Will the Northeast be a gold mine for AirAsia's Fernandes? Or is he talking through his hat?

If the NE is so lucrative, why would SpiceJet with its Q400 fleet not go mount flights there? Also, is there enough traffic to fill a large aircraft like an Airbus 320 on these routes?

Sindhu Bhattacharya July 04, 2014 07:25:46 IST
Will the Northeast be a gold mine for AirAsia's Fernandes? Or is he talking through his hat?
New Delhi: Tony Fernandes made many heads turn when he said today that AirAsia India will next look to mount flights to the North East. Till now, the North East has been one geographical area which Indian carriers have been forced to put on the aviation map because of Route Dispersal Guidelines (RDG) of the Government. Not because they think most NE routes are viable. So what did AirAsia's flambouyant chief see in the NE which other airlines have failed to capture? Is he being too smart by half?

Tony today claimed that the airline's first flight, between Bangalore-Goa is already making money and that AirAsia India will aim for breakeven in the next 4-6 months. But will focusing on the NE really help AirAsia achieve this breakeven? Some aviation experts point out the obvious: NE has little traffic potential, even lesser potential for yields (which means potential of revenue earned per passenger) and Fernandes is talking through his hat.

Even Air India subsidiary Alliance Air, which was operating flights in the NE region, was doing so after the Government offered it some viability gap funding. If the NE is so lucrative, why would SpiceJet with its Q400 fleet not go mount flights there? Also, is there enough traffic to fill a large aircraft like an Airbus 320 on these routes?

But some others think this is a wily move, since it will make AirAsia's competition sit up and take notice. At the same time, AirAsia will earn brownie points with the Government which is forever trying to make airlines fly to the NE; it is possible that the airline manages to generate enough traffic and some yields by smart route planning.

Yes, if flights are mounted keeping certain factors in mind, there is some little money to be made in the North East as well. An aviation expert who has worked extensively in that region pointed out that four city pairs hold the maximum potential in the NE:

1) Kolkata-Agartala: This sector already has 12-13 daily flights because of strong traffic demand. Traditional business interests of Kolkatans in Agartala dictate traffic between these two cities and load factors (number of seats occupied on an aircraft) usually touch a reasonable 70 percent.

2) Guwahati-Kolkata: Another lucrative sector and about 10 flights a day already exist

3) Guwahati-Agartala: Third most popular sector within the North East.

4) Silchar-Kolkata

It is possible that AirAsia may offer flights originating at Bengaluru and hopping to Kolkata or Guwahati before connecting other NE cities. So Tony and his team have perhaps done their homework well. Tony also made some other interesting remarks during a press meet in Bangalore this afternoon. He chastized India's aviation regulator DGCA for frowning on Re 1 and other low fares, admitted that IndiGo and other existing airlines had tried to stop AirAsia India and that he will try and sit with competition to iron out differences.

AirAsia is known for its ultra low cost model and its propensity for charging for every little service. So it was perhaps surprised last month when the DGCA not only frowned on low fares but also did not permit it to charge for all checked-in luggage. It will need to work around these obstacles to survive in a cut-throat Indian aviation market where heavy taxation on jet fuel means fuel costs alone make up about half of any airline's overall costs and an over active regulator watches airlines' every move with a hawk's eye.

As for competition, especially IndiGo, AirAsia can do little but to grin and bear their onslaught. IndiGo and SpiceJet have already unleashed a bloody fare war on most routes.

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