Return to Previous Page

Turbulence at AirAsia India: Can it Turnaround?

CASE STUDY, STRATEGIC BRAND MANAGEMENT
ET Cases, 20 Pages
AUTHOR(S) : Syed Abdul Samad and Dr. Nagendra V. Chowdary

Case Preview

Turbulence at AirAsia India: Can it Turnaround?

 

“Of course, there was hype. Have we lived up to that? No. But no one expected all these issues that we have been caught with. Are we giving up? Clearly not.”

–Tony Fernandes, CEO, AirAsia Group


It has hardly been a smooth flight for AirAsia India (AAI) since its establishment in March 2013. AAI, an Indo-Malaysian budget airline, a tripartite joint venture, started operating in India since mid-2014. However, even after 20 months of its operations the airline faces turbulence with the mounting losses, acute cash crunch, differences between the partners and exit of its top-level executives. While the low-cost operating model of the parent company, AirAsia Berhad (AirAsia Bhd), the largest Low-Cost Carrier (LCC) in South-East Asia, was highly successful in other countries, AAI was facing problems. While the company officials termed deficit of funds and aviation  regulations in India as the core reasons for the airline’s tepid growth and problems, experts opined that the reasons are mostly internal. However, during March 2016,  there was a change in the shareholding pattern of the partners, raising hopes of the stakeholders that AAI could fly smoothly and in the right direction.

AirAsia Berhad – The Parent Company

AirAsia Berhad (AirAsia Bhd), the Malaysian low-cost airline headquartered in Kuala Lumpur, was established in 1993, by government-owned DRB-HICOM and started its operations on November 18th 1996. In December 2001, the heavily-indebted ($11 million) company was bought by Tune Group Sdn Bhd for a token sum of one Ringgit. Tony Fernandes (Fernandes), CEO, AirAsia Group, bought the company, turned it around and made it the first highly successful budget no-frills airline.....

AirAsia India – The Launch

AirAsia India (AAI), a subsidiary of AirAsia Berhad, is an Indo-Malaysian low-cost airline headquartered in Bengaluru, India. The airline was formed on March 28th 2013, as a tripartite joint venture between AirAsia Berhad, Tata Sons Limited8 (Tata) and Telestra Tradeplace Pvt. Ltd. (Telestra) owned by Arun Bhatia (Bhatia) and commenced its operations in June the following year.............

Indian Civil Aviation

Civil aviation in India started with the commencement of the first domestic air route between Karachi and Delhi in December 1912, by the Indian Air Services in Collaboration with UK-based Imperial airways. Following this, many air transport companies tried their hand at carrying air cargo and passengers – Tata Sons Ltd. was one of the firsts that operated without any backing from the government............

AirAsia India: Bellwether Foreign Airlines in India

AAI was the first to gain from the reforms and became the first foreign carrier to enter the Indian civil aviation space since the government changed the FDI rules. In the process it paved way for other global players to enter the Indian aviation space. The start of AAI was expected to cause a price war among the players, an increase in air traffic and consolidation in the Indian aviation sector.............

Challenges for AAI

The announcement of AAI’s entry into India was expected to benefit the Indian consumers because of its pricing and marketing tactics; it was expected to change the face of aviation industry and disrupt the competitive Indian civil aviation market by waging a fierce price-war. But it was embroiled in problems since the beginning..........

Objections on AAI’s Entry

Soon after AAI got its FIPB clearance (March 6th 2013) to establish the airline in India, the Civil Aviation Ministry sought clarity on whether the FDI policy permits a foreign airline to invest in an existing Indian airline or a new one. The September 2012 policy, was interpreted to allow foreign airlines to invest in existing Indian airlines, while it was later clarified by some arms of the government to include both existing and new airlines.............

Pricing, Marketing and Operations Strategies

AAI’s strategy was to target the large pool of people who have never flown before, with very low fares. Fernandes announced that to quickly gain market share,  the price of its tickets would be a third less than its rivals30 and would be the number one differentiator for his airline. Chandilya backed it and said, “We would be disruptive in pricing. My competition is not the other airlines operating in this country. My benchmark is the first-class fare offered by the railways.”.............

The Disagreements Within

In the press conference held on July 3rd 2014, the statements made by the company officials indicated the internal disagreement. Chandilya spoke about how the company would achieve the break-even – by enforcing a low-cost discipline in the everyday lives of each of its staff; work with airports to reduce charges; go to places that no one has; increase frequency of flights and grow quickly.............

The Competition

AAI faced competition from other LCCs – IndiGo, Spicejet, Jet Lite, GoAir – and other FSCs operating in India. It stood seventh in terms of overall market share (Exhibit VI) in 2015, way lower compared to other LCCs and FSCs. But, by October 2015, it had performed better and garnered around 2% market share – still an insignificant amount. However, it performed much better in 2016 in terms of Pax (Passenger) Load Factor (Annexure IV), compared to its performance in 2015............

Money Matters

With high costs, aviation is a tricky business in India and needs over $100 million to start an airline, given the market structure and costs, opined an industry expert. Vistara and Jet Airways had invested more than $100 million, while the promotors of AAI thought that $30 million were enough for the regulatory process and starting the operations...........

Assignment Questions

I. AirAsia entered into India with a tripartite joint venture. Discuss and analyze the efficacy of its market entry strategy.
II. Given the nature and business dynamics of Indian Civil Aviation industry, what could be the reasons for AirAsia India’s questionable business performance? Was it due to its strategic missteps or due to the external business environment?
III. ............

Exhibits

Exhibit I: Evolution of Indian Civil Aviation Industry

Exhibit II: Profit/Loss Status of Airlines in India (FY-2012 and FY-2013)

Exhibit III: Market Share of Major Airlines in India 

Exhibit IV: FIA's Plea Against AAI's Entry

Exhibit V: AAI's Festive Discount Offer

Exhibit VI: Top 10 Airlines in India – 2015 (w.r.t Market Share)

Exhibit VII: AirAsia India Market Share

Exhibit VIII: AirAsia's Concerns

Annexures

Annexure I: AirAsia and Subsidiaries

Annexure II: AirAsia Berhad (Group) Financials (2011-2015)

Annexure III: AAI vs LCC Competitors (Routes, Schedule and Prices)

Annexure IV: Traffic and Operating Statistics of Indian Carriers on Scheduled Domestic Services

Teaching Note Preview

Turbulence at AirAsia India: Can it Turnaround?

 

Synopsis

AirAsia Berhad (AirAsia Bhd), a Malaysian low-cost carrier, operated nine subsidiaries in Malaysia, Thailand, Philippines and Indonesia, which included both Low  Cost Carriers (LCCs) and Full Service Carriers (FSCs). With its low-cost business model, it went on to become the largest LCC in South-East Asia. In 2013, with the intention of replicating its low-cost business model, it entered India through a tripartite joint venture with Tata Sons Ltd. (Tata) and Telestra Tradeplace Pvt. Ltd. (Telestra) and established AirAsia India (AAI). It was the first foreign airline entering into the Indian aviation space, after a change in the FDI rules (permitting 49%  stake by foreign company). Though it faced objection from the existing players and other entities, it successfully entered India and started its operations from  June 2014. At the time of AAI’s launch, its executives had promised that its fares would be a third less than the rivals, which would make air travel affordable to  common people. They also said that the airline would operate on the less popular routes and connect tier-2 and tier-3 cities.

Mittu Chandilya (Chandilya), CEO, AAI, had expected the airline to break-even in 4 months, but after 20 months of its operations his expectation did not come  true; instead, the airline was more into trouble. The airline had siphoned off the initial investment of $30 million and was surviving on advance sale of tickets.  There were disagreements among the partners regarding the infusion of more capital and managing the airline. In addition, few top-level executives left the  company owing to these issues. This case study enables the participants to look at the market entry strategies of AirAsia into India as a low-cost carrier and debate on the reasons for its failure and the ongoing problems. Why could not AirAsia’s low-cost model airline succeed in India (as it had in other countries)? Was it because of the external or internal factors? Can the airline make a turnaround?

Prerequisite Conceptual Understanding (PCU)/Before the Classroom Discussion

The students/participants should be asked to read the following article:

  • Michael E. Porter, “What is Strategy?”, http://cfe.unc.edu/pdfs/what_is_strategy.pdf, November-December 1996 – To understand that a company needs to have a  differentiating strategy and preserve it over a period of time to outperform its rivals

 

Case Positioning and Setting

This case study can be used in the MBA Program for:

  • Strategy Course – Market Entry Strategy – Challenges in designing and executing a wellintended and well-crafted market entry strategy of a joint venture in a regulated industry like airlines.

 

Assignment Questions

  • I. AirAsia entered into India with a tripartite joint venture. Discuss and analyze the efficacy of its market entry strategy.
  • II. Given the nature and business dynamics of Indian Civil Aviation industry, what could be the reasons for AirAsia India’s questionable business performance? Was it due to its strategic missteps or due to the external business environment?
  • ...........................................................
  • ...........................................................

$7.31
Rs 0
Product code: STG-1-0035, STG-1-0035A

Abstract

This case study, in the light of AirAsia’s Joint Venture operation in Indian domestic airline market, can be used to highlight the challenges involved in running a joint venture airline operation in India. It enables a discussion on the reasons for AirAsia's less-than-expected performance in India. Having launched AirAsia India (AAI) with great fanfare and expectation of revolutionizing Indian domestic aviation, the airline's performance nearly after 2 years has largely been anything but spectacular. A fairly successful low-cost airline in its home country (Malaysia), AirAsia Berhad, exported its business model successfully to other countries like Thailand, Indonesia and Philippines. With a view to repeat the same in India, it entered into a tripartite joint venture (holding a majority stake of 49%) with Tata Sons (30%) and Telestra Tradeplace (21%). However, after 20 months of its operations, AirAsia India was besieged with a few but substantial problems like mounting losses, differences among shareholders, cash crunch and exit of senior-level executives. Why could not the airline - that succeeded with its low-cost model in every country it entered - fly successfully in India? With only AirAsia, Tata Sons and two of Tata Sons’ ex-employees and currently AAI's board members coming to rescue (with a restructured joint venture), would AAI finally have a success recipe for India?



Pedagogical Objectives

  • To discuss and debate on the efficacy of AirAsia India’s market entry (launch) strategy with a tripartite joint venture
  • To analyze, given the nature and business dynamics of Indian Civil Aviation industry, the reasons for AirAsia India’s questionable business performance vis-à-vis the potential and debate on how much of such business performance was due to company’s strategic missteps and how much of it was due to systemic and structural reasons
  • To discuss and debate on all the possible ways for AirAsia India to regain its lost potential and become a notable and profitable Indian low-cost carrier

Case Positioning and Setting
This case study can be used in the MBA Program for the following:
Strategy CourseMarket Entry Strategy – Challenges in designing and executing a well-intended and well-crafted market entry strategy of a joint venture in a regulated industry like airlines.



This Case Pack Includes:
- Abstract
- Case Study
- Teaching Note (**ONLY for Academicians)
$7.31
Rs 0

Related products




Request for an Inspection Copy

(Strictly for Review Purpose, Not to be Used for Classroom Discussion/Trainings)