mint first reported on 25 April.
The meetings with the state chief ministers could be aimed at seeking incentives for the airline which is known to connect locations usually disregarded by other carriers. Taxes on fuel, among the highest in the world and accounting for 40-50% of an airline's costs, are a state subject.
"It is unlikely that taxes on fuels can be changed because states will not allow income from sales tax to dry up and the Central government has no financial muscle to compensate the states for the lost income," said Jitender Bhargava, former Air India executive director.
AirAsia is South-East Asia's biggest low-cost airline with 108 aircraft and 475 on order. Besides Malaysia operations, its units include Thai AirAsia, Indonesia AirAsia and AirAsia Philippines. On Tuesday, it announced the termination of joint venture AirAsia Japan, nearly one year after it was launched in partnership with ANA Holdings Inc.
"I have great respect for ANA as the leading legacy airline in Japan but it is time for us to part ways and focus our attention on what we do best, which is running a true LCC (low-cost carrier). Despite the cost issues, the AirAsia brand has resonated with Japanese customers and the trend we see for July and August is very strong for all of Japan," Fernandes said in a release.
AirAsia India plans to launch this fiscal year once the home ministry grants security clearances, the aviation ministry gives a no-objection certificate and finally the aviation regulator, the Directorate General of Civil Aviation, gives it an airline licence.
Apart from the high costs, AirAsia will have to compete with five major carriers -- IndiGo, Jet Airways (India) Ltd, Air India, SpiceJet Ltd and GoAir -- in place, said a foreign airline executive who declined to be named.
"At this stage, there is nothing better for the Indian market (than) to have another competitor. Competition drives efficiencies. If you can succeed in India, you can succeed in any emerging market," he said.
"India is the litmus test they say in the western world. Unfortunately, I still feel AirAsia is unable to understand the challenges so far. The ground understanding on the situation is still poor," said the foreign airline executive who declined to be identified. He added that the Japan shutdown may put pressure on the India venture.
"Of course in public's mind, it does throw up some doubts," he said. But now "there will be more incentive to make the India venture succeed".
Copyright 2013 - Mint, New Delhi
