What time Akasa Air?

The plan is official now. Ace stock picker Rakesh Jhunjhunwala will be floating an Indian aviation company, Akasa Air. He will be investing $35 million into this airline venture and start with a fleet of 70 planes. While the launch dates are not yet confirmed, senior recruitments have commenced. Former Indigo top boss, Aditya Ghosh, returns to aviation at the helm of Akasa Air. The project is still awaiting approval from the Ministry of Civil Aviation and that approval is expected over the next one month. 

How will Akasa be different?

Akasa will be an ultra-low-cost airline but it is still not clear what implications that will have for the pricing strategy. Also, the company plans to start off with 70 aircraft with seating capacity of 180 persons and will commence operations in the next couple of years. Clearly, RJ sees a huge potential as he sees airline business as real mass market business, like it is in other countries. The big bet is that the explosion in aviation demand would compensate for most business challenges in the industry in the form of pricing, costs, macro environment, stiff competition, regulatory pressures etc. 

There are headwinds galore

In the last 20 years 3 major events went on to disrupt airlines in a very sharp way. The first was the 9/11 attacks that resulted in many airline bankruptcies . Then there was the famous oil price spike from 2007 onwards. During this period, price of crude touched a high of $140/bbl leading to most airline models become unviable. Finally, in 2020, there was the COVID pandemic, which now looks to redesign the aviation industry for good, with long-term implications. To top it all, the latest trend of WFH and video communications are expected to have a huge impact on business travel. 

Challenging for sure

Even with all his investing acumen and the massive opportunity in India, airline business will remain complex. Aviation companies thrive on the spread between the RASK and the CASK, which depicts the spread between the revenues and the cost per average seat kilometer. This is a global problem, but nowhere in the world is this spread between RASK and CASK as volatile and unpredictable as it is in the Indian context. In the past, big names like Jet and Kingfisher have struggled before eventually folding up under a mountain of debt. Globally, airlines have destroyed more value than any other industry. If Jhunjhunwala has to make a success of his airline venture, he would surely require all the skills that made him India’s ace stock picker!