Malaysia’s AirAsia has unveiled plans to launch a new domestic airline in India by the fourth quarter of 2013. Under the terms of a deal announced on February 21, the largest low-fare carrier in Asia will hold a 49-percent stake–the maximum holding permitted by the Indian government for a foreign investor–in the new airline. AirAsia is partnering with major Indian industrial groups Tata (to carry a 30-percent stake) and Telestra Tradeplace (21 percent).
AirAsia chairman Tony Fernandes has decided against buying into an existing Indian domestic airline, as he could have done under foreign investment rules revised last year. By contrast, Abu Dhabi’s Etihad Airways recently confirmed plans to buy 24 percent of the equity in Jet Airways.
AirAsia and its partners have committed an initial $50 million to launching the new airline, which many analysts think will trigger a new fare war between carriers already burdened with high costs.
“We strongly believe that the current environment is perfect to introduce AirAsia’s low fares, which stimulate travel and growth the market,” Fernandes told a press conference in New Dehli. “I think we can give a fair competition [now that] irrational competition has gone out of the [Indian] market. Now there are sensible businessmen running their businesses sensibly.”
The principals in the new venture must now seek the approval of India’s Foreign Investment Promotion Board, after which they can apply for an air operators permit. AirAsia plans to use its own name for the new carrier and deploy an all-A320 fleet (including some of the 280 new aircraft on which it holds firm orders). Plans call for starting with just three or four aircraft and then a gradual fleet expansion. Fernandes intends to appoint an Indian CEO and management team next month.
AirAsia last year withdrew international service from Mumbai and Dehli, citing high airport prices and restricted slots. Fernandes, who has previously described India’s private airports as “vultures,” said that he does not plan to serve such destinations with the new operation. AirAsia continues to offer connections to its international network from the Indian cities of Kolkata, Chennai, Bangalore, Tiruchirappalli and Kochi. Indian rules require new airlines to operate domestically for five years and fly at least five aircraft before applying for rights to fly international services.