✈️ India’s cheapest airline
A billionaire's dream to revolutionize the aviation sector.
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The Big Story
The impact of the deadly coronavirus that hit the world last year cannot be overstated; millions of people died, global companies shut down, unemployment reached record highs, and an unprecedented amount of people migrated to their hometowns. But if there's one sector that bore the brunt of the pandemic more so than others, it's the aviation sector.
When the first coronavirus case was detected in India in January, the realization had not yet set in regarding the devastating changes it would bring about. But when the WHO officially declared it a pandemic, one of the first sectors to close down immediately was travel and tourism. And it hurt pretty bad. India's domestic air travel shrunk 61% to 105 million passengers, while its international traffic sharply dropped to 84.8% to just 10 million passengers—the lowest level in almost 30 years. Additionally, two major airlines— IndiGo and SpiceJet—posted ₹ 1,194 crore and ₹ 112 crore in Q2 last year, respectively. Overall, the aviation sector reported a combined loss of $4 billion last year.
And that loss is only expected to compound this year.
According to CAPA, which provides market intelligence on the aviation sector, said the industry will accumulate an additional $4.1 billion in losses in 2021 and will need at least $5 billion to stay afloat. That said, most airlines only have access to $1 billion via share offerings and other sources, which means most of them won't make it through.
Despite such a grim outlook for the aviation sector, a new player is trying to change the game.
Billionaire investor Rakesh Jhunjhunwala is now betting on the sector to make massive gains. He's planning to purchase 70 aircraft within the next four years and start a new ultra-low-cost airline called Akasa Air. The 61-year-old business magnate, who will invest $35 million and own 40% of the carrier, expects the airline to get a no-objection certificate from the aviation ministry in the next 15 days.
But you may wonder: "Why will someone invest in an industry that's been consistently in decline?" Well, there's a good reason for it.
When it comes to aviation, India is an untapped market as only a fraction of people travel by air due to expensive fares. Airlines like IndiGo, which accounts for almost 50% of India's domestic market share, are trying to find competitive ways to price their offerings. But Jhunjhunwala is raising the bar even higher with the ultra-low-cost carrier (ULCC) model, expected to bring down the cost and make flying affordable for a large population base.
“For the culture of a company to be frugal you’ve to start off fresh,” Jhunjhunwala told Bloomberg, adding “I’m very, very bullish on India’s aviation sector in terms of demand.”
But the stakes are higher than ever as other players are trying to make fresh bets on the aviation sector. Kalrock Capital and entrepreneur Murari Lal Jalan received approval on their resolution plan to revive Jet Airways, which shut down operations two years ago after it failed to raise emergency funding. Additionally, Air India is also inching closer to finding a new buyer after the government decided to sell its entire 100% stake in the national carrier.
Despite numerous claims about the third wave of coronavirus looming just around the corner, Jhunjhunwala remains determined. “I’ve got some of the best airline people in the world as my partners,” he told Bloomberg. Will he succeed in his goal of making India's cheapest airline? Well, for now, only time will tell.
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