Since he became the surprise choice of Tony Fernandes, group chief executive of AirAsia Bhd, a year ago to steer the Malaysian budget carrier’s Indian venture, Mittu Chandilya has often talked about revolutionizing the country’s aviation sector. As if to prove it wasn’t mere bravado, Chandilya unveiled a measure of that ‘revolution’ last week.AirAsia India, which is due to launch on June 12, said it will charge passengers for check-in luggage. Cancelled tickets will not earn a refund. Passengers cannot eat their own food on board.Revolutionary or not, these measures are radical. AirAsia’s low-cost competitors such as IndiGo, SpiceJet and GoAir allow 15 kg of check-in luggage. Indian passengers squirm when they have to pay for anything beyond.As for refunds, GoAir, for instance, deducts Rs 1,500 as cancellation fees from a passenger ticket and returns the balance. And yes, no airline in India is yet to stop you from digging into that sandwich you packed at home.

Chandilya, who previously advised the boards of airlines such as Singapore Airlines and Emirates on strategy, said it is through “little things” like these that he will transform Indian aviation.



Only, aviation regulator, the Directorate General of Indian Aviation (DGCA), didn’t see these measures in the same light. It has reportedly asked AirAsia, a joint venture between AirAsia Bhd, the Tatas and the Bhatias of Telestra Tradeplace, to roll back the baggage fees.

Chandilya is confident about pushing through these moves, adding that his airline has been transparent about the charges (on Saturday, the breakup of fares was taken off the AirAsia website, replaced with columns of various tiers of ‘regular fares’). “There is no rule that says we cannot introduce such a fee. We also notified the authority,” he said.“Discussions are on and a clear picture will emerge soon.” Convincing the DGCA might be easy, but coaxing passengers could be a different ball game. Face it — many Indians cannot start a trip without packing half their house hold items into a suitcase. Those who cannot travel light are not on the same page as budget airlines.As AirAsia itself purports, a low-cost carrier’s (LCC) job is to jet you from point A to B. “Everything else is considered” — should be considered — “a luxury or ‘frills’, which can be acquired for a small fee.”Airlines charge this ‘luxury’ — meals, checked bags, spacious seats and so on — and club the revenues under the head of ancillaries. Of course, on AirAsia’s inaugural flight from Bangalore to Goa, you needn’t succumb to thirst or hunger because the flight is just over an hour.Question is how many of us will head to a premier holiday destination with only sunglasses and a change of clothes. This might be possible if you are travelling alone, but what if your family accompanies you?Devesh Agarwal, who runs Bangalore Aviation, a website devoted to news and analyses on the aviation industry, said AirAsia’s strategy has so far been independent of ground realties. “It seems oblivious to the fact that Indian norms are different from what it practises abroad.”Chandilya’s defence, besides being transparent, is that the luggage fees are not very expensive, as low as Rs 199 for up to 15 kg if one books in advance (GoAir charges Rs 250 a kg for excess baggage).That means the decisive, swaying factor for passengers will be the base fare. Provided you grab AirAsia’s promotional fares, the total charges might be cheaper than what a rival airline has to offer despite its free check-in luggage up to 15 kg.Indeed, AirAsia’s 25,000 promotional seats were sold out within 48 hours of opening for booking. The first flight was sold out within 10 minutes of launch of sale, according to the airline.Truth is there will always be takers for cheap fares. Moments after AirAsia launched its promotional offer, Prashanth Chandran, a government official based in Delhi, tweeted that he is hoping that the airline starts flights to Kochi to end “the extortion of IndiGo”.AirAsia has stated its intent to operate from Delhi, reversing the decision to keep away due to the exorbitant airport charges.For now, it is content with a small start, its operations limited to one aeroplane, with two more to arrive in the next two months. It will shuttle between Bangalore, Goa and Chennai initially.The date of launch was sudden though, with a notice of two weeks (the airline received the permit to fly on May 7). Aviation consultancy Capa saw this as a strategy to catch rivals off guard. Chandilya said he was ready and had multiple dates but a person familiar with AirAsia’s operations said they did not want to keep the aircraft on the ground for too long because of leasing charges.Though these are early days, AirAsia has largely kept its promise of providing affordable fares. Chandilya firmly believes his fledgling airline will fundamentally change the way Indians fly. Even so, these are promotional fares — gimmicks as SpiceJet COO Sanjiv Kapoor calls them — and a limited scale of operations enables such offerings. What happens in the long run, when AirAsia expands?Costs have a habit of running amok and offering affordable fares consistently could then be a problem. There are limited levers for AirAsia India to be able to develop a transformational business model, according to Capa.“Fuel accounts for close to 50% of the operating costs of Indian carriers and there is little room to move on that front,” it said in a recent report. In the eyes of some experts, AirAsia has dived into an industry gutted by debts, losses and shutdowns. Chandilya displays no signs of nerves, however.His confidence stems from the ultra-lowcost model that AirAsia is following, which requires airlines to eliminate expendable costs.It means stuffing planes with seats, flying long hours with one type of aircraft (helps in maintenance, reduces training costs) and charging separately for goods and services, or ancillaries.LCCs also prefer direct bookings so that they don’t have to pay travel agents. They also raise ticket prices during peak seasons and reduce them during lean periods to improve yields.Southwest Airlines and Spirit Airlines of the US and Europe’s Ryanair are masters of this model. Small wonder then that they are the only carriers in the world to concover sistently report profits.Spirit has packed 178 seats in its Airbus A320 aircraft, 30 seats more than its competitor US Airways’ A320s. AirAsia is treading a similar path.In its A320, the airline has packed 180 seats, though it hasn’t bettered rival SpiceJet, which has 189 seats in its Boeing 737-800. But AirAsia has already shown a propensity to defy convention.By launching in June, AirAsia is heading into what is traditionally the weakest quarter of the year and a period that is often subject to operational disruptions due to monsoon storms, according to Capa.Yet, Capa’s South Asia CEO Kapil Kaul said AirAsia’s impact will be positive on Industry as well as the consumers.“AirAsia will be innovative, disruptive and aggressive but must focus on fundamentals, which is to create a sustainable lower cost base, deliver operational excellence and have a very targeted revenue management model.”Of the three objectives, a sustainable low-cost base will be key. Problem is Chandilya has set highly ambitious targets (see Tall Targets...).A 30% cheaper fare than competitors and aircraft utilization of 16 hours with turnaround times of 20 minutes are difficult, if not impossible, in Indian aviation, one of the most toughest markets in the world.SpiceJet’s Kapoor said average airfares in India and yields are very low already. “The only way (AirAsia can offer 30% cheaper fares) is some of the costs [aircraft, IT, maintenance, repair and operations] are not borne in India or are subsidized by the parent airline,” he said.Equally daunting are the targets in utilization (the time an aircraft is in the air) and turnaround times (between landing and take off ), despite the potential benefits. Improving turnaround times results in more frequencies.In their study “How to improve airport operation”, Antonín Kazda and Martin Hromádka wrote that from a marketing point of view, more frequencies mean more attractive schedules and eventually a competitive advantage.“From an economic point of view, more frequencies mean more passengers and more passengers mean more revenues.”GoAir has the best record here, with an aircraft utilization period of 13 hours a day. “Such an optimum utilization has been achieved with meticulous network planning and evolution over a period of time,” said the airline’s CEO Giorgio De Roni.Even Spirit boasts a turnaround of 30 minutes and its planes fly 12.7 hours a day. For AirAsia to fly as much or more, it has to launch flights at inconvenient times. Bangalore Aviation’s Agarwal said Indians take a 5.30 am flight only because they have a meeting to attend at say, 8.30 am.In other words, we don’t like to fly very early or very late. Shyson Thomas, who runs Décor Aviation, a ground-handling agency based in Bangalore, said to achieve a turnaround time of 30 minutes consistently is impossible. “It takes an airline 10 minutes to disembark passengers, 10 minutes to get people on board and another 10 minutes for catering, loading bags, cleaning etc.”But because airports are congested, a plane may not get landing clearance on time, which will lead to delays, he said. Chandilya said aircraft utilization is about managing teams and optimizing assets. But he is already talking about scaling back the turnaround time to 25 minutes.That is another stark reminder of the challenges AirAsia faces. Timothy Ross, head of Asia Pacific Transport Research, Credit Suisse, said AirAsia has not done well in foreign markets, except Thailand. “There too profitability has fluctuated. So there is nothing in their track record to suggest that they will turn profitable in India.”Still, he said AirAsia has correctly picked the south, where airports are less expensive and less congested. Competition too is less intense. AirAsia would also be tapping into a mix of business or holiday crowd. But there is the small matter of competition. AirAsia’s competitors have not only matched or undercut its inaugural fares but are also lobbying with the government to prevent its launch. No doubt, in an industry where margins are wafer thin, AirAsia’s rivals are sure to copy its radical moves.



“We will do whatever makes sense for us,” said SpiceJet’s Kapoor. Chandilya said his airline has little control over fuel, taxes, airport charges, aircraft leasing charges and the like. What he said he can control are wages and procurement charges, among other costs. Ancillary revenues could be the most important of them all.

Jay Sorensen of Idea-Works Company, an airline ancillary revenue consultancy, said AirAsia is one of the most effective carriers of producing such revenues. “They are innovative by producing new products, such as their 5-star service that charges a modest fee to provide extra care, comfort and convenience at airports,” he said.Why ancillaries are important is simple: the cheap fares that LCCs offer are offset by these charges. The average ticket-revenue-per-passenger of Spirit, for instance, fell from $94 to $75 between 2008 and 2012, according to a report by The Atlantic. But the fees charged from passengers for everything from boarding passes to drinking water have tripled since 2008. AirAsia would love to copy the move, but it faces regulatory hurdles. GR Gopinath, the pioneer of low-cost aviation in India, supported AirAsia’s methods.“Air travel has evolved over the years, but the DGCA is still stuck with archaic rules.” Bags are a costly component of air travel, said Gopinath. “Security checks, screening, lost claims, tags, loading, unloading all involve costs. Bags take up space, add weight and consequently contribute to fuel burn,” he said. In effect, passengers who are not carrying bags are subsidizing those who do. Spirit has since introduced even carry-on charges. The benefits are substantial.Besides the additional revenue, airlines are making planes lighter and saving on fuel by driving passengers to pack less. If an airline charges for boarding passes, fliers will print them at home, thereby allowing it to deploy fewer people to man check-in counters. Gopinath contended that there is nothing wrong if an airline is providing Rs 5 fares and adding Rs 200 for baggage. Customers are not stupid, he said.Vishal Mehra, an aviation enthusiast and frequent traveller, said being a value-conscious traveller, he would add the ancillary costs to the base fare of AirAsia, and then check the overall fare with that of other airlines. “If there is not much difference with the fares of Air India or Jet Airways, I will go with those airlines because they are full-service carriers. If AirAsia’s overall fares are the same as IndiGo or SpiceJet, I would choose the airline that offers the best time slots.”Discerning passengers like Mehra are legion. Those who routinely land cheap fares might find that they would have to do with uncomfortable seats — say, one that doesn’t recline, in the back. For seats with extra legroom, you have to pay extra. Thomas Abraham, a media professional who works for an advertising company in Singapore, said AirAsia’s base fare is great, but when you include the add-ons like baggage fees, it’s not that cheap anymore. “But the airline is great for people who can travel with a knapsack.”Nevertheless, Sharat Dhall, president, Yatra, an online travel agency, said cheap fares play a significant role in the buying decision of first-time and leisure travellers who are on a tight budget. That should bode well for AirAsia. On the day he launched AirAsia’s promotional fares, Chandilya tweeted: “Revolution has begun.” Participants of the revolution would have to travel thus: a pair of underwear, a pair of socks, a change of shirt, a tiny comb, toothbrush and toothpaste and a book. Get used to it. It is the future of air travel in India.