Can Jhunjhunwala's airline Akasa succeed in turbulent aviation market?
Richard Branson famously said: If you want to be a Millionaire, start with a billion dollars and launch a new airline. While he has been able to take it in his stride, Vijay Mallya who was often compared to him has crash landed his airline for various reasons.
Can Jhunjhunwala’s airline Akasa succeed in turbulent aviation market?
Richard Branson famously said: If you want to be a Millionaire, start with a billion dollars and launch a new airline. While he has been able to take it in his stride, Vijay Mallya who was often compared to him has crash landed his airline for various reasons. Billionaire Rakesh Jhunjhunwala's who aspires to start an airline Akasa is an astute stock investor who well understands the pitfalls of the aviation industry and the impact of Covid before he takes off.
While hopefully Covid will be a thing of the past, in the next few months, Jhunjhunwala's airline will be up and running and would have skirted the biggest disruption to the aviation industry. According to IATA, during the past five years, the global airline industry's return on invested capital (ROIC) has improved significantly. Since 2014 industry-wide ROIC increased by 2.5 per cent to an average of 6.7 per cent compared to the previous five year period of 2009-2013. Airline ROIC decoupled from the economic cycle partly due to the fall in fuel prices, but also because of structural changes to the industry and product in some regions.
Rakesh Jhunjhunwala is planning to invest up to $35 million (Rs 260.7 crore) in a new low-fare airline venture. The aviation venture is led by seasoned professional Vinay Dube, CEO of Jet Airways. Dube is reportedly leading initial talks with Jhunjhunwala and a foreign investor for the new aviation venture. Jhunjhunwala may hold up to 40 percent stake in the new airline.
According to CAPA, The Indian airline market has always had huge potential for airlines due to its size, but profitability has remained elusive. On the domestic front strong competition and excess capacity growth have hindered financial returns, and on the international side overseas airlines have been more successful than local airlines in tapping into this market. However, there is a good chance the airline industry will come out of the pandemic in better shape for long term success.
Strong advances into the airline sector by the Tata Group could prompt mergers, and the privatization of Air India should set it up on a better financial footing. There were already some signs that the rapid pace of growth was moderating before the pandemic struck and airlines are likely to be even more cautious, for the immediate future at least. As India's devastating second wave of Covid-19 subsides, domestic airline capacity is once again rebounding strongly. Airlines have been adding back service in response to easing travel and capacity restrictions, and load factors are also increasing.
The second wave stalled what had previously been an impressive traffic recovery in Indian domestic markets. Now the airlines are looking to return quickly to those levels, and eventually move beyond them. This augurs well for Akasa if they can meet the competition standards of Indigo, better route management and a close watch on profitability.