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June 27, 2017

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AirAsia sparks fare war with first India flight

NEW DELHI--Asia's biggest budget carrier AirAsia is set to make its maiden Indian flight this week, fuelling a cut-throat fare war in a sector already reeling from losses.

AirAsia India will take off Thursday with an eye-catching promotional fare of 990 rupees (US$17) for flights between high-tech hub Bangalore and the popular coastal resort of Goa — cheaper than a second-class train ticket.

"The price war has already begun and will only intensify in the lean July-September quarter," Amber Dubey, partner at global consultancy KPMG, told AFP.

The carrier's founder and chief executive Tony Fernandes — a millionaire ex-music executive who styles himself as Asia's answer to British tycoon Richard Branson — is a hardened discount-fare warrior.

But analysts warn that Fernandes could find the ride more turbulent than he reckoned in India, where no-frills carriers already dominate with a near 65-percent market share in the country of 1.2 billion people.

"India could be AirAsia's greatest test," said Kapil Kaul, head of India operations for the Centre for Asia Pacific Aviation (CAPA), a consultancy.

The company will start with just one plane — less ambitious than the three-to-four aircraft first envisaged — but aims to scale up to 10 planes and 10 cities by the end of the fiscal year in March 2015.

Malaysia-based AirAsia, whose net profit leapt 33 percent to 140 million ringgit (US$43.6 million) in the past quarter, is hoping to break even in India within four months through ambitious operational targets.

It plans to achieve an aircraft turnaround time — the time it takes to unload one set of passengers and board another — of 20 minutes, far lower than the 30-to-35 minutes of the best Indian low-cost airlines.

It also aims to have its plane flying 16 hours a day in contrast to the global industry level of 13, and significantly higher than the 12 hours achieved by AirAsia in the wider region. And it's looking at cutting costs by encouraging staff to multi-task.

The Indian launch of AirAsia "affirms India's reputation as a lucrative aviation market in the long run," Dubey said. Even though airlines are making losses at present, passenger numbers are expected to triple to 452 million by 2020-21, according to CAPA.

"But if an unbridled fare war continues... we may see financial distress increasing and the probable exit of one or two airlines in the next 12-18 months," Dubey warned.

Deep in the Red

All but one of India's half-dozen airlines are hemorrhaging losses, and AirAsia's plan to pitch its fares 30 percent below those of even low-cost rivals will create new strains.

The Federation of Indian Airlines made a final appeal last week to the new right-wing government led by Narendra Modi to stop AirAsia taking flight.

"While foreign investment needs to be encouraged, the same cannot be at the cost of the domestic industry," said the federation's associate director Ujjwal Dey.

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