Akasa Air: Soaring to Success with Jhunjhunwala’s Midas Touch – What Lies Ahead?

India’s up-and-coming airline, Akasa Air, is on the verge of acquiring its 20th aircraft. While Air India and IndiGo are making substantial aircraft orders numbering in the hundreds, this news may not grab the headlines. Nevertheless, Akasa Air has proven to be more than just a fleeting presence in the aviation industry.

Akasa Air has achieved a significant milestone in the Indian aviation sector, notorious for being a graveyard of failed airlines. Within a single year of operation, Akasa has become the first airline in global aviation’s 120-year history to go from zero to 20 aircraft. The 20th addition to their fleet is scheduled for July. Recently, the airline has also placed an order for four additional Boeing 737-8 jets at the Paris Air Show, supplementing their previous order of 72 planes. Their aim is to possess a fleet of 72 planes by March 2027, with plans to place a three-digit order by the end of this year.

Since its launch in August last year, Akasa Air has experienced substantial growth in market share. Starting at a mere 0.2 percent, their market share reached 4.8 percent as of May this year. In August last year, the airline served 24,000 passengers, and by May, that number had soared to 629,000.

Although Akasa Air was initially backed by star trader and investor Rakesh Jhunjhunwala, who unfortunately passed away a few months after the airline’s launch, it continues to embody the entrepreneurial spirit and success associated with the renowned investor, known for his remarkable investment prowess.

The skyscape of Akasa

Starting an airline in India is no small feat, requiring a great deal of courage. Go First, a budget carrier that recently halted its flights and entered insolvency proceedings is just one in a long line of private airlines that have met a similar fate. Over the years, the Indian aviation sector has witnessed the demise of several airlines, including EastWest, Damania, MDLR, Paramount, Kingfisher, Air Costa, and Jet, to name a few.

The bankruptcy of Go First has instilled a sense of apprehension, as it raises concerns about the potential dominance of IndiGo and Air India in the market. These two airlines already cater to over 80% of domestic passengers in India, leaving the remaining share scattered among other carriers. Additionally, SpiceJet has been grappling with financial challenges for the past few years. Achieving profitability in this industry remains a challenging task due to factors such as soaring fuel costs, substantial capital requirements, and customers’ preference for the lowest prices.

Despite these challenges, the demand for air travel continues to rise, and the government is aggressively developing aviation infrastructure. Plans are also underway to establish an aviation hub in Delhi. Given these developments, one may wonder where Akasa Air fits into the picture.

Airline with long-haul dreams

With Indigo leading the market and Air India as a strong contender, Akasa Air, led by CEO and founder Vinay Dube, aims to secure the number three position. However, Dube emphasizes that his focus is not on specific numbers or market share. Drawing inspiration from Alaska Airlines, which ranked sixth or seventh in size but was the most profitable US airline from 2010 to 2020, he believes that even the third or fourth position in a large aviation market can be highly lucrative, stating this in a recent interview with ET.

Dube’s primary goal is to establish a profitable and sustainable airline in an industry known for its short-lived ventures. He commits to long-term objectives and refuses to compromise on quality and performance in pursuit of greater market share or immediate gains. Although the rapid growth of the Indian aviation sector may appear enticing for expansion, Dube is mindful of the challenges that come with such accelerated development. So far, Akasa Air has demonstrated excellent performance in terms of cancellations, on-time schedules, and customer complaints – crucial metrics for assessing an airline’s efficiency and service quality.

Dube emphasized the objective of bringing happiness to both customers and employees. “Our primary goal is to ensure their satisfaction, and we believe this can be achieved by establishing a robust cost structure. Therefore, our focus remains on these three fundamental pillars,” he stated.

Building a differentiator

Akasa Air has no intention of provoking its formidable competitors, which include IndiGo, a dominant player in the market. While it recognizes the challenge posed by the competition, Akasa’s primary focus is to carve out a distinctive position for itself. This differentiation lies in the realm of consumer experience, a key strategy that sets it apart from other airlines. By prioritizing consumer satisfaction, Akasa aims to offer affordable and competitive prices while achieving profitability.

According to Dube, the CEO of Akasa Air, their belief is that exceptional customer service sets them apart once reliability and efficiency are established. This includes providing USB ports, comfortable seating, fresh cabin interiors, ample legroom, and other elements that enhance the overall consumer experience. Dube shared these insights in an interview with ET last year.

Rather than solely aiming for expansion, Dube places greater emphasis on building a resilient airline that thrives based on the quality of its service. This philosophy drives Akasa Air to explore innovative approaches.

Example from crew members

Their crew members’ footwear has recently garnered attention as a notable example of their unique approach. While on duty, observers noticed that one of their flight attendants wore sneakers instead of the customary high heels or dress shoes. While on duty, observers noticed that one of their flight attendants wore sneakers instead of the customary high heels or dress shoes. Light in weight and equipped with extra cushioning from heel to toe, they provide better support during the long hours that crew members spend on their feet. Additionally, the airline proudly states that it is the first Indian carrier to introduce custom trousers and jackets made from polyester fabric derived from recycled pet bottles collected from marine waste.

In a bid to enhance the in-flight experience, the airline recently introduced a new food and beverage menu, available to passengers across its network through the inflight meal service called Café Akasa. This revamped menu offers 60 meal options curated by chefs from various regions of India, featuring dishes such as avocado and tomato croissants, chicken tikka with mint mayo, and capsicum in chutney pinwheel. The menu caters to non-vegetarian, vegan, and healthy dietary preferences.

Furthermore, Akasa Air actively supports the Indian government and the United Nations in promoting awareness and increasing the production and consumption of millets. As part of this effort, they serve a millet salad with pomegranate seeds and lemon olive oil dressing.

Differentiating their product or service allows Akasa Air to establish differentiated pricing. However, Dube believes that the pricing differentiation must align with the underlying differentiated cost structure.

Going global

Akasa Air is preparing to expand its operations internationally and has plans to place a substantial aircraft order by the end of this year. Previously, the authorities mandated that Indian airlines must possess a minimum of five years of operational experience and maintain a fleet of at least 20 aircraft in order to qualify for international flights. However, in 2017, the five-year rule was abolished, opening up opportunities for newer airlines like Akasa. As Akasa is on track to meet the fleet requirement with its soon-to-be 20 aircraft, it will now focus on outlining its international expansion strategy.

To cater to its intended five-to-six-hour international routes, Akasa Air has not yet placed any orders for wide-body aircraft. The airline is currently evaluating potential destinations in Southeast Asia, the Middle East, Nepal, Bangladesh, Sri Lanka, and other regions. However, discussions with the government regarding these destinations are still ongoing.

Existing bilateral flying rights impose a limitation on Akasa Air’s international expansion, presenting a significant challenge. To address this issue, the airline has requested a review of the bilateral rights concerning flight capacity between India and the UAE. Despite this potential constraint, Akasa’s CEO, Dube, believes that the limitation on the Dubai route may not be permanent. Additionally, he emphasizes that the airline’s identity should not be solely defined by its destinations, highlighting its broader vision and aspirations.

The next funding round

The future funding of Akasa Air, following the death of its billionaire founder Jhunjhunwala in August of last year, has been a subject of uncertainty. Bloomberg recently reported that securing financing could be a hurdle for the airline as it engages in discussions with Boeing Co. for a potential follow-on order of 737 Max single-aisle jets. Additionally, the airline aims to finalize a significant aircraft order before the year’s end.

To address its funding challenges, Akasa Air plans to raise $75-$100 million by offering new shares to support its business expansion, according to a recent report by ET, citing insider sources. The airline will utilize the funds for making pre-delivery payments for aircraft. The airline has received delivery of 19 out of the 72 Boeing 737 Max planes it had ordered.

ET also revealed that Akasa Air had approached potential investors, including private equity firms and high net-worth individuals, for the fundraising campaign. The estimated valuation for the airline stands at $650 million.

While the exact impact on the Jhunjhunwala family’s stake remains unclear, it is anticipated that the fundraising will result in some dilution. Currently, the family holds approximately 46% of the airline through a trust. However, as per an informed individual, the trust will maintain its position as the largest shareholder.

Akasa Air

Akasa Air’s CEO, Dube, assures that the funding efforts are progressing well. He expresses gratitude for Mr. Jhunjhunwala’s significant contribution and declares that the airline has the financial capacity to introduce 76 aircraft within the next four years. Furthermore, Dube confidently asserts that the company’s financial foundation is robust enough to allow for an aircraft order, surpassing the scale of its initial purchase, by the end of the year. In essence, he believes that the airline’s growth is secure.

The burgeoning travel demand and expanding aviation infrastructure in India present a favorable outlook for a new airline. With Go First facing difficulties and SpiceJet experiencing its own troubles, India may be left with a potential duopoly in the market. However, Akasa Air’s growth could face substantial challenges from larger airlines with aggressive cost structures and a dominant market presence. As the company expands in the years to come, maintaining efficiency and service quality may become a pressing concern. Jhunjhunwala recognized the need for a distinct and high-quality airline in India, but the ultimate realization of his vision will be tested as Akasa Air continues to soar amid its rapid growth.

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