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AirAsia gets licence to fly

Business Standard:  May, 2014

New Delhi: The Directorate General of Civil Aviation (DGCA) on Wednesday granted an air operator’s permit (AOP) to AirAsia, paving the way for the airline company to launch low-cost services in the country.

AirAsia India, a joint venture among Malaysia’s AirAsia Berhad, Tata Sons and Telestra Tradeplace, is to launch services from its Chennai hub with three Airbus A320 aircraft. But the airline, facing a legal challenge in Delhi High Court, remains undecided on launch date. Chief Executive Mittu Chandilya said his team was finalising flight schedules and slots.

Though the DGCA rules will require AirAsia to have a fleet of five aircraft within a year of starting operations, the airline plans to have 10 planes by that time.

A senior DGCA official said: “After inspections got over last week, we issued AOP to AirAsia to launch commercial operations.” The approval is subject to the final decision of the Delhi High Court, which is to hear on July 11 Bharatiya Janata Party leader Subramanian Swamy’s petition against grant of permit to AirAsia.

Chandilya said AirAsia’s fares would be 30 per cent lower than rivals’. “We will be competing with the railways, and not other airlines. Our main target will be attracting the AC first-class train passengers... We will not disappoint Indian people. AirAsia India will be the airline with the lowest costs but with great quality, reliability and safety.”

Soon after issuance of the AOP, AirAsia chief Tony Fernandes tweeted: “History has been made today in aviation. Everything has been hard for AirAsia but we never give up. Today AirAsia India has got APPROVAL.”

AirAsia, known for its ultra low fares, is yet to announce its route network but has indicated it will fly to Tier-II and -III towns in South India and open new routes. In its application to DGCA, it had listed Bangalore, Trichy, Madurai, Coimbatore, Cochin, Goa, Hyderabad, Ahmedabad, Jaipur and Pune as line stations or destinations.

Welcoming the DGCA decision, aviation advisory firm Centre for Asia Pacific Aviation (Capa) said: "It has been a long ordeal for them (AirAsia) as the wait to get regulatory clearances has taken 15 months. Expect legal challenges to continue."

The airline is facing a legal challenge from existing domestic airlines, besides BJP's Swamy, who has filed a petition against the issue of permit. Swamy has also approached the Election Commission seeking that DGCA be restrained from issuing the permit.

In its response to the Election Commission, the civil aviation ministry had last month clarified the issue of permit will be subject to the high court's final decision. The ministry had said AirAsia's application for a permit was made to DGCA in October last year, much before the elections were announced. "The issuance of AOP is not a new scheme and does not involve any sanction or expenditure from the government," the ministry had said in its letter.

"The issuance of AOP is subject to the applicant fulfilling all laid-down conditions. Its outcome cannot be stated at this point, since the process is still on. The decision shall be subject to the decision of the Delhi High Court," it said.

On Wednesday, Swamy "condemned" the grant of AOP to AirAsia and said it was done in "reckless disregard of the rules and regulations". He said in a statement: "The matter has been under the purview of the Election Commission... the hurry of the government is inexplicable." He added the "obscene hurry" to grant the licence before a new government took charge suggested corruption.

Swamy and the Federation of Indian Airlines are believed to be planning to move the Delhi High Court on Thursday against the grant of AOP.

Capa also said: "It is advisable for AirAsia to start operations from September or October, as starting in the second quarter of the financial year will burn a lot of cash and impact the airline's start-up capital. AirAsia might not be fully prepared for an early launch and shouldn't rush for it. More recruitment has to be done, start-up training and logistics are to be set at each operating station, slots have to be approved, schedules need to be marketed within the distribution system and, possibly, other requirements also have to be met." The airline only recently began hiring employees for its security and guest services department.

In March this year, the airline took delivery of its Airbus A320 aircraft with 180-seat all economy configuration. The aircraft is equipped with sharklets, which is a wing-tip device powered by CFM engines to help airlines reduce fuel burn and emissions. The airline has permission to import nine A320 aircraft for its Indian operations. Its fleet will be drawn from the 475 A320 aircraft ordered by the group.

The launch of AirAsia India will intensify competition in the domestic aviation market, where airlines continue to struggle in a hostile cost environment. "Domestic airlines continue to be very precariously placed and AirAsia's entry will further challenge the existing airlines. Domestic airlines in India continue to operate an unviable model and expect yields to be further hurt in the near term…," Capa said.

AirAsia is expected to unveil a very aggressive pricing structure. The advance purchase market will get stimulated, say industry experts.

On receiving the first aircraft, Chandilya had said: "We are fully confident that with our new A320 fleet, we will provide Indian passengers the service and convenient travel options already offered by the AirAsia group elsewhere in the region."