Rakesh Jhunjhunwala, an Indian business magnate and stock trader recently announced plans to invest in the airline business by announcing a new ultra-low cost airline company called Akasa Air.
His decision comes at a time when the aviation industry due to the pandemic has incurred significant losses and is continuing to do so. Airlines have been going through a situation of financial uncertainty which has even forced many to shut down and layoff a large number of people.
In these arduous times Mr Jhunjhunwala is all set to establish Akasa Air a low cost budget Indian airline with an initial investment of $35 million that will ensure him a 40% stake in the airline company which is said to have a fleet of planes that can onboard at least 180 passengers in the near future.
The big bull has very publicly announced his high ambitions, he hopes that his airline will have at least 70 aircrafts by the end of four years since commencement of operations. Just to give you a comparison of how ambitious is this dream, GoAir his competitor in the budget airline space took 15 years to achieve this milestone.
While being aware of the realities of this business advent, But Mr Jhunjhunwala has expressed his sincere confidence in his partners who happen to be some of the best in the industry coming all over the world and is sure they will help deliver and fructify this dream of his.
Former CEO of Jet Airways who also has work experience with Delta Airlines, Vinay Dube is said to be heading this venture alongside Aditya Ghosh, who spent over a decade with IndiGo airlines.
“I’m very, very bullish on India’s aviation sector in terms of demand. I’ve got some of the best airline people in the world as my partners. For the culture of a company to be frugal you’ve to start off fresh,” Rakesh Jhunjhunwala said.
IS THIS THE PROSPEROUS TIME TO INVEST IN AN AIRLINE COMPANY?
There is no doubt or question about the fact that presently the industry is doing poorly, in the past two years this sector has incurred losses that are estimated to be over $8 billion and it would take years to just recover these them and reach pre-covid levels. The situation is so bad that a few players such as GoAir is considering an Initial Public Offering only to pay off its dues and recover losses.
However, there is a opportunity as well and if you have the money then why the hell not. Right now thanks to the unprecedented pandemic the buyer of aircrafts has high bargaining power over the aircraft makers that is Boeing and Airbus because they are going through stiff competition and rough times.
Boeing had been hit even before the coronavirus pandemic came about largely due to flight failures and crashes that involved their 737 Max aircraft which resulted in grounding the aircraft and banning take offs for a period of 2 years in 2018. This ban led to a fall in demand and cancellation of orders for their aircrafts which further led to incurring huge Net losses.
Boeing went from earning a profit of $10.4 billion in 2018 to a loss going above $600 million in 2019. Apart from this delay in delivery of aircrafts worldwide has further dented their pockets by at least $12 billion in the pandemic year alone.
All of this gives Rakesh Jhunjhunwala exceptional negotiating and buying power over airline manufacturers. He can literally acquire an aircraft for half of the original cost price because these aircraft makers would be desperate and any fleet of orders is a blessing right now.
In the long run this business strategy would be saving Akasa a huge ton of money which is the exact goal of a low cost airline. And since this is going to be a low budget airline the ticket prices too would be much cheaper when compared to its peers therefore giving Mr Jhunjhunwala an opportunity to attract and capture a huge market when things start to turn upwards in this industry.
“It will be a long haul and the new airline will be very severely tested but the capitalization and the start team gives confidence that it is possible for them to be successful,” said Kapil Kaul, the Indian head of Center for Asia-Pacific Aviation .